Effects of Bonus Share On Market Price of A Company
Effects of Bonus Share On Market Price of A Company
Effects of Bonus Share On Market Price of A Company
On
Recent Bonus share
Session 2014-16
Submitted To:
By:
Dr. Nandita Mishra
Tandan(BM-014252)
Submitted
Shubham
Shubhangi
Shukla(BM-014254)
Siddharth Singh
(BM-014256)
Sneha Singh (BM014258)
DECLARATION
We hereby declare that the project work entitled Recent
Submitted
to
the
INSTITUTE
OF
ACKNOWLEGMENT
Efforts taken by us in this project would not have been
possible without the kind support and help of our faculty.
We would like to extend our sincere gratitude to Dr.
Nandita Mishra. We are highly indebted to (Institute of
Management Studies, Ghaziabad) for their guidance
and constant supervision as well as for providing necessary
information regarding the project and also for their support
in
completing
the
project.
Bonus Share
Bonus shares are additional shares given to the current
shareholders without any additional cost, based upon the
number of shares that a shareholder owns. These are
company's accumulated earnings which are not given out in the
form of dividends, but are converted into frees hares.
Description: The basic principle behind bonus shares is that
the total number of shares increases with a constant ratio of
number of shares held to the number of shares outstanding. For
instance, if Investor A holds 200 shares of a company and a
company declares 4:1 bonus, that is for every one share, he
gets 4 shares for free. That is total 800 shares for free and his
total holding will increase to 1000 shares.
Companies issue bonus shares to encourage retail participation
and increase their equity base. When price per share of a
company is high, it becomes difficult for new investors to buy
shares of that particular company. Increase in the number of
shares reduces the price per share. But the overall capital
remains the same even if bonus shares are declared.
ISSUE OF BONUS SHARES-COMPANIES ACT, 2013
There was no specific section under the Companies Act, 1956
dealing with Bonus Shares. Companies were following the
norms prescribed by the Controller of Capital issues. Once SEBI
came into existence and controller of Capital issues were
abolished, unlisted Private Limited Companies and Public
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the
Company
should
v. BONUS
ISSUE ONCE
WITHDRAWN
ANNOUNCED
CANNOT
BE
2. Quantum of Issue:
a. No of Shares
b. Nominal Value per share:
c. Total:
3. Intended Date of Board Meeting:
a. For alteration of Articles subject to the approval of the
shareholders (if required)
b. For recommending the Issue
c. Convening of EGM
4. Intended Date of EGM for considering the alteration of Article
if required
and/or approval of the Bonus Issue:
5. Intended Date of Board meeting for the allotment of Bonus
Shares:
provide
for
11
12
BONU
S
RATIO
DATE
ANNOUNCEMENT RECORD
ADI FINCHEM
1:10
19-05-2104
JBM AUTO
1:1
14-08-2014
NITIN FIRE
PROT
SIMPLEX
TRADING AND
AGENCIES
1:3
30-09-2014
9:1
11-11-2014
10-072014
09-102014
15-112014
26-122014
EX-BONUS
09-072014
08-102014
13-112014
24-122014
1. ADI FINCHEM
ADI Finechem Ltd. is a specialty oleo chemical manufacturing company
situated near the city of Ahmadabad in the western region of India. Our
fine chemical products portfolio has applications in manufacturing of
resins for Paints, Inks adhesives etc.
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Interpretation:
The announcement of bonus share in the adi finechem on 19-05-2014 with the
ratio of 1:10, on the date the opening price was 135.71, closing as well as high
was 139.49. thereafter the graph shows ups and down in the price of the share in
the market.
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Interpretation:
After the execution on the bonus share there was a huge fall in the price of the
companys share. At the opening of the share price was 231.9,high 232.3 and
close @ 218.1.Thereafter simultaneously increase and decrease in the price of
the share at a certain period of time.
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2. JBM AUTO
JBM Auto is engaged in the manufacture of sheet metal components,
assemblies, sub- assemblies, tools, dies and moulds. The company
operates through three main divisions namely Sheet Metal Division, Tool
Room Division and special purpose vehicle (SPV).
Interpretation:
The announcement of bonus share in the adi finechem on 14-08-2014 with the
ratio of 1:1, on the date the opening price was 103.78, closing as well as high
was 108.53. Thereafter the graph shows grown simultaneously in the price of
the share in the market.
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Interpretation:
After the execution on the bonus share there was a huge fall in the price of the
companys share. At the opening of the share price was 257.85, close and high
@ same price 257.85.Thereafter drastically decrease in the price of the share at
a certain period of time.
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Interpretation:
The announcement of bonus share in the NITIN FIRE PROT on 30-09-2014
with the ratio of 1:3, on the date the opening price was 51.71, closing as well as
high was 257.85. Thereafter the graph shows decreasing at the decreasing rate
in the price of the share and increase at a point of time in the market.
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Interpretation:
After the execution on the bonus share there was a huge fall in the price of the
companys share. At the opening of the share price was 43.65,high at 44.2 and
close @ 42.15.Thereafter simultaneously fall in the price of the share which is
shown in the graph in that scenario.
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Interpretation:
The announcement of bonus share in the SIMPLEX TRADING AND
AGENCIES on 11-11-2014 with the ratio of 9:1, on the date the opening price
was 61.29, closing as well as high was 61.29. Thereafter the graph shows
growing rate in the price of the share and increase at a point of time in the
market.
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Interpretation:
After the execution on the bonus share there was a huge fall in the price of the
companys share. At the opening of the share price was 80.6,high and close at
same price 80.6 .Thereafter fall in the price of the share which is shown in the
graph in that scenario for liquidity of the company.
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Conclusion
TWO ISSUES THAT NEED CLARIFICATION
The Following are the two contentious issues in Section 63
which needs attention of the Central Government
i. A Company cannot issue Bonus Shares if it has defaulted in
repayment of deposits, interest on deposits, debt securities,
and statutory dues like, PF, gratuity and Bonus. There is no
definition for the word default in the Companies Act, 2013. For
instance, if a Company fails to pay PF in a particular month and
subsequently pays in the next month, a default is committed.
Whether such a Company can or cannot issue Bonus Shares?
The words such as defaulting or Continuing Default are not
used in the Section. What does the MCA want to convey? I do
not think that there is a possibility of any 100% Non defaulting
Companies to be in existence since Incorporation till its
dissolution. Even a single day delay in payment of the above
dues is a default. What mechanism we have to monitor such an
event of default?
ii. Once the Board recommends, the Bonus issue cannot be
withdrawn even if the members decide so. That means no
revocation of the recommendations made by the Board of
Directors is possible. In other words you are forcing the
shareholders to accept the recommendation of the Board. So it
is only a formality to seek approval of the Shareholders. Let us
assume that the Bonus Issue is recommended by the Board and
is rejected or not passed by the members in the EGM, the
company still has to go ahead with the Issue of Bonus Shares
by virtue of Section 63(2)(f).
I leave the above two questions to be pondered over by
the readers.
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