Best PSU stocks to buy in India 2021

Are PSUs worth Investing

What is a Public Sector Undertaking (PSU)?

PSUs are government-owned enterprises in India. The PSUs, or public sector undertakings, are inextricably linked to the economy’s core sectors and have been instrumental in successfully developing the country’s industrial base.

These companies are wholly or partly owned by the Government of India or one of the many state or territorial governments or both together in parts. Usually invested into major or core sectors of the economy. The PSUs play a dominant role in a growing economy such as India.

The core sectors of the economy are critical in the nation-building process, as they set the tone for the economy. Core sectors such as Finance, Mining, Capital goods, Infrastructure, Oil, Coal, Power Metals, and other core areas.

PSU companies currently have a combined market capitalization worth exceeding Rs 10 lakh crore. PSUs regularly contribute significant sums in the form of dividends, excise duties, customs duties, and corporate taxes to the government of India.

Union Finance Minister Nirmala Sitharaman has announced significant reforms to Public Sector Undertakings (PSUs), which will likely result in a major merger and disinvestment of India’s some of the largest PSUs.Β 

The government is expected to announce a new PSU policy that will prioritize privatizing PSUs in order to create much-needed efficiency in such non-strategic sectors. This is a positive step because it allows for greater private competition in certain markets and consolidates the major network of numerous PSUs. However, these bold declarations will unlock significant value only if they are quickly translated into action.

Hence, we can say that if there was a time to Invest in such PSUs then the time is now. PSUs until today were managed by such management to create not much efficiency. But, due to their monopolistic nature. The humongous share they own in the market is non-negligible. 

PSU companies are a preferred investment option for two types of investors;

  1. Dividend – Dividend Investing is when an investor buys a particular stock in order to receive a regular income stream from the said stock investment via dividends. PSUs are known for their generosity when it comes to dividends. In fact, PSUs account for some of the highest dividend-paying companies in India.Β 
  2. Safe return – PSUs are known for their stagnant return over years due to various reasons such as inefficiency and mismanagement. But, there are some companies that provide reasonable returns with little to no risk.Β And, with the recent privatization step up by GOI, there seems to be a brighter future for the PSU companies.

Is it good to buy PSU stocks in India?

Yes, It is the right time to start investing in selected PSU shares in India. Indian companies are having a structural change and that will reflect on the company’s performance. Earlier, PSUs were termed inefficient and laggard companies. But, that is changing thanks to proactive governance and changing policies to attract and promote efficiency.

PSUs, or public sector enterprises, are inextricably linked to the economy’s main sectors and have been instrumental in effectively developing the country’s industrial foundation. The government of India owns a majority stake in these enterprises. The core sectors of the economy are critical in the nation-building process, as they set the tone for the economy. Finance, coal, capital goods, infrastructure, oil, power, metals, and mining are the core sectors.

PSUs are disproportionately influenced by changes in government policies. How much ownership the government intends to sell in the future is inextricably linked to the fiscal deficit, which has traditionally acted as a drag on stock prices. Economic development and infrastructure development are inextricably intertwined in the country, as economic progress is impossible without the development of infrastructure.

So, investing in PSU is like handing over your money to a government organization. It is used optimally, you can expect to refelt the efficiency on stock m[price and ultimately make money off your investment.

Highest Dividend Paying PSU company in India:

Following are some of the highest dividend-paying PSU companies in India.

  1. Coal India – Dividend yield at 8.19%
  2. Power Fin Corporation – Dividend yield at 8.16%
  3. ONGC – Dividend yield at 8.19%
  4. GAIL – Dividend yield at 4.31%
  5. Power Grid Corporation – Dividend yield at 4.29%

Best PSU stocks to buy for Long-Term:

These are the best PSU companies to own for Long-Term.

  1. IRCTC – IRCTC is a Mini Ratna (Category-I) Central Public Sector Enterprise under the Ministry of Railways, Government of India. And is the only PSU in our portfolio. IRCTC is the only organisation permitted by the Indian Railways to sell railway tickets online, provide railway culinary services, and sell bottled drinking water at railway stations and on train travels.
  2. SBI – The State Bank of India is India’s largest and oldest bank, having existed for over 200 years. It is included in the Fortune 500. It is an Indian multinational corporation and the statutory authority for banking and financial services with its headquarters in Mumbai.Β 
  3. Coal India – Coal India Limited is primarily engaged in the mining and production of coal, as well as the operation of coal washing plants. The company’s primary customers are the power and steel industries. Other sectors’ consumers include cement, fertilisers, and brick kilns.

Top 15 PSU companies in India:

Sl.NoCompany NameSectorCMPDividend YieldDividend IncomeROCE %ROE %P/EEV/EBITDAPEGROCE 5 YrsROE 5 Yrs
1BPCLCrude Oil448.453.68Rs. 16.58.210.4722.069.11-6.0318.4522.81
2Coal IndiaCoal148.158.19Rs. 1273.0857.037.163.371.7864.9945.53
3GAILOil & Gas153.154.19Rs. 6.419.9719.268.126.760.3415.5312.59
4HPCLCrude Oil2653.68Rs. 9.755.2311.144.45.210.2517.6926.09
5IOCOil & Gas1024.03Rs. 4.254.954.166.366.79-2.5114.9514.96
6IRCTCRailway1762.10.68Rs. 12.562.8544.14136.2780.014.2252.2134.3
7IRFCFinance23.05--5.9313.198.1619.2---
8LIC Housing FinanceFinance449.851.78Rs. 89.1113.898.2311.290.729.5716.31
9NTPCPower111.552.81Rs. 3.159.778.828.626.9814.138.3911.35
10ONGCOil & Gas114.254.31Rs. 510.627.1314.335.19-3.7715.1310.96
11Power Fin. CorpNBFC115.68.16Rs. 9.58.9114.763.2811.030.0949.9816.02
12Power Grid CorpTransmission228.44.29Rs. 1011.5317.259.536.640.599.9115.36
13Rail VikasRail Infrastructure29.33.89Rs. 1.1411.8515.847.138.580.4110.5514.57
14RailTel CorpTelecom128.05--17.8113.221.949.76---
15SBIBanking383.1--4.996.7916.6720.13-26.464.942.49

Note: The series doesn’t amount to the quality of the company. It is arranged in alphabetical order.

These are in my opinion the best PSU stocks in India for 2021. Best PSU stocks to invest in for retail investors. And, are some of the best dividend-paying PSU stocks too.

  • Dividend Yield – Percentage of yield over investment one can expect.
  • Dividend Income – Amount of income an investor would receive on a per-share basis.
  • ROCE % – Return on Capital Employed in percentage, per-annum.
  • ROE % – Return on Equity in percentage, per-annum.
  • P/E – Price to Earnings ratio.
  • EV/EBITDA – Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization expenses.
  • PEG – Price to Earnings Growth ratio.
  • ROCE 5 Years – Return on Capital Employed in percentage, 5 years average.
  • ROE 5 Years – Return on Equity in percentage, 5 years average.

BPCL

Bharat Petroleum Corporation Limited is a public sector company that is engaged in the business of refining crude oil and marketing petroleum products. With a Market capitalization of over 95k crore. It is one of the largest crude refining companies in India.

The company is valued at a comfortable valuation. And, debt to equity at 1:1.23. The company’s interest coverage is 6.34 times. Thus, with a reasonable cash position. But, the company’s operating efficiency, the performance is not up to mark hence the same can be seen in its stock price.

Coal India

Coal India Ltd 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, brick kilns, etc. With a Market capitalization of over 90k crore. It is one of the largest, if not the only coal producing company in India.

The company is known for its generous dividend payment yielding at over the FD rates. The company is undervalued. And, debt to equity at 1:0.13. The company’s interest coverage is at an amazing 30.27 times. Thus, with a more than a healthy cash position. 

However, India took a historic step toward ending the state’s monopoly on coal mining and sales by auctioning 41 mines across the country, allowing private companies to enter the sector. This will have an effect on Coal India’s monopoly status.

GAIL

GAIL (India) is engaged in the business of Oil and Gas Exploration and Production to increase access to gas supplies through equity and joint venture participation. With a Market capitalization of over 67k crore. It is one of the largest gas-producing companies in India.

The company is valued at a comfortable valuation. And, debt to equity at a mere 1:0.12. The company’s interest coverage stands at 25.03 times. Thus, with more than sufficient cash position. And, the company’s operating efficiency, the performance figures are in double-digit. 

HPCL

Hindustan Petroleum Corporation is engaged, primarily in the business of refining crude oil and marketing petroleum products. The Corporation has, among others, refineries at Mumbai and Visakhapatnam, LPG bottling plants, and Lube blending plants. The Corporation’s marketing infrastructure includes a vast network of Installations, Depots, Aviation Service Stations, Retail Outlets, and LPG distributors.

With a Market capitalization of over 37k crore. The company stands amongst its peers holding at 4th position. 

The company is undervalued. And, debt to equity at a mere 1:0.88. The company’s interest coverage stands at 8.78 times. Thus, with a reasonable and sufficient cash position. And, the company’s operating efficiency, the performance figures are considerably higher if compared amongst its peers. 

IOC

Indian Oil Corporation is engaged in Refining, Pipeline Transportation, and Marketing of Petroleum Products, Research and Development Exploration & Production, Marketing of Natural gas and Petrochemicals. With a Market capitalization of over 99k crore. It is the largest Oil refining retailer PSU company in India.

The company is undervalued. And, debt to equity at a mere 1:0.94. The company’s interest coverage stands at a decent 4.0 times. Thus, with a reasonable and sufficient cash position. And, the company’s operating efficiency, the performance figures are not up to its market position. That clearly justifies its demand for the stock price.

IRCTC

Indian Railway Catering and Tourism Corporation (IRCTC) is a Mini Ratna (Category-I) Central Public Sector Enterprise under the Ministry of Railways, Government of India. It is an extended arm of the Indian Railways. With a Market capitalization of under 30k crore. It is the only company that can run and operate Indian railways. Thus a clear monopoly.

The company is clearly overvalued. And, is a zero-debt company. The company’s interest coverage stands at an amazing 40.56 times. Thus, with an incredible cash position. And, the company’s operating efficiency, the performance figures are extremely favorable. That clearly justifies its demand for the stock price and hence such a high valuation. IRCTC is also my favorite PSU company and is the only PSU company I have invested in in my portfolio.

If you are interested to know more about my Portfolio. Click this link!

IRFC

IRFC is the financing arm of Indian Railways. It borrows funds from the financial markets to purchase assets which are then leased out to the Indian Railways. Just as IRCTC, IRFC also holds a clear monopoly status. And, is valued at just over 30k crore in market capitalization.

The company is fairly valued. And, debt to equity at 1:7.57 (not alarming for the company is a financing arm and such valuations are the norm). The company’s interest coverage stands at 1.37 times. The company is the only financing arm for IRCTC. If not for the railway business. There would be no need for the company’s existence. 

LIC Housing Finance

LIC Housing Finance is engaged in the business of providing finance for purchase, construction, repairs, renovation of houses/buildings. With a Market capitalization of under 23k crore. It is India’s largest such business under the PSU category. 

The company is fairly valued. And, debt to equity at 1:9.58 (not alarming for the company is a financing arm and such valuations are the norm). The company’s interest coverage stands at 1.26 times. The housing finance market is fully taken up by HDFC and the peers hold no stand in the business.

NTPC

NTPC is primarily involved in the generation and sale of bulk power to State Power Utilities. Other business includes providing consultancy, project management & supervision, energy trading, oil & gas exploration, and coal mining. With a Market capitalization of over 100k crore. It is amongst India’s largest power utility companies. 

The company is valued at a comfortable valuation. And, debt to equity at 1:1.61. The company’s interest coverage stands at mere 3.32 times. Thus, with a reasonable cash position. And, the company’s operating efficiency, the performance figures are comparatively low in regards to its market peers performance. 

ONGC

ONGC is the largest crude oil and natural gas company in India, contributing around 71 percent to Indian domestic production. The company surely commands a monopolistic status. With a Market capitalization of over 146k crore. It is India’s largest Crude and natural gas company. 

The company is valued at a comfortable valuation. And, debt to equity at a mere 1:0.5. The company’s interest coverage stands at 3.86 times. Thus, with a reasonable cash position. And, the company’s operating efficiency, the performance figures are comparatively high for a company with such a huge market share. It’s valid to say that the company has reached its saturation point.

Power Fin. Corp

Power Finance Corporation (Govt. of India undertaking) is engaged in the business of extending financial assistance to the power sector and is a Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC) registered with Reserve Bank of India (RBI) as an Infrastructure Finance Company (IFC). With a Market capitalization of over 30k crore. It is India’s largest PSU NBFC.

The company is visibly undervalued. And, debt to equity at 1:90.81 (not alarming for the company is a financing arm and such valuations are the norm). The company’s interest coverage stands at 1.37 times. Thus, with a reasonable cash position. And, the company’s operating efficiency, the performance figures are reasonable but are no match for private entities performance.

It is to be noted that the company’s dividend yield is extremely favorable and over and above usual FD interest rates.

Power Grid. Corp

Power Grid Corporation of India is principally engaged in planning, implementation, operation, and maintenance of Inter-State Transmission System (ISTS), Telecom and consultancy services. With a Market capitalization of over 122k crore. It is India’s largest such business under the PSU category. 

The company is valued at a comfortable valuation. And, debt to equity is a bit high at 1:2.01. The company’s interest coverage stands at mere 2.90 times. Thus, with a below-reasonable cash position. And, the company’s operating efficiency, the performance figures clearly show inefficiency.

Rail Vikas

Rail Vikas Nigam is engaged in the business of implementing various types of Rail infrastructure projects assigned by MoR including doubling (including 3rd/4th lines), gauge conversion, new lines, railway electrification, major bridges, workshops, Production Units, and sharing of freight revenue with Railways as per the concession agreement entered into with Ministry of Railway.

The company is valued at just over 6k crore. The company is visibly undervalued. And, debt to equity is at 1:0.88. The company’s interest coverage stands at an amazing 38.14 times. Thus, a healthy cash position. And, the company’s operating efficiency, the performance figures are comparatively better in regards to its business peers.

RailTel Corp

RailTel is a “Miniratna” PSE of the Government of India focusing on providing broadband and VPN services. With the objective of creating nationwide broadband, telecom and multimedia network, to modernize train control operation and safety system of Indian Railways. RailTel’s network passes through around 5,000 stations across the country, covering all major commercial centers.

The company is valued at just over 4k crore. The company is fairly valued at its recent IPO. And, debt to equity is at a mere 1:0.03. The company’s interest coverage stands at an amazing 47.54 times. Thus, a healthy cash position. And, the company’s operating efficiency, the performance figures are comparatively better in regards to its business peers.

SBI

State Bank of India 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. With a Market capitalization of over 340k crore. It is India’s largest PSU Bank.

The company is visibly undervalued. And, debt to equity at 1:14.37 (not alarming for the company is a financing arm and such valuations are the norm). The company’s interest coverage stands at 1.16 times. Thus, with a reasonable cash position. And, the company’s operating efficiency, the performance figures are reasonable but are no match for private entities performance.

Final thoughts:

Investing is termed risky. For it has always been so for those who invest without the knowledge or with half information. Investing is a serious business and must be considered so. If one feels that he/she is not capable enough to do the required amount of homework before investing. It’s highly suggested to hand over the hard-earned savings to professionals who know what to do with it.

Private companies have a sense of responsibility. A sense of owing-up-ness that the public enterprises lack. When it comes to PSU entities, It is clearly evident that the same in most cases lag behind their Private (listed, non-government) competitors.

With that being said, it’s highly suggested for retail investors to not invest in Public sector companies. Those companies where the government holds commanding equity.Β 

Investing in PSU just for their Dividend income. Then, FD return or β€œAAA”, β€œAA” rated corporate bonds and treasury bonds are favorable options. Hence, unless absolutely sure about the company’s future prospects, It’s highly suggested to not invest in such a company. Or, if need to invest, see to that the portfolio allocation is PSU entities are not more than 10% of the entire portfolio.

Disclaimer: All the information on this website is published in good faith and for general information purpose only.

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