ITC's 2021 Bonus Share Proposal: A Comprehensive Analysis

Last Friday, ITC's board of directors cleared the company's proposal to issue bonus shares in the ratio of 1:2. This move, along with the approval for a stock split and an increase in the authorised share capital, is set to benefit existing shareholders. This article delves into the details of this proposal, its implications, and the historical context of ITC’s bonus share distributions.

ITC's Bonus Share Proposal: A Recap

During the board meeting, ITC announced its intention to issue one bonus share of Re 1 each for every two shares held of Re 1 each to existing shareholders. The company also approved a stock split, whereby each Rs 10 paid-up ordinary share will be sub-divided into 10 shares of Re 1 each. To facilitate these changes, ITC plans to increase its authorised share capital from Rs 300 crore to Rs 500 crore, resulting in an increase in the number of ordinary shares from 300 million to 500 million.

Historical Context of Bonus Shares at ITC

ITC has a long history of issuing bonus shares, detailing which can help investors understand the significance of this current proposal. Since 1978, ITC has issued bonus shares multiple times. Notable instances include:

1978 1980 1989 1991 (1:1 ratio) 1994 (1:1 ratio) 2005 2006 2007 2008 2010 2011 2012 2014 2016

Recently, ITC last issued bonus shares in 2016 with a ratio of 1:1, showing a pattern of reissuing bonus shares after periods of about 1-3 years.

Implications for Shareholders and Market Dynamics

The announcement of bonus shares can have significant implications for shareholders and the broader market. It often signals the company's confidence in its future growth and profitability. The 1:2 ratio proposed by ITC indicates that the company believes in creating liquidity and restructuring reserves by increasing the number of total shares.

Frequently Asked Questions

Will ITC give bonus shares in 2021?

As of now, the board is in the process of discussing the details and planning the announcement. While it’s been speculated that a 1:3 ratio may be adopted, this remains a matter of the board's discretion and further discussion. Investors should await official announcements from the company for confirmed details.

Impact on Share Price

Historically, the issuance of bonus shares has led to a boost in share prices. By increasing the number of shares owned by shareholders, the share price per share may see a drop, making the stock more accessible to investors. It's also worth noting that the actual impact on the share price will depend on various factors, including market conditions and company performance.

Shares of High-Valued Companies

While bonus shares can benefit small investors by making certain stocks more affordable, high-valuation companies like MRF present challenges. As of February 19, 2021, MRF's share price was Rs89069 per share, requiring a significant investment. In contrast, ITC's share price was Rs217 per share, making it more accessible for smaller investors.

Conclusion

While the board has approved the proposal, the actual issuance of bonus shares will be discussed and decided at the upcoming annual general meeting on July 29, 2021. Until then, predictions and speculations are merely that. Therefore, investors should rely on official announcements and consult with financial advisors to make informed decisions.

Disclaimer

As required by SEBI: Consult your financial advisor before investing. This group is only for Educational and Learning Knowledge Purposes.