Top 10 Indian Government Stocks for Explosive Growth in 2024

Lately, there has been growing chatter around whether the current rally in PSU stocks over the past one and half years is mainly driven by speculation, or we are in one of the largest PSU bubbles ever.

Many professional media experts are calling the current rally unsustainable. For perspective, the S&P BSE PSU index has given an impressive 44% return this year. This is 3x the return of the Sensex.

Individual stocks have done even better, with some of them earning multibagger returns in a matter of 1-2 years.

While it's easy to say that it's all a bubble and we should be liquidating all our investments based on the current trend, it's possible that we could be missing the other side of the story.

For instance, the current market environment is the best for government owned stocks. This can be seen in the recent uptrend in the market as election results have started pouring in key states.

If the government continues its huge capex plans at the same pace that we've seen in the recent months, the market could further award premium valuations to government stocks.

With that in mind, let's look at the top government stocks that could see big moves in 2024.

#1 Life Insurance Corp (LIC)

First on this list is LIC, one of the largest and oldest insurance companies in India.

LIC has the largest individual agent network among life insurance entities. Its competitive advantage lies in its strong market presence, robust business traction, and its individual agent network.

LIC has seen a sharp improvement in its profitability in 2023 due to changes in surplus distribution.

Ever since its IPO launch and subsequent debut of shares, the company's stock price never managed to retest its IPO price until now. But the stock has rebounded strongly in the past one month on the back of strong growth prospects.

The rally comes after LIC's plans to launch 3-4 new products over the coming months to push growth in its new business premium (NBP).

Apart from launching new products, the company is also going to provide loan facility and premature withdrawal as a feature of the new product.

Note that the current rally comes after months of underperformance due to its subdued quarterly earnings. Even in the most recent Q2 show, the company failed to enthuse investors and posted a 50% decline in net profit to Rs 79.3 billion (bn).

LIC is also investing actively in the technology upgrade to provide effective services, particularly to the urban population. With the under penetration of insurance and improving financialisaton of savings, LIC is expected to maintain its market leadership position.

However, it's currently facing challenges such as declining market share and lower short-term persistency ratios.

#2 Coal India

Next on the list of top PSU stocks is Coal India.

This 'Maharatna' company contributes 80% of the country's coal production. It supplies more than 80% of its production to the power sector.

The company was one of the most unloved stocks due to its prolonged period of underperformance. However, in the past 3 years, the performed has steadily improved.

This comes after investors realised that coal is here to stay and remain a critical part of India's economy, despite the government shifting its full focus on renewable energy.

With demand on the rise and Coal India being the largest coal supplier to the Indian power sector, there's a good chance that the company might continue its good run in 2024 as well.

On top of this, India is currently scouting the globe for valuable mineral resources like lithium.

Coal India has been meticulously strategising its foray into the mining sector to tap into these essential materials. It's planning to diversify operations and target the acquisition of lithium, cobalt, and nickel assets abroad.

Coal India is investing somewhere around Rs 15-20 billion (bn) per annum towards capex for the next three years. This capex is intended to increase its coal mining and washing capacity, improve its rail infrastructure, and set up thermal and solar power plants.

It also plans to improve the efficiency of transporting coal by investing in first-mile connectivity projects. This will ultimately reduce its logistics cost.

Earlier this week, the company reported a marginal increase in its capex for the April-November period to Rs 104.9 bn.

At the end of financial year 2023, the company's free cash flows stood at Rs 200 bn, one of the highest among its peers in the industry. This makes Coal India a top contender to declare a massive dividend in FY24.

#3 Chennai Petroleum Corporation

Third on the list is Chennai Petroleum Corporation (CPCL). The company is engaged in the business of refining crude oil and manufacturing lubricating oil additives.

Being a part of the Indian Oil Corporation (IOC) group and the only south Indian refining company of IOC, it has operational benefits with respect to crude oil import.

Its locational advantage ensures there is low demand risk, which helps the company strengthen its presence in the southern market.

Coming to its financials, it has demonstrated consistent improvement with revenue growing at a CAGR of 15.4% between 2019-23, driven by healthy growth in demand and volumes. It also became profitable and reported its highest-ever net profit of Rs 35 billion (bn) in the financial year 2023.

The company reduced its debt-to-equity ratio from 2.2x in the financial year 2020 to 0.3x in the financial year 2023.

Chennai Petroleum Corporation currently has a refining capacity of 10.5 metric tonnes per annum (MTPA). It is adding another 9 MTPA along with IOC. The company's investment will be around Rs 25 bn, which it plans to fund through equity and debt.

Despite a sharp run-up in its share price in 2023, shares of CPCL are currently trading at single-digit price-to-earnings (P/E) ratio of 3.5x and price-to-book value (P/BV) of 1.3x.

#4 IRCTC

Fourth on this list is IRCTC.

Indian Railway Catering and Tourism Corp (IRCTC), which entered the primary markets by listing in October 2019, enjoys a strong monopoly. It has 100% market share in the rail network.

IRCTC is the only entity authorised by Indian Railways to offer online railway tickets. The company charges convenience fees in the range of Rs 15-30 per ticket. It's also the only entity authorised to manage catering services on trains and major static units at railway stations.

The company also enjoys a monopoly in packaged drinking water. It's the only entity authorised by the Ministry of Railways to distribute packaged drinking water at all railway stations and trains under the 'Rail Neer' brand.

IRCTC has seen a sharp jump in online ticketing volumes over the past decade. Having a monopoly in railway ticketing, it fetches operating margins as high as 80% compared to barely 10% and 20% margins in the catering and packaged water businesses.

After trading in a tight range throughout 2023, shares of IRCTC have rebounded in the past one month.

The underperformance could also be attributed to the weak show in Q1 of FY24. But it was back to reporting good numbers starting the second quarter of 2024.

For fuelling future growth, the PSU company has lined up a slew of offering on air ticket bookings, etc. It has tied up with Devyani International and Zomato for multiple offerings.

The company is looking to increase the number of trains for which it provides catering services to drive growth. It's also commissioning new Rail Neer plants to increase production capacity.

IRCTC is set to see increasing demand as the government plans setting up more railway lines.

Furthermore, the company anticipates tourism to improve, led by the increase in travelling and the introduction of new Vande Bharat trains.

#5 Balmer Lawrie Investments

Next on the list is Balmer Lawrie Investments. The government enterprise is a major stakeholder of Balmer Lawrie & Co.

Balmer Lawrie Investments is an NBFC operating in the financial services industry. The company is currently under the control of Ministry of Petroleum & Natural Gas.

In 2023 so far, shares of the company have gained 20%.

Investors usually consider this company as a pure-dividend play as it has rewarded shareholders with big dividends over the years.

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The company holds over 60% in Balmer Lawrie and receives crores of dividend every year, adding to its strong cash flow.

For the September 2023 quarter, the company reported a net profit of Rs 640 million, which is the highest in the past nine quarters.

It has steadily improved its performance in the past five years and boasts of a respectable ROE and ROCE of 44% and 46%, respectively.

At the current price, the company trades at a PE multiple of 7.6x compared to its 5-year average of 8.4x. It's also trading at a single digit price to book value multiple of 0.85x.

#6 Tanfac Industries

Next on this list is Tanfac Industries. The company was incorporated in 1974 by Tamil Nadu Industrial Development Corporation (TIDCO) as a joint sector company.

In 1980, the Aditya Birla group along with the government of India became the co-promoter with a 25% stake. In 2022, Aditya Birla decided to sell its entire stake to Anupam Rasayan.

Tanfac Industries is amongst the leading producers of hydrofluoric acid and its derivatives. These products find applications in industries such as aluminium smelting, petroleum refining, solar cells, electronics, etc.

The company's business has improved since Anupam Rasayan acquired a stake in it, resulting in multiple synergies.

With its established presence in the fluorochemicals segments, Tanfac has now become strategically important for Anupam Rasayan.

Tanfac Industries is coming off back-to-back years of profit growth in FY22 and FY23 and looks set to surpass the peak profits owing to healthy demand for speciality fluorides and hydrofluoric acid.

In 2023 so far, shares of the company have zoomed over 190%!

#7 Mazagon Dock Shipbuilders

Next on this list is Mazagon Dock. The company is engaged in manufacturing warships, submarines, cargo and passenger ships for the defence sector. It also undertakes ship repairing activities.

Shares of the company have been in demand in 2023 owing to its healthy order book, raising prospects of strong future growth.

As of September 2023, the company's order book was around Rs 375 bn. This is to be executed by the financial year 2026. The company is expecting to report peak revenue and profit by then.

It has major contracts, such as Project-17A frigates, Project-15B destroyers, and Project-75 submarines, in its order book.

In addition, it has signed a Memorandum of Understanding (MOU) with Germany's Thyssenkrupp to participate in an Indian Navy submarine tender worth approximately US$ 5.2 bn.

Apart from this, Mazagon Dock has also entered into multiple agreements with private businesses. These agreements aim to boost defence exports from US$ 1.5 bn to US$ 5 bn by the end of the financial year 2024-25.

All this indicates the company's growth prospects are quite bright.

#8 Hindustan Aeronautics

Next on this list is Hindustan Aeronautics (HAL).

HAL is an important player in building India's defence infrastructure. It's the only Indian company to have specialisation in manufacturing and maintaining aircraft services.

To make the best out of the resources available, the company spends around 7% of its revenues into the research and development (R&D) activity every year.

In 2023 so far, shares of the company have gained over 116%.

The rally got a boost in recent weeks after the defence council gave a green signal for multiple projects, one of them being buying 97 units of Tejas Mark-1A fighter jets.

HAL also tied up with Airbus recently to create a maintenance, repair, and overhaul (MRO) facility for the A320 family of aircraft in New Delhi.

This is a big deal because this partnership will boost the Make in India initiative and will make India more self-reliant in repairing and maintaining aeroplanes.

The company's management has some exciting plans in the pipeline. HAL is gearing up to create a new business division with a focus on boosting exports.

As a continuation of their focus on expansion, the company is looking for partners from around the world and even opening up export offices in specific places.

All these factors will play a key role in the company's success story moving forward.

#9 Gujarat Gas

Next on the list is Gujarat Gas. The company is a government enterprise engaged in the business of distribution of natural gas.

It's India's largest player in city gas distribution (CGD), with 27 licenses across 44 districts in six states and one union territory.

The company has a market share of 24% in domestic connections, 41% in commercial connections, 18% in CNG stations, and 36% in industrial connections.

In 2023 so far, Gujarat Gas shares have fallen, primarily due to consistent decline in revenue and net profit. This comes amid a fall in industrial volumes as customers switched to cheaper alternatives such as propane due to increased prices of RLNG.

The company plans to spend around Rs 10-12 bn in capex each year for the next four years to expand in existing and new states.

The naturally monopolistic nature of its business, in tandem with infrastructure and quasi-marketing exclusivity, gives Gujarat Gas an advantage to expand its business and maintain margins.

Going forward, the company's expansion plans could drive the volume growth.

#10 RVNL

Last on this list is Rail Vikas Nigam (RVNL). The company is engaged in the business of implementing various types of rail infrastructure projects assigned by the ministry of railways. The company actively bids for rail and metro rail projects in India.

Apart from India, the railway company is currently in the process of expanding presence in global markets. During the financial year 2023, it entered overseas markets and signed an MoU with Kyrgyzstan for an order worth approximately Rs 180 bn.

It's planning to expand its overseas presence and take up projects in several other countries.

In 2023 so far, RVNL shares have hit the roof on the back of securing multi-year projects on various intervals.

Currently, RVNL has a strong order book of over Rs 650 bn, focusing on railway, metro, and overseas projects.

Earlier this week, the state-run firm emerged as the lowest bidder for part design and construction of an elevated viaduct, five elevated metro rail stations, and a ramp between chainages for the Indore metro rail project.

Apart from expanding its global presence, RVNL is also looking to partner with multiple companies in the rolling stock manufacturing sector.

The company is confident in its ability to execute projects and maintain positive growth, targeting an order book of Rs 750 bn to Rs 1 tn.

Going forward, the company's margins could improve as the huge order book gets executed.

Some More PSU Stocks to Watch Out

The companies we mentioned above ranked the best when we looked at their return ratios (ROE and ROCE), promoter holding, debt to equity, and consistency in overall financial performance.

Apart from the above 10, here are some other PSU stocks that you can add to your watchlist.

Company	ROE (%)	ROCE (%)	Debt to Equity (x)
NMDC Ltd.	27.5	36.4	0
Garden Reach Shipbuilders	17.1	21.2	0.2
Engineers India	17	22	0
IRCON	15.9	21.9	0
Oil India	21.2	22	0.3

Data Source: Ace Equity

For more on PSU stocks, check out Rahul Shah's detailed editorial where he explains whether PSU stocks would continue their good run in 2024 or face a roadblock.

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...