Efficiency evaluation of the energy companies in CNX 500 Index of the NSE, India using data envelopment analysis
Authors: Saxena Punita , Saxena Ratnesh R. , Sehgal Deepak 
Published: January 2016

Purpose
– Data envelopment analysis (DEA) is a non-parametric technique of computing efficiencies of decision-making units using similar set of inputs to give similar set of outputs. The objective is to pick out inefficient units from a data set of similar units and thus analyse their performance amongst their peer group. Stock markets can be considered to be an economy’s barometer. Thus, evaluation of efficiency effectiveness of the companies operating at stock exchange is a valuable exercise. Further, if the inefficient units can be given a benchmark for improvement, they can increase their market value. The purpose of this paper is to evaluate the efficiencies of the Oil, Gas and Power (OGP) sector of India for the companies that form a part of the CNX Energy Index and CNX 500 Index of the National Stock Exchange of India.

Design/methodology/approach
– A group of 24 units has been included in the study. DEA was applied for ranking the units as per their efficiency levels by computing their technical, pure technical and scale efficiencies (SE). It was observed that only nine units are efficient and the remaining 15 were inefficient. It was observed that ONGC is the most efficient unit and CESC Ltd is the least efficient unit in this group. Also in this group there are ten units that show inefficiency due to their scales of operations. Further, benchmarking for the inefficient units has also been done in terms of inputs/outputs and the targets are suggested. It was observed that some of the Public Sector Companies like NTPC are using more inputs compared to the other units from the same group for achieving the same efficiency.

Findings
– The present study attempted a limited objective of establishing the technical, pure technical and scale inefficiencies of the companies operating in OGP sector in India and listed on National Stock Exchange with the help of the non-parametric technique of DEA and suggesting how they can strive to improve their performance. It is observed that 37.5 per cent are technically efficient as well as scale efficient, whereas 62.5 per cent are pure technically efficient. There are 42 per cent companies representing approximately half of the output and more than half of the input that have scale inefficiencies characterized by their PTE less than SE. Out of the efficient companies, ONGC appears to be the best whereas Essar Oil has a comparatively lower rank. Out of the inefficient companies, the worst performer is CESC Ltd. However, inspite of being the worst performer, this unit does not have the worst benchmarking targets. The units like Sterlite technologies and KSK energy ventures need to improve their profit by almost 1,000 per cent. These kind of targets are very difficult to attain. Hence these units need to improve their scale of operation. The managers of these units must take up this issue seriously and take measures to improve their productivity. The study also attempted benchmarking where various inefficient units have been suggested targets they need to scale to improve their efficiency. If addressed, they can have micro as well as macro benefits.

Research limitations/implications
– In the present paper, the analysis is restricted only to the OGP sector of Indian economy. The study can be further extended to various other sectors of Indian economy such as agriculture, telecommunications etc. This would help in the holistic analysis of the economy. The flag bearer efficient units would set up a benchmark for the improvement to the inefficient units that would help improve the developing economy of India.

Originality/value
– An increase in productivity is the most crucial management objective for any industry. Assessing the performance of companies listed and traded in stock market is imperative for investors and financial managers. Researchers have widely studied the performance evaluation of listed companies. Establishing efficiency of stock markets as a whole as well as of the constituent companies has been subject of wide research, but to the understanding no study has been done on evaluating the efficiencies of the OGP sector of India. In the present study the authors have concentrated on companies, out of the universe of energy companies operating in India, which form part of the CNX Energy Index and CNX 500 Index of the National Stock Exchange of India. The reason is that they represent the Indian energy market pretty well.