FinMin asks profit making PSUs to consider stock split

The idea behind stock split is to encourage participation of small investors in capital markets. High price of shares sometimes act as a deterrent for investors to invest in the company and CPSEs needs to decide, from time to time, the option of splitting shares.

State-owned companies have cash and free reserves estimated at Rs 2.6 lakh crore and the newly created DIPAM has been entrusted with the task of ensuring its optimal utilisation.

"We have been asked to shell out higher of 30 percent of net profit or 5 percent of net worth as dividend," he said.

An official in the finance ministry said that the idea behind the exercise is to ensure that cash does not remain idle and is utilised optimally by the PSUs who have high networth and negligible or zero leverage ratio, and whose expansion of business does not justify holding so much cash.

To assess the cash utilisation of PSUs, the government has started looking at ratios like -- return on networth, dividend to networth, profit after tax to networth.

In order to evaluate the performance of PSUs, the government has evolved 10 parameters which include capacity utilisation, leveraging networth, return on investment, technology upgradation and marketing efficiency.

While renaming the Department of Disinvestment as DIPAM in the Budget, Finance Minister Arun Jaitley had said that the department "will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issued such as capital restructuring, dividend, bonus shares." Post this, DIPAM has helped exchequer garner Rs 4,500 crore through buy back of shares by cash rich Hindustan Aeronautics and Bharat Dynamincs in March.

Cash-rich mineral explorer NMDC, MOIL and aluminium major NALCO has also announced buy back of shares.

This could together fetch about Rs 10,000 crore to the exchequer.