Top 10 Fundamentally Strong PSU Stocks Which Could Benefit from Modi 3.0

If you go back and see the history, 1-2 months prior to national elections, Indian share markets have given an opportunity to investors to buy stocks and enhance their investment portfolio.

It would mean continuity of policy and stable governance framework if the current ruling party comes back to power for the third term.

In that case, here are the top ten fundamentally strong PSU stocks that you should add to your watchlist for 2024.

#1 State Bank of India (SBI)

First on our list is State Bank of India (SBI).

State Bank of India is one of the largest and oldest banks in India with over 69 years of history. SBI is a fortune 500 company headquartered in Mumbai.

Presently the bank operates a network of 22,542 branches 63,580 ATM's across India. It also operates 82,932 business correspondent outlets in India.

SBI is India's most trusted bank with a market share of more than 22.55% in deposits and 19.06% market share in loan advances. It has a strong customer base of more than 500 m customeRs

The company also boasts a market share of 29.26% in ATM's and almost 25% market share in debit card spends in India. SBI is present across 29 countries as of year ended March 2024.

Coming to the financial performance, SBI's loan growth remained strong during the March quarter marking its strongest performance in over eight quarteRs

Going forward, company's management guides to achieve 13-15% loan growth with consistent improvement in asset quality.

State Bank of India also has a lot of subsidiaries which are still to be demerged having potential to unlock value through separate listed entities.

Some of the names are SBI Capital Markets Ltd, SBI Funds Management Pvt Ltd and SBI General Insurance Ltd.

The stock is up more than 38.5% in the last one year due to strong operational performance.

#2 Bank of Baroda (BOB)

Second, on our list is Bank of Baroda (BOB)

Bank of Baroda is engaged in providing various financial services such as personal banking, corporate banking, international banking, small and medium enterprises banking, rural banking, and treasury services.

It is the third largest public sector bank with a 63.97% stake of government of India. In FY2019, Bank of Baroda was amalgamated with Vijaya Bank and Dena Bank.

The bank operates a network of 8,243 branches in India and 94 branches overseas with 35% branches operating in rural areas. Company also operates roughly 11,475 ATM's in India.

It's current loan book stands at Rs 10.9 trillion (tn). 42.3% of the loans are advanced to corporates, 28.3% to retail, 15.4% agriculture loans, and 14% to MSME loans.

Coming to the financial performance, BOB's domestic deposits grew 7.7% and domestic advances grew 12.9% with a stable asset quality.

Company is planning to double its total business (deposits plus advances) to 48 tn in next five yeaRs This translates to about 13.5% CAGR growth rate.

The management has emphasised that they will not sacrifice the net interest margins for the sake of this growth. To achieve this, the bank is planning to add almost 650 branches in a couple of yeaRs

The bank recommended a dividend of Rs 7.6/- per share for FY23-24.

Bank of Baroda stock is up 41.2% in the last one year on the back of stable financial performance.

#3 Engineers India Ltd (EIL)

Third on our list is Engineers India Ltd (EIL).

Engineers India Ltd provides consultancy and engineering services. It undertakes turnkey contracts which includes complete range of project services right from project conceptualization, planning, design, engineering, procurement, construction, and commissioning for the client.

The company operates in various industries such as petroleum refining, petrochemicals, pipelines, oil & gas, terminals & storages, mining, infrastructure, water and waste management, city gas distribution, power, and steel.

As of December 2023, the company's revenue mix stands at 56% revenue from turnkey business and 44% revenues from consulting business.

Also, as of December 2023, company's order book stands at Rs 79.9 bn of which consultancy orders make up 59% and the balance 41% order book is from turnkey projects.

Going ahead, EIL guides to maintain order inflow of at least Rs 40-50 bn per year.

Coming to the financials, EIL has guided for a 10% growth in turnover and profit after tax with an increased focus on international markets.

Its debt-to-equity ratio stands at 0.01x. The government holding is stable at 51.32%.

Shares of Engineers India are up 19.7% in the last month. Also, the stock is up more than 153% in the past year.

#4 Bharat Petroleum Corporation Ltd (BPCL)

Fourth, on our list is Bharat Petroleum Corporation Ltd (BPCL).

BPCL is a public sector company engaged in the business of refining crude oil and marketing of petroleum products.

The company has refinery locations in Mumbai, Kochi, and Bina, Madhya Pradesh and operates 14-15% of the total refining capacity of the country with a total capacity of 35.3 MMTPA.

BPCL owns 82 retail depots and operates ~ about 20,000 retail outlets across India commanding a market share of 26% in the domestic petroleum market.

The company also owns and operates 54 LPG bottling plants and serves over 90 m customers with a market share of 27%.

BPCL's strategic reduction in debt, annual capex of Rs 110 bn, and enhanced refining efficiency have helped the company post better results.

The company pays dividends consistently and has a pretty decent dividend yield. In the latest result, company also announced bonus shares in the ratio of 1:1.

Its debt-to-equity ratio stands at 0.72x. The government's holding is also comfortable at 52.98%.

Shares of Bharat Petroleum are up 4.9% in the last month. Also, the stock is up more than 71% in the past year.

#5 REC Ltd (REC)

Fifth on our list is REC Ltd (REC).

REC is a central public sector undertaking under the Ministry of Power. It is involved in financing projects in the power sector value chain from power generation to power distribution.

The company offers services such as loan for generation projects, loan for transmission projects, loan for distribution projects and term loans for working capital requirements of the power sector companies.

In its business performance update, company reported highest ever loan disbursements and sanctions. Its loan sanctions in FY24 grew by 37% on a YoY basis to Rs 3.6 Tn.

It's current loan book outstanding is divided as follows: 42% loans to power distribution, 29% loans to power generation, 8% loans to renewables including hydro and balance to otheRs

Recently, REC has diversified its portfolio with a mandate of up to 33% loans to the infrastructure and logistics sectoRs

The recent RBI guidelines which increased the provision to be set aside for projects under construction do not apply to most of REC's loans because those projects come with a government guarantee.

REC has a promoter holding of 52.6% as of March 2024. Shares of REC Ltd are up 26% in the last month. Also, the stock is up more than 308% in the past year.

#6 Bharat Heavy Electricals Ltd (BHEL)

Sixth on our list is Bharat Heavy Electricals Ltd (BHEL).

BHEL is an integrated power plant equipment manufacturer engaged in design, engineering, manufacture, erection, testing, commissioning, and servicing of a wide range of products and services for the core sectors of the economy.

It services sectors such as power transmission, transportation, renewable energy, oil and gas and defence.

The company derives 76% of revenues from power sector and the balance 24% revenues from industrial sector (transportation, renewables, defence, aerospace, energy storage, etc.)

BHEL has its footprints in 88 countries across 6 continents in the world. Company recently entered into a strategic partnership agreement with HIMA Middle East, Dubai for railway signalling business.

As on 31 December 2023 company's order book stands at Rs 1.1 tn, up 137% YoY. BHEL is diversifying its order book and has recently in consortium with Titagarh Wagons won Vande Bharat order to supply 80 trainsets and service them for 35 yeaRs

The company has 14 R&D centres established across India. It has consistently spent ~2.5% of total sales towards R&D over yeaRs

The company is also working on taking cost control measures and reducing receivables with an increased focus on cash flow.

Shares of BHEL are up by 14.4% in the last month. Also, the stock is up more than 261% in the last year.

# 7 PowerGrid Corporation of India Ltd (PGRID)

Seventh on our list is PowerGrid Corporation of India Ltd (PGRID).

Power Grid Corporation of India is a Maharatna CPSU and India's largest electric power transmission company.

The company moves large blocks of power from the central generating agencies and areas that have surplus power to load centres within and across regions. It is under the administrative control of the Ministry of Power, Government of India.

Power Grid plays a vital role in the development of India's power sector. It owns 85% of inter-state transmission network and carries 45% of power generated in India.

The company derives 89% of revenues from transmission charges, 1.2% from consultancy, 1.8% from telecom and balance revenue from other segments.

Power Grid operates 172,192 kilometres of transmission lines across 264 sub-stations with strong operational efficiency recording more than 99% system availability.

The company's strong project implementation capability should ensure that projects of strategic importance involving difficult terrain or such complexities, will continue to be awarded to the company on nomination basis.

Power Grid is also promoting electronic mobility by installing fast EV charging stations across the country. They operate 16 public EV charging stations at Delhi, Gurugram, Hyderabad, Ahmedabad, Bengaluru, Kochi and Kozhikode.

Shares of Power Grid are up by 13.9% in the last month. Also, the stock is up more than 73% in the last year.

# 8 GAIL

Eighth on our list is GAIL.

Incorporated in 1984, GAIL is an integrated natural gas company in India. It owns over 11,500 km of natural gas pipelines and over 2,300 km of LPG pipelines.

Additionally, it also owns six LPG gas processing units and a petrochemicals factory.

The company contributes 50% of the natural gas sold in India, operates 74% of the total natural gas transmission pipelines and operates 42% of India's CNG stations.

It has a 15% market share in the domestic Petrochemical segment with a capacity of 1,090 KTA.

For FY24, company has a planned capex of Rs 105 bn and Rs 89 bn for FY25. Going ahead, GAIL targets to expand natural gas pipeline to over 20,000 kms and 3,000 CNG stations across India.

GAIL also stands to benefit out of peak electricity demand in summer as the Ministry of Power might consider invoking an emergency rule to run gas-based power plants in the summer in a bid to ensure uninterrupted electricity supplies.

Shares of GAIL have declined by 5% in the last one month. However, the stock is up more than 75% in the last year.

# 9 Life Insurance Corporation of India Ltd (LIC)

Ninth on our list is Life Insurance Corporation of India Ltd (LIC).

LIC is the largest insurance provider company in India. It has a market share of above 66.2% in new business premium.

The company offers products such as unit-linked insurance plans, saving insurance products, term insurance products, health insurance, annuity, and pension products.

LIC has the largest individual agent network among life insurance entities in India, comprising approximately 1.37 million individual agents. It has 2,130 branch offices and 1,584 satellite offices covering 92% districts in India.

LIC is the largest asset manager in India with assets under management of Rs 49.6 tn as of March 2023. Its investments in listed equity represented around 4% of the total market capitalization of the NSE.

With a range of new non-par policies in its pipeline, LIC seems confident of increasing its market share in the times to come. Enhanced focus on digital initiatives is likely to drive customer acquisition and servicing.

Shares of Life Insurance Corporation of India have been flat over the last month. However, the stock is up more than 72% in the last one year.

# 10 Coal India Ltd

Last on our 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. Operations of the company are spread across 8 states in India.

Company also aims to set up 3GW capacity of solar power projects by FY26. Company targets to achieve 1 billion coal production by FY26.

While Coal India shares have gained 3.3% in the last month, the stock has witnessed a significant increase of 94.3% over the past one year.

Conclusion

Predicting the outcome of the elections can be challenging, but as they say, good news and good prices don't often come together.

Investors can make use of the election volatility and build a solid portfolio of fundamentally strong companies at lower prices.

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...