5 Indian companies which have consistently declared bonus shares


So, to increase the marketability or liquidity of the shares, sometimes companies issue bonus shares.

Bonus shares are free shares that shareholders receive against shares they currently hold. These allotments typically come in a fixed ratio like 1:1, 2:1, 3:1 etc.

Assume an investor holds 1 share of company ABC which is trading at Rs.300.

If the ratio is 2:1, existing shareholders will receive two “bonus” shares for every 1 share originally held. Post the issue, investors will have three shares of ABC Ltd. 

So, does this mean that the investor will now have 3 shares worth 900?

No, that is not the case. 

The investor who had one share worth 300 before the 2:1 bonus issue, will now have three shares worth 100.

This is because the bonus issue does not affect the total shareholding of the individual shareholder or the value of the investment. As the number of shares held increases, the share price gets divided by the same ratio.

Sometimes, when companies are unable to payout dividends, they might issue bonus shares. 

Some people think that issuing bonus shares can be beneficial for share prices. The logic behind this is that the increased marketability of the shares leads to increased demand. This, in turn, pushes the share price up.

In this article, we highlight 5 stocks that have a history of issuing bonus shares to their investors and could issue more in the future…

  1. Infosys

First on our list is the IT giant, Infosys. 

Since 2000, the company has issued bonus shares to its shareholders five times. Barring 2004, where the ratio offered was 3:1, the company has strictly followed a 1:1 bonus share ratio. 

This means that for every share held, investors received one more share. 

However, this does not change the total value of the investment as the price of the share also splits proportionately.

The latest bonus issue was done in 2018, when the company declared a bonus issue of 1:1.

Infosys is India’s third-largest IT vendor boasting a total employee strength of over 240,000. The insurance and financial services (32% of the total revenues) segment commands the biggest share in the industry vertical, followed by retail (16%), and communications (13%).

For the June 2022 quarter, Infosys reported a 23.4% YoY growth in revenue. However, the net profit grew by 1.2% YoY on account of higher employee costs.

  1. BPCL

Next on our list is the Indian oil major, Bharat Petroleum Corporation Limited (BPCL). 

The company has rewarded its shareholders with bonus shares four times since the year 2000. While most of the shares offered were in the ratio of 1:1, the company’s latest offering in 2017 was 1:2. 

India’s second-largest refining and marketing company by volume, BPCL operates two large refineries in the country located in Mumbai and Kochi. 

The company also has a 12.5% stake in Petronet LNG and a 22.5% stake in Indraprastha Gas – the city gas distribution monopoly in Delhi.

For the June 2022 quarter, BPCL reported a 54.4% YoY growth in revenue. However, the company reported a loss in the quarter ended June 2022. The loss was led by larger-than-expected marketing losses and an even bigger foreign exchange losses in the quarter.

  1. Wipro

Third on our list is the Indian IT major, Wipro. 

The company has offered bonus shares to its shareholders five times since 2000. The latest offering was in 2019, where the company offered its shareholders bonus shares in the ratio of 1:3. 

This means that for every 3 shares held, the shareholders got an additional share.

Wipro is one of the largest IT companies in India. The company caters to clients in the financial, manufacturing, and hi-tech sectors.

For the June 2022 quarter, Wipro reported a 16.8% YoY increase in revenue. However, the company’s net profit fell 19.9% YoY due to higher employee costs which were led by excess hiring across the sector and wage hikes.

  1. ITC

Fourth on our list is the FMCG (fast-moving consumer goods) major, ITC.

In the past few years, the company has declared bonus shares a total of three times. The company’s latest offering was in 2016, where the company offered the shares in the ratio of 1:2. 

This means that for every two shares held the shareholder will get one more share.

ITC has a 75% market share by volume of the Indian cigarette market. This accounts for majority of the company’s business. 

However, ITC has consciously diversified into non-tobacco businesses to reduce its dependence on a single category. Now, the company runs a successful FMCG and hotel business. 

For the June 2022 quarter, the company reported 33.3% YoY revenue growth and 33.5% YoY net profit growth. This was led by a strong recovery in the non-FMCG business segment.

  1. Samvardhana Motherson 

Last on our list is Samvardhana Motherson, formerly known as Motherson Sumi Systems Limited. 

The auto ancillary player has rewarded its shareholders eight times since 2000, all with a ratio of 1:2. The last bonus issue was done in 2018 in the ratio of 1:2.

Samvardhana Motherson primarily caters to the automobile sector. Over the years, the company has expanded its portfolio to a wide range of products such as rear-view mirrors, polymer parts like bumpers, dashboards and door trims, HVAC systems, and rubber components.

For the June 2022 quarter, the company reported an 8.6% YoY jump in revenue led by the wiring harness division. .

However, the net profit fell 48.2%.  driven by margin declines across the wiring harness, polymer, and vision systems divisions.

For more details, check out the company’s financial fact sheet and quarterly results.

In conclusion

When financially strong companies announce bonus shares, it usually boosts the investor’s faith in the company. Mainly because it signals the company is committed to its shareholders. 

Issuing bonus shares can increase the liquidity of a stock, increasing retail participation. This in turn, could give a boost to the share price. However, there is little evidence for the same.

Moreover, much like dividend payments, bonus issues are discretionary. They are highly dependent on a company’s earnings and management policy. And both these factors can change.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com


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