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New dividend, bonus share policy to create value for Gujarat PSUs: Analysts

Analysts believe the move will create shareholder value

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For buyback of shares, every state PSU having a net worth of at least Rs 2,000 crore and cash and bank balance of Rs 1,000 crore have been mandated to exercise the option to buy back their own shares

Deepak KorgaonkarPuneet Wadhwa Mumbai /New Delhi

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Shares of listed public sector undertakings (PSUs) in Gujarat gained up to 10 per cent on the BSE during Wednesday’s intra-day trade. This came after the state government on Tuesday announced a new policy for minimum level of dividend distribution and bonus shares to shareholders of listed companies and PSUs of the state.

Analysts believe the move, though appears to be milking companies for dividend, will eventually create shareholder value and improve the sentiment of these stocks at the bourses. Since these companies may not have immediate aggressive capital expenditure (capex) plans, the cash in their books can be put to good use, they said.

“Though it may seem that the government is milking them for dividends, it will eventually benefit all the shareholders. These companies are on a strong fundamental footing, but have traditionally been low-dividend payers. The move will improve shareholder value and market sentiment. Overall, it is a positive step that will keep interest of investors alive in these counters,” said A K Prabhakar, head of research at IDBI Capital. Among the lot, Gujarat Mineral Development Corporation (GMDC) (Rs 159.75), Gujarat Industries Power Company (GIPCL) (Rs 91.33) and Gujarat State Fertilizers & Chemicals (GSFC) (Rs 153.30) have frozen at the maximum upper limit of 20 per cent on the BSE. Gujarat Alkalies & Chemicals (GACL) ended 17 per cent higher at Rs 734.80. Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) soared 11 per cent to Rs 586.90, followed by Gujarat State Petronet (GSPL) (up 7 per cent at Rs 283.80) and Gujarat Gas (up 1 per cent at Rs 463.30). In comparison, the BSE Sensex closed 0.28 per cent higher at 60,300.58.

According to reports, Gujarat has mandated a minimum of 30 per cent of profit after tax (PAT) or 5 per cent of net worth, whichever is higher, to be the minimum dividend declared for shareholders. However, only the minimum level and maximum permissible level of dividend should be declared.

For buyback of shares, every state PSU having a net worth of at least Rs 2,000 crore and cash and bank balance of Rs 1,000 crore have been mandated to exercise the option to buy back their own shares.

State PSUs that have defined reserves and surplus equal to or more than 10 times their paid-up equity share capital are required to issue bonus shares to their shareholders.

Gujarat has mandated splitting of shares where the market price or book value of state PSUs’ shares exceeds 50 times of its value. The face value of the share has to be more than Re 1. The dividend track record of most of these companies has been nothing much to write home about.

In the financial year 2021-22 (FY22), for instance, only GNFC and Gujarat Alkalies paid a dividend of Rs 10 per share. GSFC, Gujarat State Petronet, Gujarat Gas and Gujarat Industrial Power paid a minuscule dividend of around Rs 2 per share, data shows. G Chokkalingam, founder and head of research at Equinomics Research & Advisory, too, gave a thumbs-up to the development. He said the move will go a long way in creating value for all stakeholders.

“These companies are mostly into fertiliser & chemical manufacturing and may not have immediate capex plans as well. The move will see these companies utilise idle cash in generating wealth for investors, including the government. Fundamentally, too, they remain on a strong footing. Overall, a win-win both for the companies and investors,” he said.

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First Published: Apr 26 2023 | 9:38 AM IST

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