Top 5 PSU Stocks in India by Growth

Traditionally, Indian public sector undertakings (PSUs) were synonymous with terms like inefficient, bureaucratic, and sluggish. However, the tables have turned and how!

In a significant development, PSU stocks have been outperforming India's benchmark stock index, the S&P BSE Sensex, for the past five years. Surprisingly, it's not only the banks but the entire PSU basket that seems to be doing well, especially the defence PSUs.

This trend has continued throughout 2024, with the S&P BSE PSU index outperforming the Sensex.

The turnaround can be attributed to a series of corporate governance reforms implemented by the government. These reforms have focused on increased transparency, improved decision-making processes, and a greater emphasis on shareholder returns.

In the February 2024 budget, the Modi government openly discussed a shift in policy in favour of PSU value maximization.

So, we ran an interesting query on the entire basket of PSU stocks to see which companies have emerged at the top if compared on their growth metrics...

Here are the top 5 PSU stocks in India by growth.

#1 ONGC (Oil & Natural Gas Company)

ONGC is the largest crude oil and natural gas company in India, contributing around 71% to the Indian domestic production and 84% to the natural gas production.

The company's sales have grown at a compounded annual growth rate (CAGR) of 29.7% over the last three years while its profit has grown at a CAGR of 38.8%.

Coming to FY 2023-24 performance, the company posted the highest-ever standalone net profit of Rs 405.3 bn and the highest ever consolidated net profit of Rs 571 bn and it even declared the highest ever total dividend payout of Rs 154.1 bn.

The steep rise in net profit was on account of the increase in the other income, i.e. interest, dividend, and exceptional items.

The company made a total of 11 discoveries during the year. ONGC drilled 541 wells, the highest recorded in the past 34 years comprising 103 exploratory and 438 development wells.

The company invested around Rs 370 bn capex in FY24 thus achieving the highest ever utilisation excluding acquisitions .

To counter the decline in production from some of the matured and marginal fees, ONGC is taking proactive steps by implementing well interventions and advancing new well-drilling activities.

ONGC's overseas subsidiary, ONGC Videsh, is expected to finalise the acquisition of a 0.6% participating interest in the offshore Azeri Chirag Gunashli (ACG) oil field in Azerbaijan from Equinor. An increase in the stake in the ACG oil field is expected to add to the company's overseas crude oil production.

Looking ahead, ONGC is also planning to set up a major refinery and petrochemical complex in Uttar Pradesh, with the goal of capitalising on the rising demand for fuel. The proposed facility will be designed to handle nine million (m) tons annually, ONGC is looking at an investment exceeding Rs 700 bn.

To know more, check out ONGC's financial factsheet.

#2 Coal India

Coal India (CIL) is mainly engaged in mining and production of coal and also operates coal washeries. The major consumers of the company are the power and steel sectors. Consumers from other sectors include cement, fertilizers, and brick kilns.

The company's sales have grown at a compounded annual growth rate CAGR of 19.5% over the last three years while its profit has grown at a CAGR of 43.3%.

Outshining all its previous records, the group achieved unprecedented profitability driven by record production, offtake, and operational efficiency during the financial year 2023-24. During the fiscal year, it registered a pre-tax profit (PBT) of Rs 488.1 bn and a net profit of 373.6 bn.

CIL has invited bids to install and commission a 300 MW (AC) ground-mounted solar PV project on a turnkey basis at Khavda Solar Park in the Indian state of Gujarat. The 300 MW solar capacity was won by CIL in Gujarat Urja Vikas Nigam's auction to supply power from 600 MW of grid-connected solar power projects (Phase XXI) to be set up at Khavda Solar Park.

The company has lifted all restrictions on the amount of coal that power generation units can procure, allowing power plants with fuel supply agreements (FSA) to acquire as much fossil fuel as they need. The new policy is expected to benefit power plants seeking to lift higher quantities of coal beyond their stipulated ACQ while enabling CIL to increase its coal supply when demand shows signs of slowing.

To know more, check out Coal India's financial factsheet.

#3 IRFC (Indian Railway Finance Corporation)

Indian Railway Finance Corporation borrows funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways as finance lease.

The company's sales have grown at a compounded annual growth rate CAGR of 19.1% over the last three years while its profit has grown at a CAGR of 13.2%.

The company raises funds at the lowest possible cost among the term lending institutions in India. It charges a minimal spread of 0.4% on rolling stock and 0.35% on project assets to MoR.

IRFC also has a history of zero NPAs and no tax liability.

The company is exploring opportunities to invest in railway infrastructure projects, including dedicated freight lines, high-speed rail corridors, multi-modal logistics parks, and non-conventional energy sources for the railway network.

Additionally, it is in discussions with government-sector infrastructure finance companies for co-lending opportunities.

The government recently announced a massive investment of around Rs 7 trillion (tn) for the development of rail infrastructure. This has benefitted railway PSUs like IRFC.

IRFC has been giving consistent financial performance over the years.

The company's operating expenses are quite low, about 0.09% of total income, which is one of the lowest in the industry.

To know more, check out IRFC's financial factsheet.

#4 NTPC (National Thermal Power Corporation)

NTPC along with its subsidiaries/associates & JVs is primarily involved in the generation and sale of bulk power to state power utilities. Other businesses of the group include providing consultancy, project management & supervision, energy trading, oil & gas exploration, and coal mining.

It's the largest power-generating company in India with a total of 89 plants having an aggregate installed capacity of 75.9 GW as of March 2024.

NTPC has both long-term and short-term coal supply agreements with domestic companies and foreign suppliers like Coal India and Singareni Collieries Company.

As part of the company's overall energy security plans, it is actively considering awarding a thermal capacity of 15.2 GW in the near future.

Coming to its financials, NTPC's sales have grown at a compounded annual growth rate CAGR of 19.1% over the last three years while its profit has grown at a CAGR of 13.2%.

The company's average tariff was Rs 4.61 per unit during fiscal 2023-24 compared to Rs 4.89 per unit a year ago.

During fiscal 2023-24, the gross electricity generation of NTPC rose to 361.70 BU (billion units) from 344.27 BU amid higher power demand due to scorching high temperatures in the country.

NTPC Group's installed power generation capacity stood at 75,958 MW as of 31 March 2024.

To know more, check out NTPC's financial factsheet.

#5 SBI (State Bank of India)

State Bank of India (SBI) is a Fortune 500 company. It is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai. It is the largest and oldest bank in India with over 200 years of history.

The company's sales have grown at a CAGR of 16.5% over the last three years while its profit has grown at a CAGR of 44.1%.

SBI reported its highest standalone quarterly net profit at Rs 206.9 bn in the fourth quarter due to robust growth in non-interest income, including treasury income, tight rein on operating expenses, and write-back in standard asset provisions and other provisions.

The bank has a sanctions pipeline of Rs 4,000 bn, with private sector entities accounting for 75% of these sanctions and the public sector accounting for the rest. Surplus holding of statutory liquidity ratio securities stood at Rs 3,500 bn.

What's more, SBI showcased its strongest asset quality in nine years.

To know more, check out SBI's financial factsheet.

Snapshot of Top PSU Companies on Equitymaster's Stock Screener

Here's a table showing the above companies on various important parameters -

Data Source: Equitymaster Stock Screener

In Conclusion

The recent transformation of Indian PSUs presents a compelling story for investors. Backed by government reforms and a focus on operational efficiency, these companies are delivering improved financial performance and attracting greater investor interest.

While some uncertainties remain, the overall outlook for PSUs appears promising, with the potential to play a significant role in India's economic growth story.

Signs such as increased FII holdings point to a visible 'change in mindset', with a focus on creating long-term value in PSUs rather than short-term gains.

Since PSU stocks interest you, check out our recent editorial where we explained why PSU stocks are falling.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...