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PSU-Do they deserve this valuation?

Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Equity Valuation Techniques
Forum Discription: While valuing equities no individual technique works. Mostly it is a combination of techniques. Discuss the various techniques in equity valuation ranging from PE to RoE to Market Cap
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=496
Printed Date: 19/Apr/2025 at 8:16pm


Topic: PSU-Do they deserve this valuation?
Posted By: wba5261
Subject: PSU-Do they deserve this valuation?
Date Posted: 15/Oct/2006 at 1:30pm
Hello Fellow Members and Basantji,
 
I was looking at some of the balance sheets of the PSY companies and and I was really amazed to see this sort of valuation available on the plate. The most noticeable ones which have attracted my attention is BEL and Shipping Corporation. BEL, is trading at an amazing valuation. It has a small capital, relatively speaking of 80 crores and has a cash of more than Rs. 1800 crores on its balance sheet as on 31.03.2006. The story is same for Shipping Corporation, which has a realtively bigger capital of nearly 282 crores has a whopping 2200 crores of cash on its balance sheet. BEL, has an added advantage of a negligible debt on its balance sheet and has a much stable business model than Shipping Corporation.It supplies to defence and other nodal government agencies.
 
SAIL and ONGC are also looking very attractive to me.To some extent, State Trading Corporation as well. The PSY banks have run up a lot so wont say whether they are looking attractive or not. But SAIL is something which is looking way too good, at these prices at least.
 
All I intend to know is, what wrong have they done to be treatedlike this. They dont dilute their holding, they pay quite decent dividends, are also cash rich, have the sovereign backing, so whats wrong with them?
 


Replies:
Posted By: akash
Date Posted: 15/Oct/2006 at 10:43pm
BEL is an excellent stock to hold. It has monoploy in its business and is continously trying to diversify into new businessnes. the only area of concern with these PSU that all these companies are too much influenced by government policies i.e. for any business policy they need government nod whether it is case of acquisition or merger. So, in that they dont attract a higher PE multiple but on the brighter side they enjoy preference in government projects, higher dividend payout, string funding etc. So, the only case one need to look at PSU companies what is mgmt structure like in case of ITI it could justify the valuation but in case of BHEL or BEL or SCI or BEML they demand one's look at them. I hope it helps rest Mr. Basant and other fellows will help you in better way.

Posted By: basant
Date Posted: 15/Oct/2006 at 10:57pm
Yes, you made a good point about the low PE's what ever be it, the PE would not expand and on the other side there is always the benefit of the Govt. coming in with a package to save you if something goes wrong ITI and  HOCL are classic examples of how the tax payers money has been squandered to provide oxygen to the dead elephant.And people betting on the financial package provided by the Govt. forget that these stcoks would have even lower PE's. Market loves companies (gives it higher PE) that are outside Govt. control and hates companies (lower Pe's) that are in close proximity to Govt. control.To understand this concept better I keep looking at the Pe's of the software sector on one side and keep comparing it to the PSU's, steel etc on the other.
 
 
 


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