Equity share issued to the shareholders is the basic capital invested by the investors. In the Primary markets with growth and future earning potential, investors are ready to pay premium on the sale of equity shares. Stocks with high operating cash flows, high earning per share are rewarded with bonus shares such that large number of shareholders may be able to invest in the share. As for example in the case of MRF where capital base is low and EPS is more than Rs. 1000 which makes its CMP around Rs 80,000 and hence very few investors can invest into it. So to maintain the share price at a reasonable level a company keeps declaring bonuses and increases their base capital.
Before we go on to list the upcoming bonus issues, here is detailed all about bonus shares:
What is bonus share?
In a bonus share issuance, existing shareholders of a company are eligible to receive additional shares based on the number of shares actually held by them. This entails no additional cost for an investor. In the process of bonus shares issuance, primarily, the company's earnings that have accumulated over a period of time, which are not distributed to investors as dividend, is converted into free shares.
The process of bonus share issuance to the company's current shareholders is also referred as capitalization of profits as the same is doled out of the company's reserves or profits.
Illustration to understand bonus share issuance:
Say a company ‘X' announces 4:1 bonus and the investor holds 200 equity shares of that company ‘X, then for every 1 share, the investor shall be entitled to receive 4 additional shares for free. So, his ownership in the company would increase as following 800 bonus shares and 200 original shares that he owned, making the total to 1000 shares.
Why do companies issue bonus shares?
Companies come up with bonus share issuance to attract more of retail participation as well as to increase their equity base. When bonus shares are issued, outstanding shares in the market increase, which results in the decrease in the price per share of the company issuing bonus shares.
To know how the issuing company and investors benefit from bonus share issue read here.
Prerequisite for bonus share issuance
- The bonus share issuance needs to be approved by the Articles of Association. In a case when the Articles of Association is unable to sanction the same, the company needs to pass a special resolution act at their general meeting. Note in the case of a general meeting, the bonus share issuance need to be approved by the shareholders also.
- Also, the company needs to see that the total share capital does not becomes higher than the authorized share capital due to the bonus issue. And if at all it happens, the Memorandum of Association's capital clause needs to be modified by augmenting the authorized capital.
All in all the Sebi guidelines on the bonus share issuance need to be adhered to.
Bonus share issuance: Understanding record date, ex-bonus date
The company that announces bonus share issuance also reveals the ‘record date'. So, what is the record date?
Record date is a cut-off date decided by the company for determining shareholders who will be eligible for the bonus shares. Basically, those shareholders who own the company's scrip as on the cut-off date are entitled to receive bonus shares.
Ex-bonus date: After the company declares the bonus but before the record date, the shares of the bonus issuing company are referred as ‘Cum bonus'. Besides, there is an ex-date which is set one business day before the record date. Importantly, in India we adhere to the T+2 rolling system for share delivery.
Determining the eligibility for bonus shares
Now to be eligible for receiving bonus shares, you need to buy shares before the ex-date as in a case when you happen to purchase the shares of the company that has announced bonus shares on the ex-date, the same shall not be credited into your account on the record date and hence you will not be entitled for the bonus shares.
How bonus shares get credited to the eligible shareholder’s account?
As soon as the new ISIN or International Securities Identification Number is allotted to the bonus shares, the bonus shares get credited to eligible shareholders' account within a period of 15 days.
List of companies turning ex-bonus soon
|Company Name||Proportion||Record Date||Ex-Bonus Date|
|KKV Agro Powers||1:4||18-Oct-2021||14-Oct-2021|
|HEC Infra Projects||4:1||08-Oct-2021||07-Oct-2021|
|ACE Integrated Solut||1:2||08-Oct-2021||07-Oct-2021|
|Libas Consumer Prod||1:5||22-Sep-2021||21-Sep-2021|
|Apollo Tricoat Tubes||1:1||18-Sep-2021||16-Sep-2021|
|APL Apollo Tubes||1:1||18-Sep-2021||16-Sep-2021|
|APL Apollo Tubes||:||18-Sep-2021||NA|
|Mahindra Life. Dev||2:1||15-Sep-2021||14-Sep-2021|
|Mittal Life Style||1:10||01-Sep-2021||31-Aug-2021|