IRFC, BHEL, Other PSU Stocks Surge On Revised Guidelines On Dividend Payments And Share Buybacks

Several public sector undertakings saw an uptick in stock prices on Tuesday following the finance ministry's announcement of revised norms for dividend payouts, share buybacks, and stock splits.

Shares of prominent PSU companies surged, with Indian Railway Finance Corporation Ltd. jumping 6.27% to Rs 146.96, Bharat Heavy Electricals Ltd. rising 4.73% to Rs 233.20, and Power Finance Corp. climbing 4.42% to Rs 479.50.

The move, aimed at improving capital management and enhancing the performance of state-run enterprises, sparked investor optimism with stocks of PSU companies rising 2%-6%.

The revised guidelines, which update rules set in 2016, are seen as a major step towards enhancing the value of Central Public Sector Enterprises. Under the new norms, which will come into effect from the 2024-25 fiscal year, CPSEs are mandated to pay a minimum annual dividend of 30% of their profit after tax or 4% of their net worth, whichever is higher.

Other notable gainers included Cochin Shipyard Ltd., which advanced 4.68% to Rs 1,362.30, and Housing & Urban Development Corp., which saw a 5.31% increase to Rs 214.47.

The BSE PSU index, a barometer for the performance of state-run companies, gained 2% during the session, with 51 stocks advancing and only 4 declining. Indian Renewable Energy Development Agency and Ircon International Ltd. also saw notable gains of 5.39% and 5.31%, respectively.

However, not all PSUs followed the upward trend. Shares of National Aluminium Co. fell 1.09% to Rs 237.32, while State Bank of India slipped 0.82% to Rs 807.65.

The key highlights of the revised guidelines include:

• Dividend Payments: CPSEs are now required to pay at least 30% of their PAT as a dividend, or 4% of their net worth, whichever is higher. Financial sector CPSEs like non-banking financial companies are also expected to comply with this rule.

• Share Buybacks: The updated rules allow CPSEs whose market price has been consistently lower than their book value for six months and who have a net worth of at least Rs 3,000 crore or a cash balance of Rs 1,500 crore, to consider share buybacks. This move is expected to benefit shareholders by returning excess cash to investors.

• Bonus Shares: Companies now need to have reserves at least 20 times their paid-up equity share capital (up from the previous threshold of 10 times) to issue bonus shares.

• Interim Dividends: CPSEs may now pay interim dividends every quarter, or at least twice a year, with a requirement to pay 90% of the projected annual dividend in instalments. This is expected to provide more regular payouts to investors.

• Share Splits: The guidelines also introduce conditions for share splits, which can be considered if the market price exceeds 150 times the face value of the stock over the past six months. There is also a mandatory cooling-off period of three years between splits.