1:1 Bonus Issue By Largest Stock In India: Reliance Board To Meet On September 5; Five Things To Know

India's largest stock in terms of market valuation, is going to consider and most likely approve bonus issue on September 5, 2024. This is none other than India's richest man, Mukesh Ambani-backed Reliance Industries who is the largest company in the country. Reliance's board is set to meet on Thursday, and accordingly, the heavyweight stock will be in focus. Here are five key things to know ahead of the board meeting:

1. Upcoming Bonus Issue:

A meeting of the board of directors of Reliance is scheduled on Thursday, September 5, 2024, to consider and recommend to the shareholders for their approval, the issue of bonus shares in the ratio of 1:1 to the Equity Shareholders of the Company by the capitalization of reserves.

The ratio of 1:1 bonus issue means that Reliance will issue one free share on the existing 1 equity share. Simply put, the number of shares in Reliance will double on the ex-bonus date, while the stock price will be adjusted to the ratio.

2. Reliance Bonus Issue History:

The upcoming 1:1 bonus issue is the first by Reliance Industries in seven years. The last time Reliance delivered a bonus issue was in September 2017 in a ratio of 1:1. While its first bonus issue was also of 1:1 that was delivered in November 2009.

3. Benefits Of Bonus Shares:

As per Religare Broking, in general terms, there are five benefits of bonus shares. These are:

- Increased Liquidity: The issuance of bonus shares increases the number of shares in circulation, thus enhancing liquidity.

- Market Appeal: The share price typically decreases post-bonus issuance, making it more affordable for new investors.

- Shareholder Goodwill: Bonus shares improve relations with existing shareholders as they feel rewarded.

- No Tax Impact: For shareholders, bonus shares are generally not taxable until sold, unlike dividends, which are taxable when received.

- Capital Structure: For companies, issuing bonus shares helps optimise the capital structure without affecting cash reserves.

4. Reliance Industries Share Price Will Get Cheaper:

According to ICICI Direct's website, companies issue bonus shares to encourage retail participation and increase their equity base. When the price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. An increase in the number of shares reduces the price per share. But the overall capital remains the same even if bonus shares are declared.

A similar trend will be seen in Reliance shares as well after the bonus issue.

5. How To Be Eligible For Reliance Industries Bonus Issue?

As per Motilal Oswal's blog, in general terms, the eligibility for bonus shares depends on the record date and ex-date of the shareholders. That being said, the record date is a cut-off date set by the company, and the investors must be shareholders of the company before this date for them to be eligible to receive stock bonus share issues. Besides, the ex-date is also on the same day as the record date due to the T+1 settlement adoption on BSE and NSE.

So to be eligible for the Reliance bonus issue, ensure to not miss out on these important dates.

Ahead of the board meeting, Reliance's stock price is at Rs 3029.80 apiece, with a market cap of Rs 20,49,906.74 crore. YTD, the stock has zoomed by nearly 17% on BSE.

In terms of valuation, after the company's AGM, Emkay Global said, RIL's CY24 AGM highlighted its makeover into a deep tech and new-age manufacturing entity, with Jio leading the AI charge and being embedded in every segment. The financial roadmap reiterating RIL's CY22 AGM target of doubling in value by CY27 (golden decade), besides Retail and Jio also doubling their EBITDA between FY24 and FY28, were other key takeaways (we build in 70-90% growth). However, a key notable was the chairman indicating New Energy becoming as big and profitable as O2C over the coming 5-7 years (ie >Rs600bn EBITDA by FY31 and projects being CF-positive from Day-1). Besides the progressive start of giga-factories starting end-FY25, RIL has leased land for generating 150BU of power in Kutch, started building its own transmission infra, and secured sites at Kandla Port for green H₂/derivative logistics. No update on Retail or Jio monetization, though, was a dampener.

Emkay's note added, "While execution is key, we believe 'New Energy' segment earnings would contribute meaningfully FY28 onward. Overall, we view the AGM KTAs constructively and maintain a positive stance on RIL; retain ADD and TP of Rs3,335."