Bonuses Shoot Up in FY17 as Companies Dispense Surplus

The total number of companies that have announced a bonus issue in the first 5 months of FY17 has transcended last year’s number, with 41 companies announcing a bonus, as compared to 30 companies in the corresponding period last year. These 41 companies include 5 CPSEs – central public sector enterprises — HPCL – Hindustan Petroleum Corporation Limited, BPCL – Bharat Petroleum Corporation Limited, IOC – Indian Oil Corporation,REC - Rural Electrification Corporation, and PFC – Power Finance Corporation.

These 5 companies have posted 18 per cent year-on-year (YoY) growth in their aggregate net profit in the June (Q1) quarter. The combined net profit of these 5 companies has nearly doubled on a sequential basis.

Another PSU – public sector undertaking, IOC, recommended issue of bonus shares in the ratio of 1:1, that is, one equity bonus share of Rs.10 each against every existing equity share of Rs.10 each. PFC and REC,too, announced bonus shares in the ratio of 1:1, while HPCL announced a 2:1 bonus.

Concept of issue of bonus shares:

A bonus is given to already existing stockholders in proportion to the total number of shares they already hold. The major purpose of issuing bonus is to increase liquidity in the stock and give out the available dispensable net worth in a cash-neutral way.

Issue of bonus shares is a process of utilizing the reserves. Whenever a company accumulates profits, it can reward the shareholders by issuing a bonus. This impacts in two ways. Firstly, this is a reward to the shareholders for continuing the act of staying invested in the company. Secondly, the share begins to trade on ex-bonus basis, which raises the affordability for investors as price denomination for these kind of shares falls.

Other notable private sector companies which have declared bonus shares during the current fiscal are ITC, Bajaj Finance, Grindwell Norton, Berger Paints, Menon Bearings, Symphony, Nava Bharat Ventures, Venky’s India and 8K Miles Software Services. Some market analysts are confident that they would be able to sustain their earnings and for that matter even improve from the current levels in the FY17-18.

Market researchers said in a report that they were constructive on refining margins and unlike last year, there would likely not be much inventory losses either in the marketing or refining segments. Also, they added that with volume growth remaining strong and firm, marketing earnings were likely to remain resilient.