Bonus shares are a way for companies to distribute additional shares to their existing shareholders at no extra cost. This increases the shareholder's stake in the company proportionally to their current holdings.
In the Indian stock market, issuing bonus shares is a common practice. The specific regulations for bonus issues are set by the Securities and Exchange Board of India (SEBI). Companies also consider their own financial strategies when deciding to issue bonus shares.
Bonus shares are a form of corporate action that leads to many benefits. Shareholders receive more shares without having to pay for them, effectively increasing their ownership percentage. Moreover, a larger number of shares outstanding can potentially increase trading activity in the stock. Issuing bonus shares can be seen as a sign of a company’s financial health and confidence in its future prospects, which may attract new investors.
List of Bonus Issues in April 2024
About Sunrise Efficient Marketing Ltd
Established in 2002, Sunrise Efficient Marketing Limited (SEML) is an ISO 9001:2015 certified company. They operate as traders, distributors, super stockiest, wholesalers, retailers, importers, agents, exporters, dealers, buyers, sellers, fabricators, assemblers, fitters, installers, and repairers of all types of products listed below.
SEML’s Key Products and Services:
- Industrial Machinery & Spare Parts: They trade, distribute, and service various industrial machinery and their spare parts, including electrical, electronic, and mechanical components.
- Construction & Engineering Supplies: Pipes, pipe fittings, sanitation parts, machined and un-machined castings, and industrial valves are all part of their product portfolio.
- Power Transmission & Automation: SEML distributes automation systems, drives, gearboxes, motors, and pumps for industrial applications.
- Oils & Lubricants: They offer a variety of oils and lubricants for industrial, domestic, and agricultural purposes.
- Fast-Moving Consumer Goods (FMCG): SEML also acts as a distributor for FMCG products, catering to a wider customer base.
- Supply Chain Management: They manage the entire supply chain process, connecting manufacturers with end-users for a seamless experience.
Financial Details
The following are some of the key financial details of SEML:
- ROCE (TTM) – 29.66
- P/E Ratio (TTM) – 12.22
- P/B Ratio – 2.99
- Industry P/E – 74.12
- Debt to Equity – 0.38
- ROE – 27.68
All data taken as of March 28, 2024.
Benefits of Bonus Shares
Bonus shares offer a compelling strategy for companies to engage with their shareholders and optimise their financial standing. Here’s a breakdown of the key advantages for each party:
Shareholder Benefits:
- Enhanced Ownership at No Cost: Shareholders receive additional shares proportional to their existing holdings, effectively increasing their stake in the company without any additional investment.
- Positive Market Perception: The issuance of bonus shares can be seen as a signal of confidence by the company in its future prospects. This positive sentiment can enhance the perceived value of the company among investors.
- Improved Liquidity: Bonus shares increase the number of shares outstanding, which generally translates to a more liquid stock. This allows shareholders to enter or exit their positions more easily without significantly impacting the share price.
- Tax Advantages: In many jurisdictions, receiving bonus shares is not a taxable event. The tax implications are typically deferred until the eventual sale of the shares, offering a tax-efficient way to grow one’s investment.
- Potential for Higher Dividend Income: While the dividend per share might initially decrease due to the increased number of shares, shareholders with a larger overall holding could benefit from higher total dividend payouts if the company maintains or increases its dividend distribution over time.
Company Benefits:
- Signalling Confidence: Issuing bonus shares can be a strategic way to communicate optimism about the company’s future to the market. It demonstrates that the company has sufficient retained earnings to redistribute value to shareholders, often interpreted as a sign of financial strength and a positive outlook.
- Optimised Capital Structure: By converting retained earnings into share capital, companies can improve their capital structure. This reduces the company’s reserves while increasing its equity base without affecting the overall shareholder equity, potentially making its financial profile more attractive to investors.
- Enhanced Liquidity and Marketability: A larger number of shares in circulation generally improves the stock’s liquidity, making it more appealing to a broader investor base. This can lead to increased trading volume and potentially more stable share prices.
- Boosted Shareholder Satisfaction and Loyalty: Bonus shares can be a tool to reward and retain existing investors. By providing additional shares, companies foster a sense of loyalty and satisfaction, which is crucial for maintaining a stable and supportive shareholder base.
- Preserved Cash Flow: Unlike cash dividends, issuing bonus shares allows companies to reward shareholders without impacting their cash reserves. This is particularly beneficial for companies that want to prioritise cash retention for future investments or operational needs.
Conclusion
The issuance of bonus shares can impact your investment holdings. It’s important to analyse how these shares affect your overall portfolio and align with your long-term investment goals. Begin your journey in the stock market today by opening a free Demat account with Angel One!
Disclaimer: This article is written for educational purposes only. The securities mentioned are only examples and not recommendations.
