In FY24, there has been an extraordinary increase in the performance of India’s Public Sector Undertakings (PSUs). They managed to outperform mid-cap and small-cap stocks and thus became the standout performers in the market.
When considering investments in Indian PSUs, Bharat Petroleum Corporation Limited (BPCL), Coal India, and Oil and Natural Gas Corporation (ONGC) are prominent names that come to mind. Each of these entities operates in a critical sector of the Indian economy—energy and resources—and they have their own set of strengths and market positions.
But how to choose the right stock? Let’s dive deep to help you decide.
Industry overview
Without a doubt, the oil and gas sector holds a central position among India’s eight key industries. Globally, India is the third-largest consumer of energy and oil and stands as the fourth-largest importer of liquefied natural gas (LNG).
India’s path to economic development will depend directly on how the nation meets its growing energy needs. As a result, the demand for oil and gas is expected to increase; this will underpin the sector’s becoming a very appealing investment venture.
The anticipated growth in India’s energy demand is set to surpass the global average, with a projected annual increase of 3% by 2040, compared to the worldwide rate of 1%.
Furthermore, India is anticipated to account for a significant 25% of global energy growth between 2020 and 2040, fueled by its rapidly expanding economy and young population.
For a better understanding Fueling India’s growth engine: Evolution and outlook of oil & gas industry
BPCL
Bharat Petroleum Corporation Limited (BPCL) is a PSU controlled by the Ministry of Petroleum and Natural Gas. It is a prominent player in the Indian oil and gas industry and the second-largest oil marketing company in India.
Known for its comprehensive involvement in crude oil refinement, petroleum product marketing, and substantial presence in both upstream and downstream sectors, Bharat Petroleum achieved the prestigious Maharatna status, granting it enhanced operational and financial independence within the industry.
Coal India
Coal India Limited, a government of India company, is the largest coal-producing company globally.
Coal India Limited, through its subsidiaries, works in 84 different mining areas that are spread out over 8 states in India. Coal India Limited and its subsidiaries produce about 83% of all the coal that is produced in India.
In India, about 57% of the energy that is used for businesses and other commercial purposes comes from coal. Coal India alone meets about 40% of that energy needs. Experts predict that the share of coal will stay high, between 48% and 54%, until the year 2040.
ONGC
The Oil and Natural Gas Corporation Limited (ONGC), a company owned by the government, holds the distinction of being India’s largest producer of crude oil and natural gas. ONGC provides over 71% of the country’s total oil and gas output.
ONGC focuses on exploring and producing oil and gas and deals with refining the crude oil and selling the final products.
ONGC sells several different products and services. The primary products are crude oil, natural gas, LPG (liquefied petroleum gas), and other petroleum-based items. The company divides its sales into two geographical regions – India, which includes all domestic offshore and onshore operations, and outside India.
Earnings
As per BPCL quarterly results in the third quarter of FY24, the company’s consolidated net profit increased by 82% at ₹3,181.42 crore as compared to ₹1,747.01 crore in the same period last fiscal year. Nonetheless, the company’s operational revenue experienced a dip, decreasing to ₹1.30 lakh crore in the third quarter of FY24 from ₹1.33 lakh crore in the same period the previous year.
In contrast, as per Coal India’s quarterly results, the company reported a consolidated net profit of ₹9,093.69 crore for the quarter ending December 31, 2023, marking a 17.8% increase from the ₹7,719.11 crore net profit in the same period the previous year. Coal India’s share operational revenue saw a 2.8% rise to ₹36,153.97 crore, up from ₹35,169.33 crore in the corresponding quarter of the previous year.
Further, ONGC reported a consolidated net profit of ₹10,748 crore for the quarter ending in December. However, the company’s operational revenue for the third quarter of the current fiscal year was ₹1,65,569 crore, marking a 2.2% decrease from the ₹1,69,213 crore recorded in the same period last year.
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Future outlook
BPCL looks to diversify into petrochemicals for the long term. This strategic move offers higher value addition than fuel transport. To achieve this, BPCL plans major investments of around ₹13,000 crores. This substantial capital outlay demonstrates commitment.
The latest Coal India news is that it is considering venturing into the extraction of critical minerals, including lithium. The plan is for CIL to acquire a block from the government for exploration purposes. Once the presence of lithium reserves is confirmed, the public sector unit intends to proceed with mining operations.
ONGC plans to establish a distinct entity dedicated to its green business, with plans already in advanced stages. This new venture will encompass all facets of renewable energy, including green hydrogen and green ammonia, among others. By 2030, ONGC aims to achieve a renewable energy capacity of 10 GW, backed by an investment of ₹1 lakh crore.
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Stock price trend
BPCL’s share price in the last one year has increased by 86.47% (as of 2nd April 2024). On the other hand, Coal India’s share price increased by 99.18% in the same period. Further, ONGC’s share price increased by 75.76% in the same period.
Financials
| Financial metric | BPCL | Coal India | ONGC |
| Market cap (In ₹Cr) | 133604.26 | 269896.64 | 339478.80 |
| P/E | 4.39 | 9.24 | 7.34 |
| Debt to equity | 0.79 | 0.09 | 0.46 |
| 5-year Sales CAGR % | 14.94 | 10.15 | 14.40 |
| ROE % | 6.34 | 55.99 | 14.13 |
| 1-year returns % | 82.06 | 100.79 | 75.66 |
| 5-year CAGR returns % | 11.14 | 13.49 | 11.70 |
Bottomline
In conclusion, the surge witnessed by PSUs in India during FY24 has positioned them as standout performers in the market. While BPCL eyes diversification into petrochemicals, Coal India is considering venturing into critical minerals extraction, including lithium, and ONGC is advancing its green energy initiatives.
Analysing their financial metrics offers insights into their performance and potential for investors. Ultimately, careful consideration of these factors alongside individual investment goals is crucial in determining the right addition to one’s portfolio among these prominent PSUs.
