How did they do it?

INVESTORS ARE GENERALLY SOMEWHAT wary of public sector undertakings. The reasons are not too hard to find. These companies often operate in near-monopoly environments, but the managements are rarely empowered, which negates the positive effect of a monopoly. And then, of course, is the fact that corporate governance is often conspicuous by its absence. The government, which is the owner or majority shareholder in these companies, often ends up milking them dry.

Unlike the private sector, state-owned listed companies rarely impress investors with multi-bagger opportunities. A simple comparison of BSE 100 companies with the 22 listed PSUs tells the story better. The total market capitalisation of the BSE 100 grew by 40% in the three years ended December 2014. The listed PSUs, in the same period, saw an 18.9% increase in market cap.

Seems like a no-brainer for any investor—until you factor in dividends. At Rs 20.5 a share, the dividend yield on Coal India’s closing share price of Rs 395.45 works out to 5.18%. At 11.55%, the dividend yield was the highest among the 39 listed companies on our list of India's 50 most profitable PSUs.

Away from Coal India, which enjoys a clear monopoly, if you compare State Bank of India and ICICI Bank, the later has delivered 6.25% compounded annual growth in its market capitalisation in the five years ended 2014, whereas State Bank of India grew just 1.65%. The average dividend yield of ICICI Bank was lower by 0.33% compared to State Bank of India during the same period.

Similarly, if you were to compare Steel Authority of India and Tata Steel, the later has been juggling between profit and loss over the past five years, while Steel Authority of India has been profitable despite a declining trend in its profits which is mirrored in its dividend outgo as well.

A quick look at government financials shows that dividends and profits from public sector undertakings grew at a compounded annual growth rate of 16.93% in five years, from Rs 25,241 crore in 2009-10 to Rs 55,178 crore in 2013-14. Interestingly, capital receipts from disinvestments, which have lingered during these years, have been far lower in comparison to dividends.

It's not dividend and profit alone that define PSUs. In the pages ahead, we look at specific parameters that help to understand how well a PSU is doing. These include market capitalisation, where ONGC is the clear leader; asset efficiency, where Bharat Petroleum takes the lead; and cash riches, led by (who else?) State Bank of India.