Gujarat PSUs rally as State unveils new norms for dividend, buyback, bonus issues

Posted on by

Gujarat government-run public sector projects (PSUs) have caught the attention of investors after the state announced its new guidelines on minimum dividend distribution and bonus issuance. Acquired all 7 listed GPSUs with heavy buying on every counter.

It was the biggest gainer Gujarat Fertilizers and Chemicals Limited (GSFC), Gujarat Minerals Development Corporation (GMDC) and Gujarat Industrial Power Company Limited (GIPCL), each gaining 20 per cent on Wednesday to close at INR 153.30, INR 159.70 and INR 91.10 respectively on the NSE.

Gujarat Alkalies and Chemicals Limited (GACL) posted a strong gain of 17.21 percent to close at INR 733.50, while Gujarat Valley Narmada Fertilizers & Chemicals (GNFC) gained 10.55 per cent to close at ₹587. Gujarat Petronet Ltd (GSPL) and Gujarat Gas Limited (GGL) advanced with gains of 7.15 percent and 1.01 percent, respectively.

In its latest regulations, the Gujarat government has mandated the state’s PSUs to submit dividends of a minimum of 30 percent of their after-tax earnings, or 5 percent of net worth, depending on whichever is higher. Also, the policy requires each PSU to have a net of at least Rs 2,000 crore and cash and bank balance of Rs 1,000 crore to exercise its share buyback option.

State PSUs, having specified reserves and a surplus equal to or greater than 10 times their paid-up capital in equity, are required to issue bonus shares to their shareholders. Further, PSUs are mandated to split their shares where the market price or book value of the PSU shares exceeds 50 times their value, provided the current par value of the share is more than $1.

Analysts view the reaction as sentiment-driven buying. “Stocks will react when the individual announcements come out,” said Kishore Ostwal, CMD, CNI Research.

S. Ranganathan, Head of Research at LKP Securities, said, “While a few Gujarat-run entities may face temporary headwinds in a few of their business segments, the reality is that almost all of them are expanding product lines and looking to grow. Hence, The new policy in our view will go a long way towards boosting the confidence of minority shareholders since most of them are cash rich even after their annual capital requirements through strong free cash generation.”

The state has established about 100 PSUs in different sectors, with specific targets to be achieved.

Meanwhile, the BSE Sensex ended the day with a marginal gain of 0.28 percent and the Nifty50 closed up 0.25 percent.