Will PSU Stocks Rule Once Again in 2024? Top 5 PSU Companies to Watch out...

The Modi led BJP government has always adopted a pro-business stand and with the help of schemes and policies, favored PSU stocks in particular.

The proof is in the pudding as most of PSU stocks registered good gains in FY24.

The Indian economy, projected to be the fastest growing in the world, is expected to attract a lot of foreign money this year. This could keep PSUs in focus.

But the main question now is will we see a similar rally in PSUs like we did last year?

If so, you should keep these 5 PSU stocks on your watchlist...

#1 Coal India

At the top of the list is the largest coal-producing company in the world, Coal India Ltd.

The company mines and produces coal and operates coal washeries.

Its major consumers are from the power and steel sectors, although it also serves other sectors like cement, fertilizers, and brick kilns.

Coal India leads the country's coal production, contributing to around 80% of the nation's entire coal output.

When it comes to financial performance, the company's revenue has grown at a Compound Annual Growth Rate (CAGR) of 13% in the last three years.

The revenue growth was attributable to the increase demand for power and coal.

Meanwhile, the net profit has grown at a CAGR of 19% in the last three years.

The company pays a steady amount of dividends and currently has a dividend yield of 5.3%.

It boasts a P/E ratio of 9.4x, which is much lower than the industry average and that of its peers.

It has significant capital expenditure (capex) plans for FY25 and it plans to increase capex further by FY26, which includes solar projects, railway lines, and coal gasification projects.

The management is optimistic about maintaining double-digit growth in production and dispatches, which could improve sales and profit growth.

During the first nine months of FY24, the company recorded its highest-ever 9-month PBT and PAT, indicating a favourable likelihood of rewarding its shareholders generously.

While Coal India shares have gained 8.7% in the last month, the stock has witnessed a significant increase of 102.8% over the past one year.

#2 Mazagon Dock Shipbuilders

Second on this list is Mazagon Dock Shipbuilders.

Mazagon Dock Shipbuilders (MDL), located in Mumbai, is a well-known shipyard in India. MDL started as a small dry dock and has now developed into a renowned shipbuilding company.

It primarily manufactures vessels for the defence sector and has so far built 802 vessels, including 28 warships ranging from advanced destroyers to missile boats, and 7 submarines.

MDL's revenue has grown at a CAGR of 17% in the last three years, while the net profit has grown at a CAGR of 37% in the same period.

Consequently, the company has generated strong returns with a 3-year average Return on Equity (RoE) and Return on Capital Employed (RoCE) of 23.3% and 30.5%, respectively.

Moreover, the company has achieved this growth without incurring any debt.

For the third quarter and for the 9-month period ended December 2023, MDL registered the highest-ever profit.

The company is planning heavy capital expenditure for its dry dock over the next 2.5 years, which could lead to higher sales and bottom-line.

Additionally, MDL is making efforts to export offshore patrol vessels to countries in Southeast Asia, Latin America, and Africa.

Shares of Mazagon Dock Shipbuilders have increased by 12.2% in the last month and 210.4% in the last year.

#3 Container Corporation of India Ltd

Third on our list is Container Corporation of India.

Container Corporation of India (Concor) is a company that provides inland transportation of containers by rail and manages ports, air cargo complexes, and cold chains.

As on March 2024, Concor operates 66 terminals: 4 pure EXIM, 35 combined container, 24 pure domestic, and 3 strategic tie-ups.

However, the company has faced disruptions in EXIM volumes due to the impact of the Red Sea.

The management anticipates growth in FY25, particularly with the commissioning of the dedicated freight corridor (DFC) up to Nhava Sheva.

The company has signed various MoUs to develop LNG pumps with IGL, solar energy products with NTPC Vidyut Vyapar Nigam at terminals, and to expand services in EXIM and domestic segments with M/s DB Schenker.

The management expects a positive outlook for the company, with a shift from road to rail.

In terms of financial performance, the company's revenue and net profit have grown at a CAGR of 8% over the past three years.

Concor shares have decreased by 7% in the last month. Nonetheless, the stock has increased by 60.9% in the last year.

#4 Rail Vikas Nigam Ltd

Fourth on our list is Rail Vikas Nigam Ltd.

Rail Vikas Nigam Ltd, incorporated by the Government of India in 2003, undertakes diverse railway infrastructure projects assigned by the Ministry of Railways.

The projects include doubling, gauge conversion, new lines, railway electrification, major bridges, workshops, production units, and revenue sharing agreements with the Railways.

The company has signed an MOU with REC for project financing and plans to remain asset-light while exploring new opportunities.

In terms of financials, the three-year compounded growth in sales stood at 12%, while the net profit of the firm saw a compounded increase of 23% over the past three years.

The company aims to achieve a turnover of Rs 200-220 bn with a bottom-line growth strategy.

It aims to maintain an order book three to four times the turnover. It also expects new orders of Rs 250 bn annually.

The company is optimistic about future growth in revenue, order book, and profitability over the next few years.

It is actively pursuing export business in neighbouring countries and other regions such as Bangladesh, Sri Lanka, Maldives, and Africa.

Shares of RVNL have increased by 2.1% in the last month and 222.7% in the last year.

#5 Bharat Electronics Ltd

Fifth on our list is Bharat Electronics Ltd.

Incorporated in 1954, Bharat Electronics Ltd (BEL) specializes in manufacturing and supplying electronic equipment and systems to the defence sector.

The company also has a limited presence in the civilian market.

BEL is a diverse conglomerate providing a range of products and systems to India's armed forces, including radars, missile systems, communication, electronic warfare, naval systems, and more.

Apart from catering to the domestic market, it exports its products to several countries, including Botswana, Indonesia, Sri Lanka, Russia, the US, and South Africa.

It has nine manufacturing facilities and four research and development (R&D) facilities in India which help the company cater to its client's requirements and innovate its product offerings.

It is one of the biggest beneficiaries of the government's decision to put defence items under import embargo.

In terms of the financial performance, the revenue has grown by 11% compounded annually over the past three years, while the net profit saw an increase of 18%.

The company is expecting orders worth Rs 500 bn in the next two years.

Additionally, they have a capital expenditure plan ranging from Rs 7 bn to Rs 8 bn for the next two years.

The stock price has seen a 24.1% rise in the last month and a massive 131.1% growth in the past year.

Snapshot of Top PSU Stocks on Equitymaster's Stock Screener

Here's a snapshot of the above companies on various parameters:

Please note, these parameters can be changed accordingly.

Equitymaster's powerful BSE/NSE Stock Screener allows you to screen Indian stocks based on both pre-set and your own criteria.

In Conclusion

Predicting the market can be challenging, but there are some reasons to feel optimistic about PSU stocks.

Firstly, PSU companies are under government control, which gives shareholders confidence to invest in them even when the macroeconomic outlook is uncertain.

The government plans to increase capital expenditure in the next financial year.

Although private capex is still uncertain, the finance minister has raised the capex outlay for FY25 by 11.1%, amounting to approximately Rs 11.11 tn, which is 3.4% of the gross domestic product.

However, PSU's often experience slower growth compared to their private counterparts. Remember the challenges before diving headfirst.

Investing in PSU stocks can offer high rewards but comes with significant risks. Any major policy or decision changes can have a significant impact on PSU companies.

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...