To qualify, companies must meet three key financial criteria averaged over three years: an annual turnover exceeding ₹25,000 crore, a net worth above ₹15,000 crore, and a net profit after tax (PAT) of more than ₹5,000 crore. While Bharat Heavy Electricals Limited and Steel Authority of India Limited comfortably meet the turnover and net worth benchmarks, both have failed to achieve the profitability threshold, placing their coveted status in jeopardy.
BHEL's financial performance has been severely constrained by structural and operational challenges. Over the last three years, its average annual PAT stands at approximately ₹805 crore—a staggering 84% below the required threshold. The company faces intense material cost pressures, substantial finance costs, and high working capital intensity. Operational inefficiencies, including delayed project deliveries leading to liquidated damages, have further eroded margins. Additionally, BHEL is navigating a difficult sector transition. The heavy electrical equipment industry is shifting away from coal-based thermal power toward renewables, forcing BHEL to diversify into transportation, defense, and green hydrogen. While this diversification is strategically vital, it requires heavy investment and offers lower immediate returns compared to its legacy business. AnnualReports +1
SAIL's situation, while less severe, is equally concerning. Its three-year average PAT of around ₹2,937 crore falls 41% short of the ₹5,000 crore mark. The steel major has been hit by a decline in Net Sales Realization (NSR), particularly for flat steel products, which has outpaced volume growth. A critical vulnerability is its dependence on imported coking coal—India imports 85-90% of its requirements—exposing the company to volatile global prices and supply chain disruptions. Although SAIL has achieved cost savings through technological improvements and reduced its debt by nearly ₹5,000 crore, these measures have been insufficient to offset the margin compression caused by falling steel prices and high input costs. AnnualReports +1
The performance gap between BHEL, SAIL, and their Maharatna peers is stark.
Even the lowest-performing peers, such as HAL and Oil India, comfortably exceed the ₹5,000 crore threshold. This disparity highlights that BHEL and SAIL's struggles are not merely due to the outdated 2010 criteria, which have lost over half their real value due to inflation, but are rooted in deeper sector-specific and operational issues. The oil and gas giants benefit from resource monopolies and stable cash flows, whereas BHEL and SAIL operate in capital-intensive, cyclical manufacturing sectors facing intense private competition and technological disruption.
The consequences of a downgrade to Navratna status would be severe.
For BHEL, which has an outstanding order book of ₹1.96 lakh crore and is executing major projects in transportation, defense, and transmission, this constraint would create significant execution bottlenecks. SAIL's ambitious expansion plan to increase capacity from 19 MTPA to 35 MTPA by 2030-31 would also face delays, as large brownfield projects would require multiple government approvals instead of a single board decision. Reduced board autonomy would further slow decision-making, hampering their ability to compete with agile private sector players like L&T and JSW Steel. AnnualReports +2
The threat of downgrade is already influencing strategic behavior. Both companies face a difficult trade-off: prioritizing short-term profitability to meet PAT thresholds versus making long-term strategic investments. BHEL may be forced to defer investments in green hydrogen and nuclear power to focus on thermal equipment with shorter payback periods. SAIL might slow down its modernization drive to protect immediate margins. This short-termism risks undermining their future competitiveness and long-term value creation.
Recognizing these challenges, the government has initiated a comprehensive review of the CPSE classification framework.
The committee has also recommended indexing the 2010 eligibility criteria to 2025 prices to reflect inflation. If implemented, the PAT threshold could rise to approximately ₹7,880 crore, making qualification even harder for BHEL and SAIL.
Simultaneously, the government has tightened annual performance rules for CPSEs. New norms for FY27 introduce strict penalties, including full mark deductions for failing to meet mandatory CSR obligations, delaying payments to MSMEs, or lacking a succession plan. While SAIL has maintained strong CSR compliance, spending over ₹16,000 crore annually, the new framework adds significant compliance pressure. For BHEL, which is already grappling with financial performance, these governance requirements represent an additional layer of complexity.
In response, the Ministries of Heavy Industries and Steel have been instructed to present detailed turnaround plans. BHEL's plan focuses on aggressive cost optimization, including a reduction in performance incentives to 16% and a ban on creating new posts at the E-9 level. The company is also implementing a "project-centric" execution model to accelerate cash realization and has launched digital transformation initiatives to improve efficiency. NITI Aayog has identified BHEL's human resource policies as a major constraint, and addressing this through comprehensive reform is seen as critical to unlocking growth. AnnualReports +1
SAIL's turnaround strategy emphasizes debt reduction, operational efficiency, and product mix optimization. The company has reduced borrowings by ₹5,000 crore and is targeting a level of ₹30,000 crore. On the operational front, SAIL has shut down inefficient blast furnaces and improved productivity metrics. It is also shifting its product mix toward value-added items, increasing the share of Value Added Products (VAP) from 49% to 52.7% and reducing semis from 19% to 13%. These measures aim to improve average realizations and margins. Transcripts +2
However, the effectiveness of these plans in achieving the one-year deadline remains uncertain. BHEL's projected PAT for FY26 is around ₹1,943 crore—a significant improvement but still far from the target. SAIL's strong turnover base provides a solid foundation, but achieving the required PAT growth depends heavily on favorable steel prices and continued cost control. The Inter-Ministerial Committee has recommended placing BHEL on notice for three years with a condition of substantial annual PAT growth, suggesting that sustainable turnaround requires deeper structural reforms rather than quick fixes.
Ultimately, the plight of BHEL and SAIL underscores a fundamental tension in the CPSE framework. The fixed financial criteria established in 2010 do not adequately account for the structural challenges faced by capital-intensive manufacturing PSUs operating in competitive and transitioning sectors. While the push for stricter governance and accountability is necessary for creating world-class enterprises, a balanced approach that considers sector-specific realities and provides a realistic pathway for transformation may be required to preserve the strategic value of these national assets.
