Shareholders of Reliance Industries Ltd (RIL), India’s largest listed company in terms of market capitalisation (Rs 20.53 lakh crore), will soon get bonus shares for the fifth time in the last 41 years.
The bonus issue, which comes after a flat financial performance in the April-June 2024 quarter and a sluggish show by RIL in a buoyant market, is expected to boost liquidity in the stock, making it more affordable to investors.
Here’s what to know about RIL’s bonus issue, to be approved by its board on Thursday.
On August 29, RIL informed the stock exchanges that the company’s board will meet on September 5 to announce a bonus issue for existing shareholders in the ratio of one-for-one — that is, one free share for each share held by them.
“This (bonus issue) should result in an increase in equity capital by Rs 6,770 crore and reduction in the reserve by a similar amount,” an analyst with ICICI Securities said.
Another analyst with a leading brokerage said: “When a bonus is given, it shows that the promoter has a positive view on the company. It will indirectly improve liquidity — and buying is expected, especially from the retail side. In the case of bonuses, retail investors have a tendency to buy stocks as prices come down.”
2. RIL’s share prices will decline.
The price of RIL shares, which has remained flat since the beginning of this year, will decline after the allotment of the bonus shares as the number of shares increases.
Given that the bonus issue is in the ratio of one-for-one, the share price might come down by 50% of the pre-bonus price. However, the share price can gradually increase after the bonus issue, depending on the company’s performance.
“Technically, bonus has no value. Besides improving the liquidity in the stock and the stock market, the bonus will have no impact. For example, if the face value of a stock is Rs 100, and one more share is given in addition, the price will adjust to Rs 50 per stock,” said the analyst quoted above.
Since the value of the holding remains the same after the bonus issue, investors will gain only if the company registers better financial performance in the coming quarters.
3. It has nothing to do with the company’s financials.
After the bonus issue, the stock price will look low, and will, therefore, be more attractive.
“The bonus issue has nothing to do with the improvement of the company’s financials. It is just an accounting treatment, wherein the number of shares will increase and the price will become half,” another analyst with a leading investment firm said.
“Since the number of shares are increasing, it will make investors feel good. Bonus is a way of giving more confidence to shareholders. Just because of the bonus, the price to earnings (PE) ratio will not be halved, it will remain the same,” the analyst said.
4. Valuation is high; stock has underperformed.
The RIL bonus issue did not make any waves in the market. RIL shares, which were quoted at Rs 3,006.50 on August 28 had risen by just 0.77% to Rs 3,029.80 on September 4.
One reason for this could be that markets had already discounted the bonus sop before it was announced, as investors expect some big announcement at the RIL annual general meeting (AGM) every year. While the market didn’t expect the bonus issue this year, they were expecting an indication about the listing of Jio and retail business, which did not happen.
RIL shares have underperformed in the market since January 2024. While the Sensex has gained over 15% in the last eight months, RIL, which closed at Rs 3,020.65 on January 3, 2024, has not gained.
“The general view of the stock is positive but the price and valuation is a bit on the higher side,” the analyst with the investment firm quoted above said.
RIL has a tradition of giving bonuses every few years. Since they have a lot of businesses, there is a chance that they will have to go for capital expenditure in these businesses. “This bonus can be considered as a precursor to that plan,” the analyst said.
RIL posted a 5.45% decline in its net profit at Rs 15,138 crore during the quarter ended June 2024 as against Rs 16,011 crore during the same period a year ago following the weak performance of the order-to-cash (O2C) business, and higher depreciation.
On a sequential basis, net profit declined by 20.12% from Rs 18,951 crore in the March 2024 quarter.
5. Promoters will get half of the bonus.
RIL’s 34.93 lakh-strong shareholders will get free shares if the board approves the issue on September 5. The promoters, Mukesh Ambani and family, who hold 50.33% stake in the company, will also be eligible for the bonus issue. As public shareholders own 327.90 crore shares in RIL, they will get an equal number of shares in the proposed issue.
RIL had last announced a bonus issue in 2017 in the ratio of 1:1. An investor who put Rs 1,000 (100 shares at the Rs-10 IPO price) in the Reliance IPO in 1977 would be holding 560 shares (including the proposed bonus issues) worth Rs 16.90 lakh now.
Mukesh Ambani, Chairman of Reliance Industries. (File Photo) 
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