The Hindu Business Line : Gujarat Govt order weakens State PSUs

Mumbai, Sept. 8 With Gujarat Government requesting State-owned companies to contribute up to 30 per cent of their profit before tax towards welfare activities, sentiment has turned negative for these public sector stocks on Dalal Street.

The stock price of Gujarat Mineral Development Corporation Ltd (GMDC) has slipped by around 20 per cent after the Government made the request to its State-owned companies. Gujarat State Fertilizer Corporation has dipped by 11 per cent; Gujarat Alkalies by 9.52 per cent, Gujarat State Petronet by 7.14 per cent, Gujarat Narmada Fertilizer Corporation by 5.92 per cent during the same period.

The contributions are to be made to the Gujarat Socio Economic Development Society. Approval is to be sought from shareholders by these companies.

GMDC have contributed Rs 122.52 crore to charitable funds, according to the company’s annual report.

GMDC is majority owned by the Gujarat Government, which has a 74 per cent stake. With most of these companies being majority owned by the Government, approval for this contribution can be easily obtained.

Analysts said other State Governments too could follow suit.

From the shareholders’ point of view, this is definitely a negative sentiment as contributions towards corporate social responsibility do not generate any returns. So the sentiment towards these stocks could turn negative, said Mr Hitesh Agrawal, Head of Research, Angel Broking Ltd.

Government-owned companies’ stocks will fall if such resolutions are passed at their AGMs, said analysts.

More benefits

Lesser funds would be available for business purposes, but in the long-term such companies might get more benefits in terms of funds being allotted to them by trusts etc, said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

The investors will be more reluctant to put money in such companies if resolutions like this are passed, said the investment manager of a mutual fund.

However, there is a section of marketmen, who are of the view that for a Government company this move should be seen as positive.

Corporate citizens have a certain social responsibility towards the society, said Mr Manish Sonthalia, Vice-President-Equity, Motilal Oswal Financial Services. This can be a roadmap for other companies to follow, said Mr Sonthalia. But this step should not be construed as negative as there are intangible benefits that can flow from such an arrangement, he said.

The Government could have tried other methods to get funds for social and welfare schemes, said Mr Agrawal.

For instance, the companies could increase the dividend payout in which case they could have got higher proportion of the profits as major shareholders and that amount could have been used for CSR purposes, said the head of research of a broking firm.

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