Gujarat PSU shareholders expected to benefit from new policy measures

Shares of Gujarat Narmada Valley Fertilizers and Chemicals (GNFC), Gujarat State Fertilizers and Chemicals (GSFC), Gujarat State Petronet Limited (GSPL), Gujarat Mineral Development Corporation (GMDC), Gujarat State Finance Corporation, Gujarat Alkalies and Chemicals Limited and Gujarat Industries Power saw strong investor interest during the day.

Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, said, “The policy decision taken by the Gujarat government for dividend, buy back, split and bonus shares for state PSUs is a step in the right direction for better corporate governance. This will provide much needed clarity to minority shareholders.”

State PSUs will have to pay a minimum dividend of at least 30% of their profit after tax to their shareholders or 5% of their net worth, whichever is higher, according to a new policy released by the Gujarat government on Tuesday. This has made State PSUs more attractive to investors in the form of higher dividend yielding stocks.

Analysts said the new policy also included other measures that meant companies would have to reward shareholders with profits and invest in the business instead of holding significant cash on their books.

As per the policy announcements, every PSU is also required to exercise its option to buy back its own shares, if it has a net worth of at least Rs. 2,000 crores and cash and bank balance 1,000 crores.

State PSUs having reserves and surplus equal to or more than 10 times their paid-up equity capital will also now be required to issue bonus shares to shareholders.

Further, in case of split of shares, the split of shares to PSUs has been made mandatory, where the market value or book value of the State PSU shares is more than 50 times, provided the current face value of the share is higher. 1.

All these measures provide clarity to investors as to what returns they can expect from dividends as well as bonuses, splits and buybacks.

Nishit Master, Portfolio Manager, Axis Securities PMS, said that an announced policy on dividend and buyback for PSUs by the Government of Gujarat is a positive step for investors as it gives investors clarity about dividend and buyback that they can invest in. companies can expect. This also leads to better capital allocation, capital discipline in these PSUs as a good amount of cash generated in a particular year is returned to the shareholders in the form of dividend/buyback, which is otherwise invested in bank deposits which Generates returns below. Cost of ownership.

This means that PSUs will now have clear directions on investing to reward investors and grow their businesses through profits generated, which is even more beneficial to the companies’ prospects and shareholders.

Master said these measures could lead to re-rating of PSU stocks in Gujarat, making them attractive dividend yielders for investors.

Kotak’s Shah said the measures would bring predictability to decision-making around capital allocation and improve governance. Notably, all the seven listed State PSUs are profitable. Further as the business grows and with clear guidelines for capital allocation and shareholder rewards, the shares are expected to become more attractive.

Head of Research, LKP Securities S. “Some of the Gujarat State PSUs may face temporary constraints in certain business verticals, given the fact that almost all of them are expanding their product lines and looking to grow,” Ranganathan said. , “Hence, in his view the new policy will go a long way towards boosting the confidence of minority shareholders as most of them are cash-rich even after their annual capex requirements with strong free-cash generation.”

“However, most of the re-rating post announcements may have already happened, following significant gains by stocks on Wednesday,” said Deepak Jasani, head of retail research at HDFC Securities. There could be some more gains for the shares. However, the focus will shift to fundamentals in the coming few days.