With their eye on the big game and general elections just around the corner, the Modi government is leaving no stones unturned and gearing up PSU companies.
Just take the event that transpired earlier this month on 10 August 2023 in the parliament. Everyone paid attention when Prime Minister Narendra Modi gave investment tips and asked stock market investors to ‘bet on PSU stocks’.
When it comes to PSU, the common norm is that they pay more steady and consistent dividends than other companies. This is because these companies are interrelated with core sectors of the economy, such as power generation and transmission, mining, and railways.
While dividend paying capacity was never a concern, growth remained a challenge.
But it seems select PSU companies have caught up with growth as well, while also maintaining high dividend yields.
Let’s look at the companies that make the cut.
#1 Hindustan Aeronautics (HAL)
Defence stocks in India have attracted investor’s interest for some time now.
With the world increasing its defence spending, the government of India is boosting the defence sector to strengthen it.
Its emphasis on indigenisation and make in India initiative has fuelled the growth potential of defence stocks.
One company that has dominated the defence space is Hindustan Aeronautics Limited (HAL).
The company is a dominant supplier of aircraft, helicopters, engines, and avionics and the main provider of maintenance, repair, and overhaul services to the Indian Airforce, Indian Army, ISRO, Indian Navy, and Indian Coast Guard, among others.
It also engages with the Indian Space Research Organisation (ISRO) to contribute to India’s space programs.
In ISRO’s Chandrayaan-3 mission, HAL worked on the development of a lander and key mechanical support equipment.
During the financial year 2023, the Indian defence sector’s production exceeded ₹1 trillion in value, of which the company contributed around ₹270 billion (bn), which is close to 27% of the total defence production.
For the financial year 2024, it secured major orders from several organisations, and its order book currently stands at ₹817.8 bn.
The company also recently signed a deal worth US$ 716 million (m) with GE Aviation for supplying engines.
To maintain its infrastructure and build systems for meeting the requirements of defence forces, it spent ₹20.8 bn in capex for the financial year 2023.
Despite investing heavily in capex, HAL is debt-free. It also pays consistent dividends to its shareholders since 2008.
In the financial year 2023, the company declared a final dividend of ₹55 per share, with a dividend payout ratio of 31.6%.
In the last five years, the dividend payment of the company grew by a compound annual growth rate (CAGR) of 22.7%.
The five-year average dividend payout ratio stands at 32.4%. The current dividend yield is 1.4%.
The company’s free cash flows at the end of the financial year 2023 are ₹62.8 bn, which indicates the company has enough funds to pay a dividend even in the next year.
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Coming to its financials, the revenue and net profit have grown at a CAGR of 7% and 20.1%, respectively, on account of the growing order book.
HAL has also announced a stock split recently where it will issue shares in the ratio of 1:2. This means a sub-division of one equity share of the company, having a face value of ₹10 each, into two equity shares having a face value of ₹5 each.
The record date for the same is 29 September 2023.
#2 Oil India
Second on the list is Oil India.
The company started as an exploration and production (E&P) company and has gradually diversified to increase its presence across the entire hydrocarbon value chain.
Now, Oil India is a fully integrated oil and natural gas company engaged in the exploration, development, production and transporting of crude oil, natural gas, and liquified petroleum gas (LPG).
The company also generates electricity through solar, wind, and green hydrogen sources.
Oil India has been paying consistent dividends to its shareholders since 2010.
In the financial year 2023, it declared a dividend of ₹20 per share, with a payout ratio of 22%.
In the last five years, the dividend payment of the company grew by a compound annual growth rate (CAGR) of 14.3%.
The five-year average dividend payout ratio stands at 22%. The current dividend yield is 7.2%.
It also has free cashflows of ₹69 bn, which shows the company has enough cashflows to fund its future expansion plans and pay consistent dividends to its shareholders.
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India is the third largest oil consumer in the world. Despite this, the demand for oil and natural gas is growing every day.
Being one of the largest exploration and production companies in India, it is actively investing to meet this demand.
During the financial year 2023, the company invested ₹55 bn in capex towards expanding its Numaligarh Refinery project.
This will increase the capacity from 3 million metric tonnes per annum (MMTPA) to 6 MMTPA. It is also building a biorefinery for ethanol production and a polypropylene unit.
It also plans to invest ₹49 bn in the financial year 2024 to fund its existing expansion plans.
All this shows that the company is poised for growth.
Coming to its financials, the company’s revenue and net profit have grown at a CAGR of 16.4% and 24.9%, respectively, on account of high crude oil production.
#3 Coal India
Third on the list 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.
It offers a wide range of products, including coking coal, non-coking coal, washed and beneficiated coal, coke, tar, and other value-added products.
Coal India is a dividend aristocrat.
It has been paying dividends to its shareholders since 2011. In the financial year 2023, the company declared a dividend of ₹24.25, which includes two interim and one final dividend.
The dividend payout for the year is 53.1%, and the current dividend yield is 10.6%.
In the last five years, the dividend payout and dividend yield averaged 56.3% and 8.9%, respectively.
At the end of financial year 2023, the company’s free cash flows stood at ₹200 bn, one of the highest among its peers in the industry. This also guarantees a dividend in the next financial year as well.
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Coming to its financials, Coal India’s revenue and net profit have grown at a CAGR of 7.9% and 10%, respectively, on account of high production output and volume expansion.
Being a monopolistic company, it has laid out big growth plans.
The company plans to invest ₹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 (FMC) projects. This will ultimately reduce its logistics cost.
Apart from this, it plans to diversify its operations and is targeting the acquisition of lithium, cobalt, and nickel assets abroad.
Going forward, the company’s expansion plans will drive its growth in the medium term.
#4 Power Grid Corporation of India
Next on the list is Power Grid Corporation of India, another monopoly player.
Formed in 1992, the company is India’s largest power transmission company, with a market share of over 36%.
It operates a nationwide grid for transmitting power from both thermal and renewable sources to the country.
The company is also engaged in the planning, implementation, operation, and maintenance of strategically important projects of the government.
Power Grid Corporation of India has also ventured into EV charging infrastructure and is setting up charging stations across the country.
During the financial year 2023, the company spent ₹52 bn on capex for building transmission lines. It added 28,990 transmission capacity by developing two inter-state and two intra-state networks.
It plans to invest ₹88 bn in the financial year 2024 to build new transmission lines across the country and outside the country.
Power Grid Corporation has laid out a ten-year plan with an estimated capex of ₹1.8 trillion.
Despite increasing its capex investments every year, the company managed to reduce its debt-to-equity ratio to 1.4x from 2.2x five years ago.
Its high growth plans have helped the company boost its financial performance. In the last five years, the revenue and net profit grew by a CAGR of 5% and 9%, respectively.
The dividend also grew by a CAGR of 18.7% during the same period.
Being a rich dividend stock, the company paid a dividend of ₹14.7 in the financial year 2023 with a payout ratio of 66.7%.
The five-year average dividend payout ratio is 54.1%, and the current dividend yield is 4.4%.
Power Grid Corporation has been paying dividends consistently since 2008. Given its high free cashflows of ₹224 bn, the company will continue paying dividends in the next financial year as well.
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#5 RailTel Corporation of India
Last on the list is RailTel Corporation of India.
The company is one of the largest telecom infrastructure providers in the country.
Since it is owned by the government, it has the privilege of owning the exclusive right to lay optical fibre cables and provide telecom-related services along the 60,000-route km of the Indian Railways’ network.
Through this setup, it offers a telecom infrastructure that can host other telecom players at railway stations.
The company also offers diversified services that include telecom networks, data centre and hosting services, and project execution.
At the end of financial year 2023, the company’s order book stood at ₹45 bn. The primary reason behind such a high order book is the company’s continuous investment in expanding its network.
In the financial year 2024, the company plans to invest ₹2 bn for network upgradation, augmentation of data centre capacity, and automation activities.
The company has delivered stellar financial performance since 2007. In the last five years, the revenue and net profit of the company have grown at a CAGR of 14.1% and 11.1%, respectively.
RailTel Corporation has also paid consistent dividends to its shareholders since its listing in 2021.
The company paid a dividend of ₹2.5 in the financial year 2023, with a dividend payout of 43.3% and a dividend yield of 1.2%.
The company has free cashflows of ₹1 bn as of March 2023, which indicates the shareholders might receive a dividend payment even in the financial year 2024.
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Going forward, the company’s expansion plans will drive its growth in the medium term.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com