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

Shares of the listed public sector undertakings (PSUs) based in Gujarat gained up to 10 per cent on the BSE in Wednesday’s intra-day trade, after the Gujarat 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 the 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 improve 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) rallied 10 per cent to Rs 146.80 on the BSE in intra-day trade. Gujarat Industries Power Company Ltd (GIPCL) (Rs 83.65), Gujarat State Fertilizers & Chemicals (GSFC) (Rs 139.20) and Gujarat Alkalies & Chemicals Ltd. (GACL) (Rs 687.55) rallied up to 8 per cent each.   Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) (Rs 567.70), Gujarat State Petronet (GSPL) (Rs 280.70) and Gujarat Gas (Rs 465) were up in the range of 1 per cent to 5 per cent. In comparison, the S&P BSE Sensex was down 0.03 per cent at 60,113 at 09:21 AM.   Gujarat, according to reports, 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 a minimum level of dividend declared for shareholders. However, only the minimum level and maximum permissible level of dividend should be declared.   For the 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. In the case of bonus shares, state PSUs that have defined reserve and surplus equal to or more than 10 times their paid-up equity share capital are required to issue bonus shares to their shareholders.   In case of splitting of shares, Gujarat has mandated splitting of shares where the market price or book value of state PSUs’ shares exceeds 50 times of its value, provided its existing face value of a share is more than Re 1.   The dividend track record of most of these Gujarat-based companies has been nothing much to write home about. In fiscal 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 miniscule 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 and said the move will go a long way in creating value for all stakeholders.   "Gujarat-based companies are mostly into fertiliser & chemical manufacturing and may not have immediate capital expenditure (capex) plans as well. The move will see these companies utilise idle cash in generating wealth for their investors, including the government. Fundamentally, too, they remain on a strong footing. Overall, a win-win both for the companies and the investors," he said.