Top 5 High-Growth PSU Stocks in India: A New Era of Efficiency and Profitability

Public Sector Undertakings (PSUs) in India have long been regarded as inefficient and bureaucratic, but in recent years, this perception has undergone a significant change. Historically, PSUs were seen as slow-moving entities, but recent trends have shown otherwise. Indian PSUs are now making impressive strides, especially in the stock market. In fact, PSU stocks have been outperforming India’s S&P BSE Sensex for the past five years, showcasing their newfound momentum.

The S&P BSE PSU index continued to outperform the Sensex in 2024, marking a consistent shift towards profitability and efficiency across sectors like defense, energy, and banking. A key driver behind this turnaround has been the government’s reforms aimed at enhancing corporate governance. These reforms have prioritized transparency, better decision-making processes, and an emphasis on delivering shareholder returns.

The Indian government, in its February 2024 budget, outlined a shift in policy towards PSU value maximization, signaling further potential growth in this sector. Let’s delve into the top 5 PSU stocks in India by growth, examining their financial performance and future prospects.

1. ONGC (Oil and Natural Gas Corporation)

ONGC, India’s largest crude oil and natural gas producer, accounts for 71% of domestic oil production and 84% of natural gas output. Over the past three years, ONGC’s sales have grown at a Compound Annual Growth Rate (CAGR) of 29.7%, while its profit grew at a staggering CAGR of 38.8%.

In FY 2023-24, ONGC posted its highest-ever standalone net profit of Rs 405.3 billion, along with a consolidated net profit of Rs 571 billion. The company also declared a record dividend payout of Rs 154.1 billion. The rise in profits was mainly attributed to increased income from interest, dividends, and exceptional items.

ONGC’s future growth is bolstered by its strategic investments. The company invested Rs 370 billion in capital expenditure (capex) in FY24, achieving its highest utilization, excluding acquisitions. To address declining production from mature fields, ONGC has implemented well interventions and new drilling activities.

In addition to its domestic success, ONGC’s subsidiary, ONGC Videsh, is finalizing a 0.6% stake acquisition in the Azeri Chirag Gunashli (ACG) oil field in Azerbaijan, further boosting its overseas production. The company is also planning a major refinery and petrochemical complex in Uttar Pradesh with an investment exceeding Rs 700 billion, designed to process nine million tons annually.

2. Coal India Limited (CIL)

Coal India Limited (CIL), the largest coal producer in the world, primarily serves the power and steel industries, while other consumers include the cement and fertilizer sectors. Over the last three years, CIL’s sales have grown at a CAGR of 19.5%, and its profit soared at a CAGR of 43.3%.

In FY 2023-24, CIL achieved record profits, driven by unprecedented production, operational efficiency, and improved offtake. The company posted a pre-tax profit of Rs 488.1 billion and a net profit of Rs 373.6 billion.

CIL is also making significant strides in the renewable energy sector. It has invited bids to install a 300 MW solar PV project in Gujarat, aligning with the company’s shift towards cleaner energy. Furthermore, CIL has removed restrictions on coal procurement for power plants, allowing them to purchase as much coal as needed, a move that is expected to increase coal supply in the face of fluctuating demand.

3. Indian Railway Finance Corporation (IRFC)

Indian Railway Finance Corporation (IRFC) is the financial backbone of the Indian Railways, funding asset acquisition and infrastructure development. Over the last three years, IRFC’s sales have grown at a CAGR of 19.1%, while profits grew at a CAGR of 13.2%.

IRFC’s unique model of financing Indian Railways at the lowest possible cost has made it a standout PSU. The company’s operating expenses are among the lowest in the industry, standing at just 0.09% of total income. IRFC’s low-risk business model, coupled with zero non-performing assets (NPAs), ensures consistent financial performance.

With the Indian government announcing a massive Rs 7 trillion investment in rail infrastructure, IRFC is poised for significant growth. The company is exploring new opportunities, including dedicated freight lines, high-speed rail corridors, and investments in renewable energy sources for railway operations.

4. NTPC (National Thermal Power Corporation)

NTPC, India’s largest power generation company, has an installed capacity of 75.9 GW across its 89 plants as of March 2024. The company is engaged in bulk power generation, with additional businesses in consultancy, project management, energy trading, and coal mining.

Over the past three years, NTPC’s sales have grown at a CAGR of 19.1%, while profits have grown at a CAGR of 13.2%. The company’s average tariff was Rs 4.61 per unit in FY 2023-24, compared to Rs 4.89 in the previous fiscal year. NTPC’s electricity generation increased to 361.7 billion units in FY24, reflecting higher power demand due to extreme weather conditions in India.

NTPC is also focused on enhancing India’s energy security, planning to add a thermal capacity of 15.2 GW in the near future. With both domestic and international coal supply agreements, NTPC is well-positioned to meet the growing power demand in India.

5. State Bank of India (SBI)

State Bank of India (SBI) is India’s largest and oldest banking institution, with a history of over 200 years. It is also a Fortune 500 company. Over the last three years, SBI’s sales have grown at a CAGR of 16.5%, and its profit grew at a remarkable CAGR of 44.1%.

In the fourth quarter of FY 2023-24, SBI reported its highest-ever standalone quarterly net profit of Rs 206.9 billion, driven by non-interest income growth and reduced operating expenses. The bank’s asset quality is the strongest it has been In nine years, showcasing its financial stability.

SBI is also actively involved in financing both public and private sector projects, with a sanctions pipeline of Rs 4,000 billion. Its surplus statutory liquidity ratio holdings stood at Rs 3,500 billion, adding to its robust financial position.

Conclusion: The Changing Landscape of Indian PSUs

The transformation of India’s PSUs over recent years presents an intriguing growth story for investors. With strong government reforms, improved corporate governance, and a focus on operational efficiency, these companies have shown remarkable financial performance.

Although challenges and uncertainties remain, the overall outlook for PSUs appears promising. With increased foreign institutional investor (FII) interest and a shift towards long-term value creation, Indian PSUs are set to play a crucial role in the country’s economic growth story.

Disclaimer: This article is for informational purposes only. It is not intended as a stock recommendation.