Bonus shares bonanza by two dozen companies this year

As many as 21 companies including Infosys, Kotak Mahindra Bank and Federal Bank have announced bonus issues in the last four-and-half months

At a time when analysts are concerned about the weak financial performance of India Inc in the recently-concluded quarter, companies have been rewarding shareholders by announcing handsome bonus issues.

Thus far in calendar year 2015 (CY15), as many as 21 companies, including Kotak Mahindra Bank, Infosys, and Tech Mahindra have announced bonus issues in the past four and a half months, with five of them making such announcements this month.

The bonus issuance has almost doubled, compared to the previous year. According to CapitalinePlus data, 11 companies had made announcements during the same period in 2014.

Of these 21 companies, nine firms that announced their March quarter results have reported an average single digit growth in net profit. The aggregate net profit of the nine firms increased eight per cent to Rs 5,816 crore in the March 2015 quarter against Rs 5,373 crore in the same quarter in the previous year.

On Monday, Federal Bank, Relaxo Footwears and SRS announced bonus shares. While the boards of Relaxo Footwears and SRS have recommended issue of bonus shares in the ratio of 1:1, or one share for every share held each, Federal Bank’s board will meet on May 16 to consider the issue of bonus shares.

Last week, Kotak Mahindra Bank and Lancor Holdings announced bonus shares in the ratio of 1:1 each. Shivam Autotech board will meet on May 18 to consider issuance of bonus shares to equity shareholders of the company.

“Companies usually announce bonus issues as an indication that the distributable surpluses are large. If the companies maintain dividend percentage, the shareholders also get rewarded by getting more dividend in hand given the increase in number of shares they hold,” says Ajay Bodke, head of investment strategy and advisory, Prabhudas Lilladher.

Infosys, HCL Technolo-gies, Tech Mahindra and Persistent Systems from the information technology  (IT) sector have recommended bonus shares to their existing shareholders. All these four companies announced bonus issue in the ratio of 1:1. Aarti Drugs; VA Tech Wabag; and Rai Saheb Rekhchand Mohota Spinning & Weaving Mills are among the few other notable companies, which have recommended bonus shares thus far in CY15.

According to Jaganna-dham Thunuguntla, head of fundamental research at Karvy, issue of bonus shares is a mechanism of utilising the reserves. He says that whenever a company has accumulated profits, it can reward the shareholders by issuing bonus shares. “This does two things. One, this is a reward to the shareholders for staying invested in the company. Two, due to this bonus issue, the share starts to trade on ex-bonus basis and the share price reduces, which increases the affordability of the shares for investors as the price denomination for such shares reduces,” he adds.

“Companies that have been sitting on reserves would have realised that it was an appropriate time to reward their shareholders. As a result, they turned to issue of bonus shares as a medium for rewarding them,” he adds.

On IT companies, Bodke feels most companies have a large cash holding and are waiting for inorganic growth opportunity.

“If they have large cash on their balance sheet, there are chances the return on equity (ROE) will get depressed. Then there are demands that the company either buy back the shares from the shareholders liberally. That way, the ROE will also not be depressed,” he says.