Friday, 26 June 2015

Public sector units set to push infrastructure projects after succeeding in improving cash flows

State-run firms are set to boost economic activity by placing big ticket orders after having succeeded in improving their cash flows. At a time when the private sector has tightened its purse strings and fresh bank credit is yet to be pumped into the system, public sector units (PSU) are empowered by improved cash availability to push infrastructure projects.

Data suggests that the cash flow in most listed PSUs is at a record high despite the net income growth plunging to a 15-year low "We have been vigorously engaging with clients to improve our receivables cycle. We have also tried to control project execution time and manpower cost. All this has helped us significantly improve our cash flows," RN Nayak, chairman and managing director of Power Grid Corporation of India (PGCIL) told ET.

He said PGCIL capitalised projects worth Rs 22,000 crore in 2014-15, its highest ever, which has a direct bearing on net profit. Listed PSUs generated a record $9 billion (about Rs 5 7,600 crore) in free cash flows and operating cash flows of a staggering $34 billion (over Rs 2.17 lakh crore) during the fiscal, Deutsche Bank said in a report on the Indian infrastructure sector.

Industry executives said PSUs across sectors have been trying to improve cash collections and cap costs. Besides PGCIL, Bharat Heavy ElectricalsBSE 0.91 %, NTPC, Bharat ElectronicsBSE 0.17 % and Bharat Earth Movers have been working to recover payments on time.

"While it is understandable that the deregulation of oil prices and the consequent release in working capital - particularly for companies in the oil and gas segment - would have driven cash flows for PSUs as a whole, the rise in operating cash flows, even for companies outside this space, is pretty strong. Anecdotal data suggests PSUs are driving administrative reforms, which are bearing fruit," the report said.

PSUs have also been working to improve efficiency and reduce costs, which has augured well for their operating profit margins. ET Intelligence, the research arm of ET, studied 71 listed PSUs and found that at least 20 companies have reported a significant improvement in their operating profit margin by 200 basis points or 2 percentage points or more on a year-on-year basis in 2014-15.

All the time when global energy firms are cutting capital expenditure, India's staterun oil firms have lined up investments of over Rs 76,565 crore on capital expenditure for 2015-16, up 5% over that in the previous year. ONGCBSE -1.27 % alone will invest Rs 36,250 crore during the current fiscal.

Private sector firms are banking on orders from PSUs to drive their order books. AM Naik, group executive chairman of L&T, had last month said that the company has shifted focus from the Middle East to India as the government agencies are likely to award big orders.

While infrastructure sector executives are largely upbeat about PSU spending, some have their reservations. "We are seeing an uptick in orders but the pace is very slow. The work PSUs are doing is mostly preparatory right now and the projects will take at least two-three quarters to take off," a senior executive from an infrastructure company said.

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