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Money mountains under the PSU Mattress

PSU's cash relative to their market cap has reached eye popping levels. Time to invest or distribute


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Money mountains under the PSU Mattress

Public-sector undertakings (PSUs) are famous for their hoards of cash. Although PSUs' total cash and equivalents have fallen in the past five years, the ratio of cash as per cent of market capitalisation still remains high. If they are seen individually, most PSUs are trading at record highs in terms of their cash reserves as per cent of market capitalistion. Cash reserves run as high as 95 per cent in the case of MRPL (Mangalore Refinery and Petrochemicals). But MRPL is a miscellaneous case. It is an 'indirect' PSU (government doesn't hold it directly but via other PSUs) and its high cash is due to high unpaid creditors. MOIL, a debt-free company, has cash and equivalents of R2,940 crore, which are 74.4 per cent of its market capitalisation. Similarly, there are six PSUs in all which have cash of more than 50 per cent of their market capitalisations; and there are 11 PSUs with cash more than 40 per cent of their market caps.

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Money mountains under the PSU Mattress

Tracking PSU cash

  Cash & equiv Market cap
FY16HY1 209467 1101631
FY2015 209101 1285243
FY2014 228365 1079694
FY2013 224455 1094501
FY2012 230887 1220510
FY2011 232358 1483028
FY16 data as of September 2015.

There are two major reasons for the such high cash-to-market-capitalisation ratios. PSUs traditionally trade at low valuations, so their market caps are comparatively smaller, thus boosting the cash-to-market-cap ratio. The second reason is that they haven't been able to spot investment opportunities to deploy their huge cash reserves. The government has frequently asked PSUs to either invest their cash hoards or pay out dividends to the shareholders. This explains why many PSUs have high dividend yields. Are dividend investors listening?

Cash-rich PSUs

Company Name Sector Market Cap (Rcr) Cash & Equiv (Rcr) Cash to Mcap (%)
MRPL Crude Oil 12224 11359 92.92
Mysore Paper Mills Paper 55 41 74.95
MOIL Mining 3981 2940 73.86
Orissa Minerals Development Mining 1182 772 65.29
Oil India Crude Oil 19609 10730 54.72
NMDC Mining 35920 19069 53.09
NALCO Metals 11095 5369 48.39
PTC India Power 1917 804 41.96
Neyveli Lignite Power 11501 4768 41.46
Shipping Corpn Logistics 3435 1305 37.98
Engineers India Capital Goods 6240 2313 37.07

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