The last five years have been the worst for listed central public sectors enterprises (CPSEs) in 15 years. For the first time since FY04, 38 CPSEs, excluding oil marketing companies, are expected to report a net loss for a second consecutive year in FY19. With this non-oil government companies would be in red for three out of last five financial years. (See chart below.)

These listed CPSEs are expected to report a net loss of around Rs 21,700 crore during the year ending March this year based on their performance during April-December 2018 period down from a combined net profit of around Rs 63,700 crore during FY14. These listed CPSEs together reported net losses of Rs 16,279 crore during the first nine-months of FY19.

In comparison, non-oil CPSEs' combined net profit grew at a compounded annual rate (CAGR) of 8.4 per cent during the two terms of United Progressive Alliance (UPA), while the combined net profit of listed CPSEs (including oil companies) expanded at an annualised rate of 7.5 per cent during the period.

Public sector banks (PSBs) have been the biggest losers in the last five years.

They are on track to report losses for the fourth consecutive year in FY19 based on their earnings during the first nine-months of FY19. Listed PSBs, together, reported a net loss of around Rs 31,600 crore during April-December 2018 period.

Public sector companies also continue to struggle with poor revenue growth. The combined revenues of non-oil CPSEs are likely to grow at a CAGR of 2.7 per during FY14-18 down from 11.6 per cent annualised growth during FY09-14 and 17.2 per cent annualised growth during FY04-09.

The combined revenues for all listed CPSEs, including energy companies, is likely to grow at a CAGR of 1.7 per cent in the last five years as against 12.2 per cent CAGR growth during UPA-II and 18.3 per cent CAGR growth during UPA-I.

The analysis is based on annual finances of a sample of 44 listed CPSEs across sectors. Some of the key CPSEs in the sample include State Bank of India, Bank of Baroda, NTPC, Bharat Heavy Electricals and Power Grid Corporation among others.

Experts attribute the poor show of CPSEs in the last five-years to a combination of industrial slowdown, lack of growth capital and companies inflexible cost structure.

“The industrial slowdown in recent years took a bigger toll on government-owned companies as they were not able to control their costs, especially salary & wage bill unlike their private sector peers,” says Madan Sabnavis, chief economist, CARE Ratings.

Oil companies like Indian Oil Corporation, BPCL and ONGC did relatively better in the last five years thanks to lower crude oil prices in the international market.

The combined net profit of public sector oil & gas companies is likely to grow at a CAGR of 7.7 per cent during FY09-14 against nine per cent annualised growth during FY09-14 and 3.8 per cent annualised growth in earnings during FY04-09.

Others point finger at the poor capacity utilisation at government owned companies. “Many CPSEs had invested large sums in capacity expansion during the boom years of 2003-2008 but demand slowdown in last years has resulted in below par utilisation in sectors such as power, capital goods and metal and mining hitting the profitability of CPSEs,” said Dhananjay Sinha, head research Emkay Global Financial Services.

He also flagged the issue of a general lack of growth capital for government owned companies. “Central government has repeatedly tapped CPSEs balance sheet to fill holes in public finance by way of dividends and share buybacks leaving little retained earning with companies. This has restricted companies’ ability to invest in new growth areas and stay profitable,” said Dhananjay.

Experts said that the lack of capital is the biggest issue for public sector banks forcing many of them to exit the lending compounding their losses. “If PSBs had not stopped lending due to lack of capital either their losses would have been much lower and quite a few of them would have remain profitable all through the period like their private sector peers,” says Dhananjay.

Poor show by CPSEs has a negative implication for government finances as well. "Dividend from CPSEs has been an important source of non-tax revenues for the central government which has nearly dried-up now hitting the overall public finance," says Madan.

Most experts don’t see an immediate turnaround in CPSEs finances. “It will take at least two years of strong growth in the industrial sector and a surge in investment rate in the economy to pull government owned companies from their current slump,” says G Chokkalingam, MD and founder Equinomics Research & Advisory Services.