PSU stocks to give 30 pc annual dividend of profit or 4 pc of net worth to shareholders

MUMBAI: The government PSU stocks or CPSEs will now give a minimum annual dividend of 30 per cent of their profit after tax (PAT) or 4 per cent of their net worth to ensure consistent returns to shareholders. The government on Monday has issued revised guidelines to streamline the capital restructuring of Central Public Sector Enterprises (CPSEs), ensuring consistent returns for shareholders and improved financial flexibility.

Under the new rules,"Every CPSE would pay minimum annual dividend of 30 per cent of PAT or 4 per cent of the net worth, whichever is higher, subject to the limit, if any, under any extant legal provision. Financial sector CPSEs like NBFCs may pay minimum annual dividend of 30 per cent of PAT subject to the limit, if any, under any extant legal provisions."

The updated framework, released through an official memorandum by the Department of Investment and Public Asset Management (DIPAM), introduces key measures for dividends, share buybacks, and bonus share issuance. A significant addition is the eligibility criteria for share buybacks. CPSEs can repurchase shares if their market price consistently remains below book value for six months and they have a net worth of at least Rs 3,000 crore and a cash balance exceeding Rs 1,500 crore.

The guidelines said "CPSE, whose market price of the share is less than the book value consistently for the last six months, and having net-worth of at least Rs. 3000 crore and cash & bank balance of over Rs. 1500 crore may consider the option to buy-back their shares".

This flexibility is designed to encourage CPSEs to engage in financial restructuring that aligns with evolving market conditions. The revised guidelines also encourage CPSEs to focus on value creation by aligning operations with performance indicators like capital expenditure (CAPEX), EBITDA, return on net worth, and asset turnover ratios. This aims to maximize returns for shareholders while enhancing resource efficiency.

Additionally, CPSEs can issue bonus shares if their reserves exceed 20 times the paid-up equity share capital. "Every CPSE may consider the issue of bonus shares when their defined reserves and surplus are equal to or more than 20 times of its paid-up equity share capital," the memorandum stated.

To prevent inconsistencies, exemptions from compliance must be approved by DIPAM within the same financial year. The government clarified that the guidelines would be reviewed every three years to ensure their relevance amid changing market dynamics.