Companies shy away from bonus shares

The trend of mid-cap companies rewarding bonus shares to their shareholders has hit the downward curve. In the first five months of the current year, only 30 firms declared bonus shares compared with 34 each during the same period in the previous two calendar years (2005 & 2006).

Market circles believe that the trend to award bonus shares may increasingly turn unattractive in the coming years. The data from the last two-and-a-half years suggest that the number of companies declaring bonus shares have stagnated. From 94 firms in 2005, the number of firms declaring bonus shares remained stagnant at 93 in 2006.

Manish Santhalia, VP, equity strategy, Motilal Oshval, said: "There are many options now available for rewarding shareholders such as stock split, buy back of shares, etc. Bonus shares result in the expansion of the equity base."

Only those companies that are confident of issuing them declare bonus shares. Companies also have to factor diluting equity in favour of new investors like private equity firms, which would result in expanded equity base.

Of the 30 companies which declared bonus shares, six firms are from the information technology sector, four from engineering, two each from construction and auto ancillaries and one each from banking, entertainment, finance, pharmaceuticals, telecom and textile sectors.

Bajaj Electricals, Unitech, Motherson Sumi and Northgate Technologies announced bonus shares in the last two days.

While Bajaj Electricals, Unitech and Northgate Technologies announced bonus shares in the ratio of 1:1 (one additional equity share for every one share held), Motherson Sumi declared bonus shares in the ratio of 1:2 (one equity share for every two shares held).

Northgate Technologies declared bonus shares in the ratio of 1:1 after it reported 147 per cent rise in FY07 consolidated net profit to Rs 57.41 crore.

Unitech was declaring bonus shares for the second time in the last two years.

Earlier in June, 2006, the company had issued bonus shares in the ratio of 12:1 i.e. twelve equity shares for every one share held. The company had posted a fourteen-fold rise in net profit in FY07 to Rs 983.56 crore from Rs 69.65 crore in FY06.

Bajaj Electricals has declared bonus shares after a gap of ten years. The company had issued bonus shares in the ratio of 1:2 in 1997.

NIIT Technologies, Bank of Rajasthan, Moser Baer and DMC International are others that declared bonus shares during the current month. As many as 14 companies made bonus announcements in the last one-and-a-half months.

While Bank of Rajasthan and Motherson Sumi had last declared bonus shares in February, 2005, Moser Baer's last declaration came in November 2003.

Sun Television Network, 3i Infotech, Praj Industries, Bharat Seats and Nucleus Software are among the few mid-cap companies that declared bonus shares in the ratio of 1:1 during the last month.

The year 1994 has the distinction of the highest number of companies announcing bonus issues - 159, followed by 126 in 1995. In 1992, 112 firms declared bonus issues, and in 1991 a total of 106 companies allotted bonus shares to their shareholders.