BONUS SHARES:

Infosys Bonus Issue

Group-5 Kunal Madan

Rohit Mohan Pavan Kr Gautam

Kushboo Vishnani Komal Bakshi

• Infosys Limited (Infosys) – along with its majority owned and controlled subsidiaries – is a leading global consulting and IT services firm. The company provides end-to-end business solutions that leverage technology.

• Infosys is a debt-free company. It doesn't have any outstanding debt or fixed deposits. The company presently generates sufficient cash internally to finance all its operational, financing and investment requirements.

• Infosys does not offer a dividend reinvestment program or dividend stock program at present.

• Currently, Infosys pays dividends to its shareholders. The current dividend policy is to distribute up to 40 percent of the PAT (consolidated Indian GAAP) as dividend. The Board of Directors reviews the dividend policy periodically and on Apr 15, 2014 decided to hike the dividend policy to up to 40 percent of post-tax profits from up to 30 percent of post-tax profits earlier.

FiscalInterim Dividend* ( )

Final Dividend* ( )

Special Dividend* ( )

Total Dividend* ( )

2005 1.25 1.63 - 2.88

2006 1.62 2.13 7.50 11.25

2007 2.50 3.25 - 5.75

2008 3.00 3.63 10.00 16.63

2009 5.00 6.75 - 11.75

2010 5.00 7.50 - 12.50

2011 5.00 10.00 15.00 30.00

2012 7.50 11.00 5.00 23.50

2013 7.50 13.50 - 21.00

2014 10.00 21.50 - 31.50

2015 15.00 15.00

Infosys pays dividend twice a year. An interim dividend is generally declared by the board in October along with the adoption of second quarter results. Additionally, a final dividend is recommended by the Board in April along with the adoption of annual results

Per share dataParticulars 2013-14 2012-13 2011-12 2010-11 2009-10

No. of shares for EPS

57,14,02,566

57,42,32,838

57,41,99,094

57,40,13,650

57,33,09,523

EPS from ordinary activities- basic before exceptional items

178.39 157.55 139.07 112.26 100.37

Dividend per share(1) 63 42 37 30 25.00

Book Value 736.64 627.95 518.21 426.73 384.01

Infosys Ltd Share Holding

Category No. of Shares Percentage

Promoters 150,215,636 13.08

Foreign Institutions 477,584,290 41.58

Financial Institutions 113,289,745 9.86

General Public 112,285,446 9.78

NBFC and Mutual Funds 62,203,271 5.42

Foreign - NRI 18,088,156 1.57

Foreign - Others 15,877,860 1.38

Other Companies 10,203,660 0.89

Others 7,734,017 0.67

Foreign – OCB 199,750 0.02

Bonus shares

Companies distributes a portion of its profits to shareholders. This is called dividend. Sometimes, however, the company may announce bonus shares – additional shares for each existing shareholder. As part of a bonus issue, the company uses surplus to convert it into shares.

 

The company also announced a dividend of Rs 30 per share . The two announcements led to a 7 per cent surge in stock prices and sent Infosys to a 52-week high of Rs 3,908 in intraday trade. Infosys has not fixed a record date for the bonus issue yet.

Bonus share is cheered: When a company earns money, it can use this in multiple ways – reinvest into the company, distribute the cash as dividends or issue more shares. The last two implies giving back money to the shareholders.

No other use for cash: Infosys is issuing bonus shares along with the usual dividend payment. Investors have been asking the company to use the cash either for acquisitions or return it to shareholders. This amount could have been used for expansion or purchasing a new company either of which could help improve its profitability. This shows the company values giving back to shareholders more and does not foresee better use of the money lying idle.

Bonus share issue ratio: When a company announces a bonus share issue, it gives a ratio with it. Infosys said it will issue bonus shares in the 1:1 ratio. This means, for every share an investor already holds, it will issue additional share. So, effectively this will double portfolio size. 

Record date: When a company announces a bonus issue, it does not happen immediately. Like the dividend distribution, there is a particular day when the new changes are incorporated. This is called the ‘Record’ date. If you already have the shares before this date, you will be eligible to get the extra shares.

Price changes: Until the ‘Record’ date, price of the stock usually rises as more investors want to be eligible for the extra stocks. The day after the bonus is distributed, the share price is adjusted. This is called the ex-bonus date. So, if the company has issued a 1:1 bonus share, then the price of the shares will fall to nearly half is original price. A bonus issue does not change the share’s inherent value. Only the total number of shares floating in the market rises. So, the prices of the shares fall.

• The bonus issue will double the company's equity base, but earnings will not double overnight. As a result, earnings per share (EPS) will fall and hence the share prices will correct substantially a day before the record date (called the ex-date) of the bonus issue.

• A bonus issue is different from a stock split, in which case the face value of shares fall by half (or in whatever ratio the company decides to split). In case of bonus issue, the face value does not change. So, Infosys shares will continue to have a face value of Rs 5 per share post the bonus.

• Bonus issues may also result in higher dividends for investors. For instance, if Infosys give Rs 30 per share dividend next year too, investors who hold the stock, will get Rs 60 because of the bonus they got this year.

• Bonus shares are issued from retained earnings. Infosys had retained earnings of Rs 46,689 crore as on September 30, 2014. Infosys' share capital (Rs 286 crore) will rise.

• Bonus issue is not the way to reward shareholders. The only two ways to reward shareholders are

1) buyback and

2) higher dividend payout.