Normally the public sector units trade at a lower price earning multiple (p/e multiple for those who did not understand the full version).

This is largely because there is a general feeling that the owner (manager) does not care too much about the main shareholder. To expect the ‘corrupt’ or ‘indifferent’ employee to work for the shareholder is so darn difficult, it is not funny.

I have met many psu managers who are passionate about the companies for which they work, but frankly they do not care about their shareholders. Yes it takes a FII to tell Coal India to take care of the shareholder interest, but that is not enough. The small unorganized, shareholder stands very little chance of getting any justice.

How bad is it in the private sector?  A lot better. Many managements know that if you do not treat the shareholder well, you cannot go back to the market again and again. They also know that a good market price protects them from being taken over – psu companies do not have this worry.

Psu companies do not have this threat. So they can do whatever they want and will surely raise money whenever they need. The bad behaviour on PSU does create a problem – not just for the company itself but for the whole industry…so frankly ONE psu does not even think its own behaviour is important in its life.

How does the market react to all this? generally by giving it a lower p/e…..


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  1. You have to look no further than Air India (though not listed) for this malaise. They have shoddy service, losing money, but know that the government will bail them out every time. So, they drop fares to unsustainable levels and screw up the entire industry.

  2. the competition provided by bailout receivers is false,and non market is spurious and harmful for everyone.a bad apple like kingfished or air india should be destroyed by the market.having bottomless pit of reserves like air india is simply theft

  3. Not sure CIL will get off so easily. If TCI wants they can litigate in UK- and its VERY expensive. Litigations need not be successful for the purpose usually is not to win, but create precedents and negative publicity.
    Future IPOs of PSUs or fund raising in international markets get hit by such actions.
    And of course you pay an arm and leg on legal costs.
    Actually the max impact will be on PSU insurers and in that sense its a wonderful situation.

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