The Hindu Business Line : Profit margins of PSUs on the rise

FOR all the talk about public sector oil companies losing money on subsidised sale of kerosene, LPG and diesel, thanks to oil prices, the PSUs as a class are not doing all that badly.

The average profit margin in the case of 79 public sector companies rose from about 2.6 per cent at the end of March 2003 to 5.2 per cent at the end of March 2004 and to an even higher level of 7.6 per cent for the quarter ended December 2004.

What is more, Government companies have left the private sector Indian companies far behind and their record is comparable to the margins enjoyed by the Indian subsidiaries/affiliates of multinational companies.

For instance, the profit margin of Neyveli Lignite was far better than that of Tata Power and Reliance Energy. Similarly, National Aluminium enjoyed significantly better margins than Hindalco, while National Mineral Development's margins were substantially higher than that of Sesa Goa, an MNC associate.

Overall, the average margin of private sector companies has risen at a slower pace than that of Government companies since March 2003 and was substantially lower at 4.1 per cent at the end of December 2004. Associates of multinational companies sported higher margins though. The average margins of MNC associates at the end of December 2004 stood at 8.3 per cent.

Government companies with exceptionally high profit margins include Neyveli Lignite, NMDC, PowerGrid, Shipping Corporation and ONGC.

Oil marketing companies have, however, suffered.

Oil companies currently earn a net profit of between Re 1 and Rs 3.50 on every Rs 100 sales. While the profit margin of IOC is 3.5 per cent, BPCL's is now below 1 per cent.

But shareholders need to have less cause for concern. These companies would end up earning an average return of about Rs 20 for every Rs 100 invested in thebusiness for the year ended March 2005. Though the return has declined from about 30 per cent to 20 per cent, it is still higher than the average return generated by private sector companies, whose average is about 13 per cent.

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