Reliance Industries bonus issue

Reliance announced a bonus issue of 1:1. Dividends were declared at Rs 13 per share.

After all if a company has 100 shares in issue and has a market cap of 100, it is worth 1 per share. Double the shares to 200 and all that happens is that shares become worth 0.50 each.

So what this news means to you, should you buy more right now or wait till bonus shares are allocated. Will the prices go up? There are lot of questions one can have.

Let me share my 20 cents on this one.

First of all lets look at the Reliance Industries (RIL) past performance. In mid june RIL was trading at 2025 and right now it’s 2167, only 7% increase while nifty was at 4250 in mid june and right now it’s 5054, that’s 20% increase. Bombay high court judgement related to the company’s gas supply to Reliance Natural Resources Ltd (RNRL) and this year’s union budget impacted RIL prices very much.

This bonus issue is to boost the sentiments of investors. One more time following Dhirubhai’s ideology. RIL will see some temporary boost by bonus issue announcement and Ani’s proactive approach to resolve the gas dispute. One have to remember that bonus issue will not add anything to valuation of the company. Valuation will still remain the same.

In India, normally the dividend per share is not cut following a bonus issue; which means the yield doubles. Suppose the Pre Bonus Share value is Rs 2,000 with a dividend of Rs 13. Post bonus you have 2 shares worth Rs 1,000 each with a total dividend of Rs 26. So thats an advantage.

Long term outlook for RIL is very attractive, company is expecting large amount of cash flows from it’s operations. If you want to enter in this, enter by 1850-1950 which I think is a fair value for RIL or 900-950 (Post bonus price).

Happy Trading!!!Don’t forget to give your vote today for Maharashtra elections.

Appreciate your feedback on this.