Your point is certainly true. There is always a doubt regarding a government company that what will the government do! Just see the oil PSUs!! They had to pay extra taxes for supernormal profits, but all losses are for the company to bear (like the petrol and diesel price freeze causing 20-30k cr losses to ioc/hpcl/BPCL)
It’s true but at certain point the stock became to undervalued to overlook!! Like when it was quoting at 105-120 range by oct 2022.
It’s dividend has consistently risen and it was quoting at dividend yield of 10 percent at 105 (and 9 percent at 120) which was going to increase further. It was just distributing 25 percent of earnings! Psu or no psu we can see it was strictly better than FD. The same arguments can’t be made today. The dividend yield is 5 percent now, lower than 7.5 percent we can get easily in banks, I am not going to buy it as I am already carrying half the shares I bought at an average of 118
While I used to avoid PSU stocks as risky due to reasons which all of us talk about such as inconsistent growth in revenue and profit, frequent Govt policy changes etc,
However, over a period of time in the market, i realised that stock investment itself is risky whether it is PSU or non- PSU stock.
Even best of the reputed pvt corporates (Non-PSU stocks) with very high P/E also had Corporate Governance issues , tax raids , CFO / Auditor resigning all of a sudden , Inconsistent growth in revenue and profit qoq/yoy and such events were leading to steep fall in share prices. There are many such examples- not taking names here.
Moreover , in spite of excellent growth in revenue and profit , dividend yield of such corporates are extremely low. And some of them were not at all paying dividend over several years
So , i realised there is no reason to be happy with a sound balance sheet.
keeping this in mind I started investing in select PSU stocks with high dividend yield since Covid days of 2020.
Apart from dividend yield , I was trying to identify PSU stocks which have potential for capital appreciation.
During this process , identified some PSU stocks made 3 baskets- one for Defence , another for Railway and the 3rd one for Renewables ( my renewables include PFC & REC)
Happy to share that the entire PSU basket which consists of 30% of my portfolio has given me 3X return ( capital appreciation only - dividend additional) over last two and half years which I am trying to prune now.
In my view , If the Govt continues with it’s current policy of Capex spends for infrastructure building , sticks to made in India theme, the PSU stocks may continue to do well. However , the valuations may not sustain if the Govt makes a u turn in its policy.
Disclaimer: Not a buy or sell recommendation. please do your own assessment before investing.
How is that a value trap? And it was also growing fundamentally
These are very subjective statements and completely depend upon the investment thesis and duration.
I entered REC when the price was 100 and exited sometime back. So I think I can freely comment here.
Why I exited REC and haven’t came back yet
Every investment comes with the cost of going wrong. In certain PSUs, this cost is a very good reason to look somewhere else. And, it’s not like investors cannot make money somewhere else - even in the same sector.
Example: Power Mech Projects, has gone 4-6 times in the last 2-3 years. I entered and exited in between.
(In my experience, once people realize that one can still make money even after missing PSUs, the debate ends)
What is a value trap: Stocks are value stocks UNTIL they become a trap. By looking at the present, one can always debate if xyz is a value or a trap. But it will be a never-ending debate - unless we look at the past.
What past tells us: Whenever a government owns or controls a sector too much, the industry/business is often inconsistent, and thus, predicting the business outlook (topline, margin, capex, policies etc) is very difficult. This often is reflected via the low valuation multiples. Whether it was gov owned IRCTC or a sector such as gaming (say Delta Corp), what seemed value/growth overnight became a pain.
Risks: There was a reason why xyz business had a low valuation a few years back. In a bull market, it’s easy to look beyond the past track record. But is it justified? Only investors can decide. In my experience, it gets difficult to decide whether to ADD or EXIT after a 10-15% correction. If the thesis goes wrong not only does one lose the earnings but also puts the invested capital at risk.
Risk v/s reward: One can still generate returns while reducing one risk (i.e. cost of going wrong). There are examples other than Power Mech. An investor has to decide his own risk v/s reward appetite.
Disclaimer: Certain stocks may be in my portfolio and I may change my views anytime. Anything I say is NOT a BUY/SELL recommendation. Please do your own research and do not go by my words. I am not responsible for anyone’s gains or loss. Also, I have edited my answer a few times, because the words were coming right - as I wanted them.
price now reflects too much optimism - pfc/rec lend to predominantly to state enterprises - now they are going to infra financing…they have been on adowntrend on NPAs but will reverse soon.
i had a exceptional run with great yield and price appreciation (2.5X over 3 years) but have to trim substantially…but a big investor like prashanth jain are buying in his new PMS
PFC had very good bull run … but seems for last couple of days failing to cross its new high… i m nt expecting it to cross just saying… the problem with Govt companies is that due to constant change of policies govt stocks were unable to perform in long term… and investors unable to hold for long terms… so the question is - now that its almost certain that election results are not going to make much difference… and hoping govt policies will be same/constant… will PFC going to grow for next few years… until the term end… any views…
Disc : invested long back for dividend… still holding…
The days of explosive growth in terms of Share price is over.
But at around 300-350 Rs and 6-6.5 PE with approximately 10% EPS growth( i am considering on high base) can PFC/REC provide a consistent overall return over next 5 years with lets say 10% - 15% CAGR + 3-5% DY.
Rather than running around buying hydrogen/smart meter/transformer small caps at 80-100 PE.
I felt Power Finance was a good buy especially as compared to IREDA. My stand was, when both are in the same sector,i.e., fianancing power companies, why rate IREDA so high.
Power Finance is however in a downward tailspin, having fallen from ₹469 in Feb to ₹363 yesterday.
Anybody tracking it? The fall is because, like all the PSUs, it had gone up rather fast, and is saner now, or some fundamental reasons?
Disclaimer: Booked some loss yesterday, watching.
PFC was looking overvalued in February / January 2024 with P/B > 1.5, which is much higher as compared to its 3-5-10 year Median P/B of about 0.75.
I think, such overvaluations in PSU NBFC was looking stretched hence the necessary correction seems to have happened. There is no fundamental reason as its Gross NPA are under control as reported in Q3 FY24.
Market was in a hurry to factor further improvement in its Gross NPA and hence the overvaluation was there, which seems to have been rationalized now.
It has compounded its Net Profits at 30% CAGR where as Share Price has has gone up at over 55% CAGR in past 3 years, indicating that Market has re-rated it due to Gross NPA reduction but it seems that now some rationalization is happening in its share price.
Disclosure: I was holding it from low levels but decided to book profits in Feb 2024.
just saying… the problem with Govt companies is that due to constant change of policies govt stocks were unable to perform in long term… and investors unable to hold for long terms… so the question is - now that its almost certain that election results are not going to make much difference… and hoping govt policies will be same/constant… will PFC going to grow for next few years… until the term end… any views…