Reliance Industries Bonus Shares: A Closer Look

Reliance Industries announced a bonus share issue of 1:1, providing shareholders with one free share for every share and it has generated significant buzz among investors. This will be Reliance’s sixth bonus issue and the first since 2017. Before the 2017 bonus issue, Reliance had issued a 1:1 bonus share in 2009. The date for determining eligibility for bonus shares will be announced at a later time.

What exactly are bonus shares, and how will they impact Reliance Industries and its shareholders? Let’s explore the details.

Everything you need to know in a glance:

Ratio: A 1:1 bonus issue, meaning shareholders will receive one new share for every existing share they hold.

Record Date: The specific date for determining eligible shareholders is called the record date. The company will announce it soon.

Authorised Share Capital: The company’s authorized share capital will increase from ₹15,000 crore to ₹50,000 crore.

Forfeiture: Partly paid-up shares will be forfeited if the outstanding call money is not paid by September 20, 2024.

Capitalization: The bonus shares will be issued by capitalizing securities premium, general reserve, and/or retained earnings.

Share Price Performance: Reliance shares have significantly outperformed the Sensex and Nifty 50 year-to-date (YTD).

Sixth Bonus Issue: This marks the sixth bonus issue for Reliance since its inception.

Understanding Bonus Shares

Bonus shares are additional shares given to existing shareholders at no extra cost. It’s like receiving a dividend in the form of shares rather than cash. When a company issues bonus shares, it increases the number of outstanding shares without affecting the company’s overall value.

What does it mean for RIL shareholders?

A 1:1 bonus issue means that RIL’s 35 lac shareholders will receive one additional share for every existing share they own. For instance, if you hold 25 shares of Reliance Industries, you will get 25 free shares, taking your total holding to 50 shares. However, the overall investment value remains unchanged as the share prices are adjusted accordingly.

Let’s assume the share price of RIL drops to ₹1,500 from ₹3,000 per share after the bonus issue.

Even though you now have 50 shares, each share’s value would also decrease and your total investment value would still be ₹75,000 (50 shares X ₹1,500 per share).

Why Issue Bonus Shares?

Enhanced Affordability: By increasing the number of shares, the company lowers the per-share price, making it more attractive to smaller investors.

Improved Liquidity: A larger number of shares can increase trading activity and improve market liquidity.

Investor Sentiment: Bonus shares can signal the company’s confidence in its future growth and profitability, boosting investor sentiment.

Reliance Industries and Bonus Shares

Reliance Industries’ decision to issue bonus shares aligns with its strategy of rewarding shareholders and fostering long-term value creation. By increasing the number of shares, the company aims to:

Expand Shareholder Base: Attract new investors who may have been deterred by the high share price.

Enhance Liquidity: Increase trading activity and improve market liquidity for Reliance Industries’ shares.

Reinforce Confidence: Signal the company’s strong financial position and future prospects.

Stock of Reliance Industries corrected 1.42% to close at 2,985.95 on Thursday after the announcement.

What does this mean for you as a shareholder?

Potential for Capital Gains: While the share price may adjust after the bonus issue, the increased number of shares could lead to potential capital gains in the future.

Tax Implications: Receiving bonus shares is generally not a taxable event. However, any gains realized from selling the bonus shares may be subject to capital gains tax.

No financial benefit: When a company issues bonus shares, it essentially distributes additional shares to its existing shareholders at no cost. These shares are typically issued from the company’s reserves or profits. While this may seem like a windfall for shareholders, it doesn’t directly increase the company’s overall market capitalization. This is because the total value of the company remains unchanged. In essence, the pie is divided into more slices, but the size of the pie itself remains the same.

Conclusion

Reliance Industries’ bonus share issue presents a unique opportunity for investors. By increasing the company’s affordability and liquidity, the bonus shares could attract new investors and enhance shareholder value. As with any investment decision, it’s essential to consider your individual financial goals and risk tolerance before investing in Reliance Industries.

We’ll keep you posted on all the updates as they come. Stay tuned!