Getting a breather: High commodity costs give debt relief to PSUs

Combined net debt stood at Rs 6.83 trillion at the end of March 2021

Listed non-financial central public sector undertakings (CPSUs) reported a decline in borrowings for the first time in five years, thanks to gains from higher metal and energy prices. The combined net debt of these firms was down 6.4 per cent to Rs 6.83 trillion at the end of March from Rs 7.3 trillion a year ago.

As a result, the combined net-debt-to-equity ratio of the 37 CPSUs in Business Standard’s sample improved to 0.75x in FY21, from a record high of 0.77x in FY20. The improvement in leverage ratio was driven both by a cut in overall debt and higher earnings, which boosted the net worth of many CPSUs. 

Around 80 per cent of the combined debt was accounted for by the top four companies — National Thermal Power Corporation (NTPC), Power Grid Corp, ONGC, and Indian Oil. They had a combined net debt of Rs 5.6 trillion, down 2.3 per cent year-on-year (YoY).

The reduction in debt was led by metal producers such as Steel Authority of India (SAIL), Hindustan Copper, and oil companies such as Indian Oil and Bharat Petroleum Corp (BPCL).

SAIL’s total debt reduced 31 per cent in the last fiscal year to around Rs 35,500 crore, from Rs 52,200 crore at the end of FY20. 

Indian Oil’s gross debt fell 14 per cent to Rs 1.09 trillion from Rs 1.26 trillion a year ago, while BPCL’s gross debt was down 23 per cent YoY to Rs 48,000 crore from Rs 62,000 crore a year ago.

However, other firms – such as ONGC , Oil India, NTPC, Hindustan Petroleum, MMTC, and GAIL – reported a further rise in their debt outstanding last fiscal.

Net profit

The combined net profit of CPSUs in the BS sample rose 64 per cent to Rs 1.39 trillion, from around Rs 85,000 crore a year ago — the highest on record for these firms, surpassing the previous high achieved in FY19. 

In comparison, their combined net sales were up 0.5 per cent YoY to Rs 17.5 trillion in FY21, though still lower than the previous high of Rs 18.4 trillion in FY19.

The biggest jump in earnings was reported by Indian Oil, BPCL, HPCL, ONGC, NTPC, SAIL and National Mineral Development Corp (NMDC), among others. While oil majors profited from inventory gains, despite lower sales and revenues, metal producers gained from higher prices for their products, which boosted their margins and profits in FY21.

In contrast, CPSUs such as GAIL (India), Coal India, Oil India, NLC India and Engineers India reported decline in earnings last fiscal.

Like the rest of India, CPSUs also benefited from a sharp decline in interest rates. This resulted in an 18.4 per cent YoY decline in their interest cost in FY21, boosting the bottom line of even those companies that were unable to reduce their borrowings.

However, despite the recent improvement, CPSUs’ overall debt and balance sheet leverage remains high. Their combined net debt has risen 140 per cent in the last five years, against 38 per cent cumulative growth in combined net sales.

Analysts say it will require a long-term rally in commodity prices and strong revival in industrial growth for CPSUs to reduce their debt in a meaningful manner.