GSFC: Revised payout resolution – Gujarat PSU

27 Apr 2023 , 12:23 PM

Recommendation: Add

Target Price: Rs 140

 

In a major shareholder-friendly resolution, Gujarat govt released a resolution framing guidelines for dividend distribution, buybacks and bonus shares for state PSUs. The notification mandates SPSUs to maintain a payout — ~30% of PAT or 5% of net worth — whichever is higher. Analysts of IIFL Capital Services believe the resolution aims to increase investor confidence in SPSUs and aid the ongoing disinvestment efforts. They shall revisit their estimates and TP post results and further clarity from the company.

Dividend payout — ~30% of PAT or 5% of net worth — whichever is higher: 

Every state PSU (SPSU) is mandated to pay out maximum 30% of PAT or 5% net worth (subject to other legal provisions). With this move, the government intends to boost investor confidence by increasing the return on net worth across SPSUs. However, the notification also states that on a case-to-case basis, a company could be allowed (post approval from the Finance Department) to pay lower dividend, considering factors such as capex plans, borrowing level and cash/bank balance. Additionally, every PSU with a net worth of >Rs20bn and a cash and bank balance of >10bn has been asked to exercise the option of buy-back of shares. SPSUs have also been asked to consider share bonus and splits to optimize capital structure.

Decision likely to be part of disinvestment plan: 

Earlier this year, Gujarat government began the process of divesting from State-run PSUs to make funds available for public projects and debt restructuring. Analysts of IIFL Capital Services believe these measures are aimed at gaining investor interest/confidence in SPSUs.

Revisit estimates post further clarity: 

While analysts of IIFL Capital Services currently leave their forecast estimates and target price unchanged, we shall revisit them post results and further clarity on the approach taken by GSFC. They note that GSFC is currently in a heavy capex cycle and with earnings to remain volatile; it may choose to pay less than the mandated dividend.