CPSEs told to raise m-cap 10% every year

New Delhi: Central public sector undertakings will have to target a 10% increase in their market capitalisation every year starting FY23, a performance measure that has caused concern among the companies and their administrative ministries.

The Department of Public Enterprises (DPE) has decided to include this norm among the annual targets for performance evaluation of listed central public sector undertakings.

Most ministries had opposed the new parameters when they were being framed.

'Consider Avg of 3-4 Yrs'
The inclusion follows suggestions from the Niti Aayog and the Department of Investment and Public Asset Management (DIPAM) that are looking at measures to improve returns from asset monetisation.

Some ministries have now sought withdrawal of the requirement, arguing that market capitalisation is not something they can control or manage as the performance of a stock is dependent on many factors.

"All ministries had opposed when the parameters were being changed," a senior government official said. "Now many are of the view that instead of aiming for a flat 10% rise in market capitalisation, the target may be set as the average of last three-four years."

A PSU official expressed reservations about the measure.

"The targets are very difficult to achieve in one year. Even in the private sector, the parameter is measured over a long period of four-five years," he said. "The stock market did very well in the last one-two years and so did the PSUs. However, any development, including news of a third Covid wave, any natural disaster or crude price fluctuations may erode the value towards the end of the year."

Over the past year, he BSE CPSE index has risen 35%, outperforming the Sensex, which grew 23%.

"DPE revised the MoU guidelines for 2021-22 in order to make the performance parameters more market-oriented and reflect shareholders interest in terms of growth in revenue, return on net worth, asset turnover ratio, and market capitalisation," an official in the department said, explaining the inclusion of the measure. The return to PSU shareholders must be more than the returns offered by the bond market, he added.

'Annual Performance Targets'
The annual performance targets for state-run enterprises are decided and agreed upon under memoranda of understanding (MoUs) between the units and their administrative ministries. The final appraisal is based on the actual performance against agreed targets. The performance-related pay at the CPSEs is linked with the performance evaluation through this MoU framework.

"Improvement in market capitalisation or share price over sectoral index on an annual average basis is a part of the memorandum of understanding or MoU signed with listed CPSEs," said the DPE official cited above.

While productivity-linked parameters pertaining to core operations of CPSEs have maximum weightage in the appraisal, they also include certain government programmes such as procurement from MSMEs through the Government e-Marketplace and research and innovation.