Listed Companies With No History of Bonus Share Issue
(This
is for information purposes only. This should not be construed as a
recommendation or investment or tax advice even though the author is a CFA Charterholder. Please consult your financial / tax
adviser before taking any investment decision. Safe to assume the author has a vested
interest in stocks / investments discussed if any.)
The following is a list of quoted companies in India that have never issued a bonus share in their listing history:
The above list reveals the following:
- the list is sorted based on the total market capitalisation of the listed company as on today, that is, 01Jun2023 (intra day)
- this is only a representative list (not exhaustive) based on the top Indian listed companies by market cap
- banks do not generally undertake bonus share issues
- some exceptions: ICICI Bank issued 1:10 bonus (1 bonus for every 10 shares held) and Kotak Mahindra Bank issued 1:1 bonus
- some companies -- like, Tata Power, MRF Ltd and Grasim Industries with a long history of listing -- have never issued a bonus share in their listing history, even though they are profitable
- MRF Limited is an outlier in the sense, they have never done a bonus issue, never issued any share split, never do a share buyback and there has been no change in their equity capital history in the last three decades
- many companies originally set up by Adani group have never undertaken a bonus issue (like, Adani Ports & SEZ and Adani Transmission)
- if Adani group were to consider issuing any bonus shares in their listed firms, their shares may get re-rated as these stocks are more volatile and speculative in nature
- even a multi national company (MNC), like, Hindustan Unilever, too has never issued a bonus issue
- the above list contains some recently listed firms, like, Hindustan Aeronautics or HAL, Adani Green Energy, Adani Total Gas, DMart and ICICI Pru Life Insurance, that have never issued a bonus share in their short listing history
- at the opposite end of the spectrum, many public sector undertakings (PSUs) are very generous in giving bonus shares -- some examples are BPCL, HPCL, IOC, ONGC and Gail (India)
Bonus Issue Attraction?
Even though a bonus issue theoretically does not have a bearing on a company's share price, small shareholders tend to perceive bonus issue as positive because the share price becomes smaller after the issue of bonus shares.
This is an incorrect interpretation by small investors and even if there is any share price surge post the bonus issue announcement, the price gets adjusted to its real value once the initial euphoria on bonus issue dies down.
For example, Sirca Paints India Ltd recently announced a bonus issue in the ratio of 1:1 (one bonus share for every one share held). Before the record date (11May2023), its price rose from Rs 610 on 01May2023 to Rs 635 (intra day) on 10May2023. On 10May2023 (one trading day before record date), the stock closed at Rs 616. As the bonus ratio is 1:1, the stock should have on record date (11May2023) opened at Rs 308 (half of Rs 616, which is cum-bonus price) and it opened at Rs 309.
As investors were excited about bonus, the ex-bonus price shot up to Rs 340 on 17May2023 before cooling off to Rs 301 as on today, that is, 01Jun2023. Of course, if the company's fundamentals undergo a change in future, the price too may change -- which is a different issue.
Capital Gains Tax Saving
However, bonus issue may be attractive from tax saving perspective as investors, in theory, can postpone paying taxes, if any, on their capital gains.
Let me explain with an example. Suppose, in anticipation of a bonus issue, you have bought one share of APL Apollo Tubes Ltd on 13Sep2021 at a price of Rs 1,850. The ex-date for the bonus issue of 1:1 (one bonus share for every one share held) was 16Sep2021 (record date 18Sep2021).
After record date, you received one bonus share, in addition to one share you bought on 13Sep2021 and holding it still as on record date -- now you had a total of two shares in your name.
First scenario: Let us fast forward to 22Nov2022, when you sold one share of APL Apollo Tubes at Rs 1,120 for liquidity purposes, while holding the remaining one share. For tax purposes, the acquisition price of one share sold was Rs 1,850, so your long term capital loss on the sale was Rs 730 (1120 - 1850).
For equities, any holding period of more than one year is considered as long term for tax purposes, attracting 10 percent tax beyond the minimum threshold of Rs 100,000 per financial year.
This Rs 730 long term capital loss could have been set off by you against long term capital gain, if any, you incurred on other shares or units of equity mutual funds. So, by selling one share while holding the remaining one, you would not have incurred any capital gains tax; and in fact theoretically you could have saved some tax also.
Second scenario: Let us consider another scenario where you decided to sell both shares on 22Nov2022 at a price of Rs 1,120 each. On the first share sold, the long term capital loss would be Rs 730 as calculated above. As the second share is a bonus share, its acquisition price was zero for tax purposes and your long term capital gain on the bonus share would be Rs 1,120 (1120 - 0).
When you set off Rs 730 loss on the first share with the gain of Rs 1,120 on the bonus share, you were left with a net long term capital gain of Rs 390 (1120 - 730). If you had exhausted your yearly Rs 100,000 limit of long term capital gain, you would have to pay 10 percent tax on this Rs 390 for the financial year 2022-23.
Third Scenario: You sold the original share on 17Nov2021 at a price of Rs 920, while keeping the bonus share intact. As the holding period is less than one year, this sale attracts short term capital gain or loss.
Here, the acquisition cost for the original share was Rs 1,850 (buy price on 13Sep2021) for tax purposes and the sale price was Rs 920 -- so, you incurred a short term capital loss of Rs 930 (920 - 1850), which can be set off against short term capital gain, if any, you incurred on other shares or units of equity mutual funds.
Table showing the above three scenarios >
As described above, big shareholders can postpone payment of capital gains taxes, as allowed by Income Tax authorities, on their equity investments. By selling original shares while keeping bonus shares, long term investors can create immediate liquidity for their cash needs, save some taxes, set off long term capital losses against long term capital gains and postpone capital gains taxes for a future date.
Here, one assumption is the shares you are holding will continue to provide decent returns in future and the companies are fundamentally strong.
Another big assumption is tax rates will remain stable in the next three to four years and may not be increased in future. If the government were to reduce taxes, which is a remote possibility, you will benefit more by postponing your taxes. On the other hand, if the government increases taxes, with postponement of taxes, you may have to pay higher capital gains taxes in future.
P.S.: Why do companies issue bonus shares in the first place? And what are the minimum eligibility criteria before a listed company would decide to issue bonus shares? Why some companies never issue bonus shares though they are profitable? These questions will be answered another time in a future article.
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P.S. 11Jun2023: Blue Star Limited declared a bonus issue for the first time. The record date for the 1:1 bonus (one bonus for every one share held) issue is 20Jun2023.
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References:
1. MCA website - Companies Act, 2013 - Companies Act PDF
2. Section 63 of the Companies Act of 2013 deals with the issue of bonus shares:
Section 63:
63. Issue of bonus shares—
(1) A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(f) it complies with such conditions as may be prescribed.
(3) The bonus shares shall not be issued in lieu of dividend
3. Capial Market weblink for bonus issues (search for stock > click corporate actions > bonus)
4. Screener.in does not give full details of bonus -- for example, Screener.in shows that companies, like HDFC Ltd, Tata Motors, Hindalco Inds, ABB India, Bajaj Holdings & Investment and IDBI Bank, have no bonus issue history. In fact, the companies cited here have issued bonus shares in the past -- this can be verified with Capital Market weblink.
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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