Inception or Exceptions of PSUs
Will all PSU divestments turn out to be as rosy as IRCTCs?
IRCTC hit the market with a bang and surged 128% from its issue price. The market has given it a premium pricing because of the monopolistic nature of it's business and high entry barriers for any private player. The improved investor sentiment after the tax cut also helped IRCTC to an extent. But is the massive premium and oversubscription to one PSU IPO enough to repair Indian investors’ disillusionment with PSU stocks as a class?
For the divestment plan, if the GOI is hoping that it can simply replicate IRCTC’s success with its future offers, it would be quite mistaken. IRCTC is in a consumer facing business and has an asset light e-commerce model with rising spends on travel in our country. Valuations are bound to be higher for IRCTC as compared to other PSU’s which are cyclical, asset heavy and operate in the B2B space. In addition to this, the government's asking price was far lower at an earnings multiple of 19x as compared to the prevailing 26x. Given the comparative complex nature of other PSU's and the government’s own lackadaisical attitude towards minority shareholder rights, other PSU’s can be expected to see a subdued response from investors.
Nonetheless, with high cash flows, ROCE, dividend payout, diversified segments and debt-free balance sheet we can expect this Mini-Ratna (IRCTC) to be an exception and hope that it repairs disillusionment with PSU stocks to some extent.