Gujarat PSU stocks surge up to 17%; here’s why

Shares of Gujarat-based public sector companies were in an upbeat mood on Wednesday, with the stock price of seven state-owned listed entities rallying up to 17% on the BSE, in an otherwise choppy broader market, a day after the state government announced a new policy for dividend distribution and bonus shares for PSUs. The Gujarat government has also issued norms for when PSUs of the state go in for stock splits and share buybacks.

Cheering the news, shares of Gujarat Alkalies & Chemicals Ltd. (GACL) rallied as much as 10.6% to ₹692.80 on the BSE, Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) jumped 8.2% to ₹574.85, Gujarat State Petronet (GSPL) climbed 10.4% to ₹293.35, and Gujarat Gas added 1.3% to ₹465 in intraday trade today.

Among others, Gujarat Mineral Development Corporation (GMDC) zoomed 13.8% to ₹151.50, Gujarat Industries Power Company Ltd (GIPCL) gained 16.9% to ₹88.95, and Gujarat State Fertilizers & Chemicals (GSFC) added 14.4% to ₹145.90 during the session so far.

In contrast, the BSE Sensex is swinging between gains and losses, hitting an intraday high and low of 60,188 points and 59,955 points, respectively, against the previous closing level of 60,131. At the time of reporting, the benchmark index was trading 41 points, or 0.07%, higher at 60,172 level.

As per the new policy released on Tuesday, the state-owned PSUs have to compulsorily declare dividend and bonus shares, which is likely to add to the valuation of these entities. The state has mandated a minimum of 30% of net profit, or 5% of net worth, whichever is higher, to be a minimum level of dividend declaration for shareholders. The PSUs are entitled to pay dividends within the minimum and maximum permissible levels.

In case of share buyback, PSUs with a net worth of at least ₹2,000 crore and cash and bank balance of ₹1,000 crore have been mandated to exercise the option to buy back their own shares from shareholders. For bonus shares, the state-owned entities having reserve and surplus equal to or more than 10 times of their paid-up equity share capital are required to issue bonus shares to their shareholders.

For splitting of shares, the companies having market price or book value exceeding 50 times of their values, provided its existing face value of a share is more than ₹1, are mandated to split their shares.

S Ranganathan, Head of Research at LKP Securities, said, “While few of the Gujarat state run entities may be facing temporary headwinds in few of its business verticals, the fact is that almost all of them are expanding in their product lines and looking to grow. Hence the new policy in our view would go a long way towards boosting the confidence of minority shareholders since most of them are cash-rich even after their annual capex requirements with robust free-cash generation.”