Infosys to consider bonus shares or stock split

Board meets on April 13; Analysts expect 1:1 bonus issue.

Technology bellwether Infosys Technologies yesterday sprang a surprise by saying its board would meet on April 13 to consider recommending an issue of bonus shares or a stock split.

The Infosys stock gained 2.71 per cent to close at Rs 5,312.15, off the day's high of Rs 5,580, on selling at higher levels. The stock had risen more than 7 per cent in early trades, immediately after the announcement. Infosys has 66.4 million outstanding shares with a face value of Rs 5 each.

Although the Infosys board will consider the alternatives of a stock split and a bonus issue, most analysts expect the company to announce a liberal 1:1 bonus issue. Gurunath Mudlapur, head of research at Khandwala Securities, told Business Standard, "We expect the company to announce a bonus issue in the ratio of 1:1."

A bonus issue puts additional shares in the hands of existing investors at no cost to them, and thereby adds to liquidity in the stock. Stock splits typically reduce the value of the share to the extent of the split, thereby making even high-priced stocks accessible to retail investors. In both cases, the number of shares increases in the ratio of the bonus and stock split.

Arun Kejriwal, director of Kris, expects the stock will be split from the current paid- up value of Rs 5 per share to five shares of Re 1 paid-up each. However, he said there was a lot of worry in the market over the results of tech companies, especially with the rise in the value of the rupee against the dollar.

Infosys has a hefty book value of Rs 429.60 per share (on the face value of Rs 5). The last time the company gave a bonus was in February 1999, a liberal 1:1 bonus. In fact, all the three past bonuses from Infosys have been at 1:1. Infosys has an equity base of Rs 33.30 crore.

Pradip Doshi of Pradip C Doshi Stock Broker said, "I appreciate the idea of a bonus issue as it indicates the management's confidence in the future growth of the company. However, the intention of a stock split could be to bring parity with other stocks such as Satyam and Wipro."