RIL's past bonus issues fail to lift sentiment

After the latest bonus issue, the paid-up equity share of RIL will double from 3,251 mn to 6,503 mn

Shareholders might have cheered the bonus issue announcement by Reliance Industries (RIL) at its annual general meeting (AGM), however, it may not alter the oil-to-telecom conglomerate’s fortunes by much looking at the past. Previous two bonuses— in 1997 and 2009 — by the country’s most valuable company, have failed to fuel any rally in its stock price. In fact, the RIL scrip had mostly underperformed the benchmark S&P BSE Sensex over a short-to-medium term period after 1997 and 2009 bonus issues (see table).

RIL on Friday announced 1:1 bonus, meaning every shareholder of the company will get one free share for every one share held. Analysts say bonus issues are merely an accounting entry and don’t impact the financial performance of a company. After the latest bonus issue, the paid-up equity share of RIL will double from 3,251 million to 6,503 million. 

Post issuance of  bonus shares, the stock price gets adjusted and the market capitalisation remains unchanged. Shares of RIL had gained 3.8 per cent on Friday, even as the Sensex gained 0.4 per cent. Experts say RIL’s share price performance will depend the company’s core oil refining business and response to telecom arm Jio’s aggressive feature phone launch. This time, however, may be different, as the core businesses are expected to do well, leading to better profit growth.