AMIT GUPTA (Trainer)

MS Finance, MMS Finance(NIT), MBA Project Mgmt.,

CFP(USA), CFA(India), CCRA™, CWM®(USA), CIRA®,
Dip T&D(ISTD), AIM™, BE(Govt. College)

Managing Director: iCapital Academy and Corporate Advisory LLP

SEBI Empaneled Securities Markets Trainer,

NISM Empaneled CPE Trainer(for MFD, Equity Deri., RRA)

Experience: Total 17+ years

Ex-Employee: ICICI Securities, ISE Ltd, FTIL, UTI Sec.,Indiabulls

Visiting Faculty: NITIE, Symbiosis, NMIMS, PUMBA, ADMI(MU), etc.

Email: analystamit@gmail.com, amitgupta@iCapitalindia.com

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47
Corporate
Actions
[Bonus,
Stock Split
and
Dividends]
 DISCLAIMER
 The information contained in this material is for only educational and awareness
purposes related to securities market and shall be used for non-profitable educational
and awareness activities for general public.

 No part of this material can be reproduced or copied in any form or by any means or
reproduced on any disc, tape, perforate media or other information storage device, etc.
without acknowledging the SEBI or Stock Exchanges or Depositories.

 SEBI or Stock Exchanges or Depositories shall not be responsible for any damage or
loss to any one of any manner, from use of this material.

 Every effort has been made to avoid errors or omissions in this material. For recent
market developments and initiatives, readers are requested to refer to recent laws,
guidelines, directives framed thereunder and other relevant documents, as being
declared from time to time. For any suggestions or feedback, you may send the same
to visitsebi@sebi.gov.in.

2
 Flow of Presentation

 Bonus Shares – An Overview

 Dividend – An Overview
 Stock Split vs Bonus Issue
 Dividend – Important Dates
 Impact of Bonus Issue/ Stock Split/ Dividend on Price of Share
 Recourse in case of Non-Receipt of Bonus Shares/ Dividend
 Sample of RTA Details on Company Website
 Sample of Investor Complaints Contact in Listed Company

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Bonus Issue - Overview
 Issued in a certain proportion only to the existing shareholders.

 Eg : 2:1 bonus shares  If you already own 1 share, you get 2 additional new shares.

 Total holding of shares is now 3 shares instead of 1 share.

 No need to pay any money for these shares.

 Who pays for the Bonus shares?

• Cash lying in free reserves and surplus of the Company  Moved to Capital.

• Addition of fresh Capital  fresh equity shares are issued to eligible equity
shareholders in a specific ratio.

 New shares are issued at the existing Face Value of equity shares of the Company.

 Face value remains the same post bonus issue.

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Effect of Bonus Issue

Increases
number of
outstanding
equity shares

Reduces share
Reduces per
price in
share ratios
proportion to
(for e.g: EPS,
Book Value per number of
bonus shares
share, etc.)
issued.
Effects
of Bonus
Issue
Increases
Reduces free
liquidity in
reserves and
equity shares
surplus of the
on the stock
Company.
exchanges

Creates
implicit value
per equity
share

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Dividend - Overview
 Dividend = Distribution of certain portion of Company’s profits to its shareholders.

 Dividend pay out ratio = Dividends Paid

Net Earnings

 Net-Profits which aren’t distributed as Dividend =

Put in the Free reserves and surplus of the Company.

 Interim dividend : Given during the year is authorised by the Board of the Company.

 Final dividend : Recommended by Board of the Company.

Approved by its shareholders in the Annual General Meeting (AGM).

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Stock Split

Significance of Stock Split – Introduction:

A stock split is a corporate action in which a company divides

its existing shares into multiple shares to boost the liquidity of
the shares. Let us discuss what is stock split, why it is done,
what are the impacts and the significance of stock split from
company’s as well as investors’ perspective etc.
 What is Stock
•All the public Split? that are listed
companies on stock exchanges have a
definite number of outstanding shares available for trading.

•A stock split is a decision taken by the board of directors of a company

to divide its existing shares into multiple shares. In simple words, The
process of dividing the outstanding shares into further smaller shares is
known as stock splits.

•In this the market value of the total outstanding shares of a company
remains the same but market value of a single share is reduced in
proportion to the no of shares extracted out of a single share.

•Thus, although the number of shares outstanding increases by a specific

multiple, the total value of the shares remains the same compared to pre-
split amounts, because the split does not add any real value.
 ……Continue
•The most common forward split ratios are 2-for-1 or 3-for-1, which
means that the stockholder will have two or three shares for every
share held earlier.

•Reverse stock splits are the opposite transaction, where a company

divides, instead of multiplies, the number of shares that stockholders
own, raising the market price accordingly.

•People often confuse bonus shares with stock split. Distribution of

bonus shares only changes its issued share capital whereas stock split
splits the company’s authorized share capital
 Stock Split vs Bonus Shares
Basis Stock Split Bonus Issue
Meaning - Already owned shares - Free additional shares given to existing
split into smaller shares. shareholders based on no. of shares
owned.
Reason - To improve Liquidity by breaking it - To distribute gains of accumulated
into smaller size. earnings without paying cash to the
shareholders.
Face Value (FV) - Reduces in proportion of split ratio. - Remains same.
Share Capital - No impact. - Reserves reduced.
& Reserves - Money moved to Share capital as new
shares are issued.
Impact on - Reduces in proportion to split ratio. - Remains same.
future Dividend
Beneficiaries - Shareholders (as on Record Date). - Shareholders (as on Record Date).

Example Stock Split = 1:10 Bonus issue = 2:1

 Every already owned share is split  Shareholder gets 2 free shares for every
into 10 new shares of new FV of 1/10 of 1 share already owned.
original FV.
 So finally he has 1+2 =3 shares of same
FV as before.

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Example of Stock Split
Example 1
•To explain stock split further, consider the example of Stock split
done by SBI in November 21, 2014.

•Share price of State Bank of India closed at Rs 2920.9 on November

20, 2014 and on the next day (November 21, 2014) it closed at Rs
297 after the stock split as it announced a stock split of 10:1.

•The only main reason that stock splits are done is to attract new
investors and increase liquidity of the shares in the market. Value of
the company does not change at all.
Example 2

•To explain this, consider one more simple example continuing the previous example.
Assume that there are two investors Harish and Aman. Both wanted to make an
investment of Rs 300,000 in SBI.

•Harish bought the shares on Wednesday which was the last day before the split date.
Harish ended up buying around 103 shares at a price of Rs 2,900 per share, with Rs
1300 left from his available funds of Rs 300,000.

•Second investor Aman thought he was smarter and waited for the stock to split and
bought it on Thursday. For the same amount of Rs 300,000, he could buy 1034 shares
at Rs 290 per share and is left with only Rs 140 left with him out of the total fund of
Rs 3 lacs. In this way, stock split gives enormous liquidity, especially for retail
investors.
•But by the end of the week when Harish checked his Demat account, it would show
that he holds 1030 shares of SBI rather than the 103 he bought, but his holding value
will be the same as earlier. This is because of the fact that shares of all the
shareholders would be split in the same ratio without impacting the value of holding,
irrespective of the date of purchase.
 Why Do Companies Split stocks?
•A stock split is usually done by companies that have seen their share price increase to
levels that are either too high or are beyond the price levels of similar companies in
their sector. That is the company finds that the liquidity of its stock in the market is
very less due to high value of its stock.

•The primary motive for stock split is to make the stock more affordable for the
small retail investors. It, thereby increases the investor base. This results in a
renewal of investor interest of the company which has a positive effect on the share
price in the short term.

• A retail investor generally doesn’t not prefer trading in a highly valued stock and
lowering the stock value helps increasing the stock liquidity.  This has the practical
effect of increasing liquidity in the stock. However, the underlying value of the
company does not change.

•Stock Split is done to enhance the liquidity in the market as the number of shares
is increased. High liquidity results in an efficient market with the low bid-ask spread.
 Why Do Companies Split stocks? ….
Continue
We have many companies trading at very high prices. Consider Eicher
motors trading at Rs 20015, MRF trading at Rs 54628 or Bosch India at
16948 (as on 13.06.2019). So, let us also try to understand why many
companies don’t go for stock-split even when their shares are trading at
very prices. Main reasons behind this are:
1.Institutions play a major role nowadays and for them it doesn’t really matter if
they are buying a share at Rs 250 or Rs 25000.

2.When a stock price is really low, it invites a lot of day-traders, increasing the
volatility. When the share price is kept high, there is a slightly less volatility from
high frequency trading.

3.It increases buying and selling cost, because of spread. (Spread means difference
between buying quote and selling quote) because higher valued stock have lower
spread. Today you will find in Bosch Buying quote of Rs. 25000 and selling quote
of Rs. 25003 but you won’t find any company’s quote for buying Rs. 250 and Rs.
250.03 for selling because minimum tick size is 5 paise. 
 Why Do Companies Split stocks? ….
Continue
4. Sometimes management thinks that stock split doesn’t make any
difference to company’s performance or company’s valuation.

5. It is bit of attitude issue too. If a company split its share by 10:1
than stock prices will come from say Rs 2500 to around Rs.250, but
that makes it an ordinary company in the eyes of a lay man. Today
Bosch / MRF get difference respect due to their share prices. Also,
notice that in 90’s Cipla’s share prices were higher than Bosch but it
gave huge bonus and stock split. Today, people don’t see Cipla
something very different from Ranbaxy / Sun Pharma / Lupin /
Wochard of the world. 
 Dividend – Important Dates
DATE MEANING

Declaration Date - Date of approval of Dividend Rate (per share) by

Board of Directors of Company.

Record Date - Proposed by Board of Directors to determine name of the eligible

shareholders for dividend.

- All eligible shareholders with their names in the list at the end of
Record Date will be eligible to receive dividends.

- Minimum gap of 5 clear working days needed between Declaration

Date and Record Date.

- Shares credited in Demat account two days after the

actual purchase on Stock Exchange platform.

- To be eligible for receiving dividend: Investors to have shares in

the Demat account by record date.

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Dividend – Important Dates
DATE MEANING

Cum Dividend Date - Last Date to buy shares in order to be

eligible to receive dividend.

- One-day prior to Ex-Dividend Date.

Ex-Dividend Date - On this day the price of the equity share of
the Company gets adjusted for the dividend pay
out.

- Stock exchanges determine and notify this date.

- One working day prior to the Record Date

Payment Date/ Issue - Payment of dividend to be completed within 30 days of
Date its approval.

- Eligible shareholders receive the dividend

amount before this date.

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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Bonus Issue: Impact on Price of Share

 Post Bonus Market Price Pre Bonus Market Price of Share

of Equity Share Post Bonus Number of Shares (Adjustment Factor)

=
where
 Bonus Ratio (A:B) {A bonus shares for every B Shares held}

 Adjustment Factor = (A+B) / B

Eg: Market Price of One Equity Share (a) = Rs.15/-

Bonus Ratio (b) = 2:1
Adjustment Factor (c) = 3 {(2+1)/1}
Post Bonus Market Price (a/c, i.e. 15/3) = Rs.5/- per share

20
- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Stock Split: Impact on Price of Share

 Post Split Market Price Pre Split Market Price of Share

of Equity Share = Resultant Final Number of Shares (Adjustment Factor)

where
 Split Ratio (A:B) {A shares for every B Shares held}

 Adjustment Factor = A/B

Eg: Market Price of One Equity Share (a) = Rs.15/-

Stock Split (b) = From Face Value of Rs.10/- to Rs.5/-
Split Ratio (10/5, from “b” above) = 2:1
Adjustment Factor (c) = 2
Post Split Market Price (a/c, i.e. 15/2) = Rs.7.50/- per share
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- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Dividend: Impact on Price of Share

Payment of Dividend

- Reduces of Market Price of Share by dividend (w.e.f ex-record date)

- Post Dividend Market Price of Share = Pre Dividend Price – Dividend Amount

Eg: Market Price of One Equity Share (a) = Rs.10/-

Dividend declared per Share (b) = Rs.2/-

Ex-Dividend Market Price per equity share (a – b) = Rs.8/- (10-2)

12
- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
 Recourse in case of Non-Receipt of Bonus Shares/
Dividends
 Issue with Non-receipt of Bonus Shares/ Dividend 
Immediately contact RTA and Company.
 Important Contact Details:
CONTACT DETAILS
RTA - Company Website.
- SEBI website on link:
https://www.sebi.gov.in/sebiweb/other/OtherAction.do?d

oRecognisedFpi=yes&intmId=10.
Designated Person - Investor Relations/ Investor Services Section of
in Company Company Website.

 Non-Satisfactory Resolution by RTA -> File a complaint against RTA with

SEBI on:
- SEBI SCORES website/ Mobile App (on Android and iOS
platform).
13
 Sample of RTA Details on Company Website

14
- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
Sample of Investor Complaints Contact in Listed
Company

26
- This presentation may be used with the permission of SEBI and only for non-profit awareness
programs.
Buyback of
shares
 What Is a Buyback?
A buyback, also known as a share repurchase, is when a company buys its
own outstanding shares to reduce the number of shares available on the
open market. Companies buy back shares for a number of reasons, such
as to increase the value of remaining shares available by reducing the
supply or to prevent other shareholders from taking a controlling stake.
KEY TAKEAWAYS:
•A buyback is when a corporation purchases its own shares in the stock
market.
•A repurchase reduces the number of shares outstanding, thereby
inflating (positive) earnings per share and, often, the value of the stock. 
•A share repurchase can demonstrate to investors that the business has
sufficient cash set aside for emergencies and a low probability of
economic troubles.
 How Does a "Buyback" Work?

 A buyback allows companies to invest in themselves. Reducing the

number of shares outstanding on the market increases the proportion
of shares owned by investors.

 A company may feel its shares are undervalued and do a buyback to

provide investors with a return. And because the company is bullish on
its current operations, a buyback also boosts the proportion of
earnings that a share is allocated. This will raise the stock price if the
same price-to-earnings (P/E) ratio is maintained.

 The share repurchase reduces the number of existing shares, making

each worth a greater percentage of the corporation. The
stock’s earnings per share (EPS) thus increases while the price-to-
earnings ratio (P/E) decreases or the stock price increases.
 A share repurchase demonstrates to investors that the business has
sufficient cash set aside for emergencies and a low probability of
economic troubles.

 Another reason for a buyback is for compensation purposes.

Companies often award their employees and management with stock
rewards and stock options. To offer rewards and options, companies
buy back shares and issue them to employees and management. This
helps avoid the dilution of existing shareholders.
 
 Because share buybacks are carried out using a firm's retained
earnings, the net economic effect to investors would be the same as if
those retained earnings were paid out as shareholder dividends.
Buybacks are carried out in two ways:
1. Shareholders might be presented with a tender offer, where
they have the option to submit, or tender, all or a portion of
their shares within a given time frame at a premium to the
current market price. This premium compensates investors for
tendering their shares rather than holding onto them.

2. Companies buy back shares on the open market over an

extended period of time and may even have an outlined share
repurchase program that purchases shares at certain times or
at regular intervals.

A company can fund its buyback by taking on debt, with cash on

hand, or with its cash flow from operations.
 Example of a Buyback 
A company's stock price has underperformed its competitor's
stock even though it has had a solid year financially.
To reward investors and provide a return to them, the company
announces a share buyback program to repurchase 10% of its
outstanding shares at the current market price.

The company had $1 million in earnings and 1 million

outstanding shares before the buyback, equating to earnings per
share (EPS) of $1. Trading at a $20 per share stock price, its P/E ratio
is 20. With all else being equal, 100,000 shares would be
repurchased and the new EPS would be $1.11, or $1 million in
earnings spread out over 900,000 shares. To keep the same P/E ratio
of 20, shares would need to trade up 11% to $22.22. 
 Criticism of Buybacks

 A share buyback can give investors the impression that the

corporation does not have other profitable opportunities
for growth, which is an issue for growth investors looking
for revenue and profit increases. A corporation is not
obligated to repurchase shares due to changes in the
marketplace or economy.

 Repurchasing shares puts a business in a precarious

situation if the economy takes a downturn or the
corporation faces financial issues it cannot cover. Others
allege that sometimes buybacks are used to inflate share
price artificially in the market, which can also lead to higher
executive bonuses.
 Thank You

37
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programs.