1:2 Bonus Issue: Multibagger Maharatna PSU Company Announces Record Date, Shares In Focus

Hindustan Petroleum Corporation Ltd (HPCL) announced on May 27 that it will issue bonus shares in a 1:2 ratio. This means shareholders will receive one bonus equity share of Rs 10 each for every two existing equity shares of Rs 10 each that they hold. The record date to determine eligible shareholders has been set for Friday, June 21, 2024.

HPCL's Board of Directors recommended the bonus issue, which is pending approval from shareholders through a Postal Ballot (e-voting) process administered by CDSL. This voting process began at 9:00 am on Monday, May 13, 2024, and will conclude at 5:00 pm on Tuesday, June 11, 2024.

This is the third time in seven years that HPCL is issuing bonus shares. In 2016, shareholders received bonus shares at a 2:1 ratio, granting two additional shares for each share held. The following year, the company again issued bonus shares at a 1:2 ratio.

Bonus shares are a common strategy used by companies to utilize their free reserves effectively. By issuing bonus shares, companies can enhance their Earnings Per Share (EPS), increase paid-up capital, and reduce reserves. For shareholders, this means a higher shareholding at no extra cost, which can lead to greater potential for returns.

To be eligible for HPCL's bonus shares, investors must purchase the stock before the ex-date. Shares bought on or after this date will not qualify for the bonus issue. This stipulation often leads to increased trading activity as investors look to benefit from the bonus share issuance.

The announcement positively impacted HPCL's stock, which ended Monday's trading session in the green. The stock price rose by 2.31%, closing at Rs 556 per share, compared to the previous close of Rs 543.35 on Friday of the last week.

The bonus issue comes on the back of HPCL's financial results for the fourth quarter of FY24, reported on May 9. The company saw a 25% year-over-year decline in its consolidated net profit, which amounted to Rs 2,709 crore. This drop was attributed to lower refining margins and increased operational costs.

Despite the year-over-year decline, HPCL reported significant sequential profit growth, exceeding market expectations. The company's consolidated total income increased by 3% quarter-on-quarter and 6% year-on-year, reaching Rs 1.22 lakh crore in Q4 FY24.

One of the factors affecting HPCL's earnings was the Rs 2 per litre reduction in petrol and diesel retail prices implemented on March 15. While this price cut influenced earnings, its impact was less significant compared to other factors such as refining margins and operational expenses.

HPCL's decision to issue bonus shares reflects an approach to maintain investor confidence and enhance shareholder value amidst a challenging economic environment. The bonus issue is expected to boost market sentiment and attract more investors, thereby potentially driving up the stock price.

The company's ability to deliver sequential profit growth despite a challenging quarter demonstrates resilience and effective management. By leveraging its free reserves to issue bonus shares, HPCL is not only rewarding its current shareholders but also positioning itself as an attractive investment opportunity.

As the record date approaches, investors will be keenly watching HPCL's stock performance. The bonus share issuance is likely to generate increased trading activity as investors seek to qualify for the bonus shares. Additionally, HPCL's strategic initiatives and financial health will remain under scrutiny as the company navigates the complexities of the oil and gas market.

For shareholders, the bonus share issue represents an opportunity to increase their holdings in one of India's leading oil marketing companies without any additional cost. For potential investors, the upcoming record date and the company's strategic moves might present a compelling case to consider HPCL as a valuable addition to their portfolio.

The shares of Hindustan Petroleum were seen trading near flatline at Rs 557 per share as of 9:35 am on the National Stock Exchange (NSE). The stock has given multibagger returns of 115% in the last one year.