Summary: Bonus issues by India Inc. in 2015/16 have touched a five-year high, but still lag in absolute terms.
Corporate India seems to be showering shareholders with bonus - in 2015/16, 83 companies offered Rs 2,948 crore, through bonus issues - a five-year high - and around 11 per cent higher the money disbursed in 2014/15. The momentum seems to have continued this year with 25 companies giving bonus in the past four months. However, the number of bonus issues is still 16 per cent below its five-year high - 99 companies in 2013/14.
Companies build reserves by retaining a part of its profit and give bonus when the reserves or accumulated profits reach a certain limit. It also helps increase the liquidity of a company's stock. After the bonus issues, the share price of the company gets adjusted in line with the bonus ratio. This makes the shares more affordable.
The bonus issues, however, maintained their own pace and did not move in tandem with the capital markets, which fell 10.3 per cent in 2015/16, only to move up 10 per cent in the past four months. "A bonus issue does not really reflect the performance of a company in a financial year but an accumulation of profits over the years. So, it cannot be linked to the Sensex returns. Usually, profitable companies take five to eight years to come out with bonus issues," says Nikhil Khandelwal, Managing Director, Systematix Shares and Stocks India. Companies with a market cap of under Rs 5,000 crore were primarily active in rewarding their shareholders with bonus in 2015/16.
The market also seems to have rewarded the companies, with around 31 per cent of them witnessing double-digit growth in market cap after the bonus issues. "Bonus issue brings a higher trust factor in a company - both in terms of the credibility of its cash flows and the intent of the promoters to share the same with shareholders. It also improves liquidity in the stock," adds Khandelwal.
A closer look at the financials of the companies reveals that approximately 60 per cent have seen growth in their top line and bottom line numbers, based on the latest available data. Data analysed for BSE-listed companies suggest that 387 were consistent in increasing their free reserves over five years. Histo-rical data for bonus issues also indicate that only one-third of these companies have been active in rewarding their shareholders with bonus over the same period. "It is also indicative of the management's confidence that the company has the wherewithal to generate such surplus in the future from its existing operations," says Khandelwal.
Sectorally, there were no clear patterns. However, FMCG and healthcare firms were aggressive with bonus issues in 2015/16, contributing 16 per cent and 12 per cent, respectively, in the total count of companies.
We hope to see more participation this financial year.
Reproduced From Business Today. Copyright 2016. LMIL. All rights reserved.
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