Little headroom...

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sectors saliencePSUs None manageare rightof showingthe now.to scale downstream“So demandup even their if capacity right now, the spare economy capacity with and it will saddle evena furthermore deteriorationmetrics,” Sinha in said. their The financial listed non-oil PSUs together had reported return on equity( R oE) of 4.7 per cent in FY17, slightly up from 4.4 per cent a year ago, but much lower than the yield on government bonds of 6.7 per cent. The ratio was 7.9 per cent three years ago and 13.2 percent at the peak in FY07. Oil PSUs such as Oil and Natural Gas Corporation and Indian Oil reported slightly better RoE of 8.9 per cent in the previous fiscal year. However, at these RoEs, the management would have little confidence to make fresh commitments to new projects.

PSUs’ ability to takes risks

has also weakened in recent years due to a steady decline in their cushion of cash reserves and retained earnings (net profit minus equity dividend). Cash and bank balances of 36 listed PSUs halved in the past three years to ~1.04 lakh crore in FY17 as they have repeatedly dipped into it to pay special dividends in recent years. There was a mild revival in the profitability and retained earnings in FY17, led by oil PSUs and the recent rise in metal prices. Analysts also said additional capex in the current environment could lead to indebtedness creating financial problems for them in the longer term. All 36 listed PSUs together made fresh capex of ~60,700 crore last fiscal year, up from ~45,000 crore a year ago. This was largely led by oil PSUs, while non-oil PSUs reported a sharp decline in capex to around ~ 25,000 crore in FY17, Fresh capex is, however, being largely funded through additional debt with the gross debt-equity ratio for non-oil PSUs rising 0.96 times in FY17 from 0.72 in FY14 and around 0.4, 10 years ago.