This Maharatna PSU Stock is Set to Issue Bonus Shares Soon

To buy or not to buy shares before a company is about to issue bonus shares has been a topic of discussion since years.

In the Indian markets, bonus share offerings by companies have become all the rage these days.

While we do know that bonus shares or stock splits do not affect the underlying business in any way, it is undeniable that there is price movement around the announcement and execution of a corporate action.

So, in this week's analysis, let's deep dive into the world of bonus shares by looking at a PSU company which is all sent to issue bonus shares later this week.

The company is none other than Bharat Petroleum or BPCL as it's popularly known.

Towards the end of the article, we will also discuss whether is it possible to make money from a corporate action like bonus or split.

BPCL Bonus Shares

In May 2024, BPCL's board recommended bonus shares in the ratio of 1:1 i.e. one new bonus equity share for each existing share.

The record date for the same was set as 22 June 2024 and the ex-bonus date is 21 June 2024.

This means investors hoping to get an extra share of BPCL have today and tomorrow before it turns ex-bonus and undergoes the corporate action effect by sub-division.

Apart from bonus shares, the state-run oil marketing company had also recommended a final dividend of Rs 21 per equity share of face value of Rs 10 each (pre-bonus), which translates into final dividend of Rs 10.5 per equity share (post-bonus).

While the record date for bonus shares has been fixed, the company is yet to announce the same for final dividend.

A Close Look at BPCL's Financials

In the most recent fourth quarter of FY24, BPCL posted a 30% year-on-year (YoY) decline in its consolidated net profit at Rs 47.9 bn.

The decline could be attributed to lower gross marketing margins on petrol and diesel.

Margins had reduced to an average of Rs 8 and Rs 3.4 per litre, respectively, during the quarter, according to reports.

Nevertheless, for the full financial year FY24, BPCL recorded its highest ever net profit of Rs 266.7 bn.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	2,845,719	2,301,708	3,467,911	4,731,872	4,480,830
Growth (%)	-5%	-19%	51%	36%	-5%
Operating Profit	108,605	238,013	214,058	123,863	440,820
OPM (%)	4%	10%	6%	3%	10%
Net Profit	30,554	161,650	116,815	21,311	268,590
Net Margin (%)	1%	7%	3%	0%	6%
ROE (%)	9.7	38.8	22.3	4.0	-
ROCE (%)	7.0	24.8	17.9	5.9	-
Dividend (Rs)	16.5	79.0	16.0	4.0	42.0
Debt to Equity (x)	1.6	0.9	1.1	1.1	0.6

Data Source: Ace Equity, Equitymaster

For the coming year, BPCL has planned a massive capex of around Rs 160 bn, out of which major portion will go towards refinery and petrochemical projects.

Note that BPCL is taking major strides towards India's renewable energy focus as it's aiming to build 10 gigawatts of renewable energy portfolio by 2040.

Currently, BPCL is implementing green hydrogen projects and pilot projects for green hydrogen fuel mobility.

Apart from that, the company is also focusing on biofuels, EV charging business, and strategic pipeline projects.

How BPCL Share Price has Performed Recently

In the past 1 month, BPCL share price has declined around 8%.

In 2024 so far, BPCL is up 37%.

BPCL has a 52-week high of Rs 688 touched on 16 February 2024 and a 52-week low of Rs 332 touched on 26 October 2023.

On the day it announced the dual corporate action of dividend and bonus, the stock price had shot up more than 5%.

But since then, it has shown a lacklustre activity. So it's possible the company may be gearing up for a big potential move.

In the past 1 year, BPCL shares have rallied 65%.

Here's a table comparing BPCL with its peers -

Comparative Analysis

Company	BPCL	HPCL	IOC	MRPL	Reliance
ROE (%)	34.1	30.3	22.7	26.9	9.9
ROCE (%)	38.3	25.1	27.6	29.8	12.5
Latest EPS (Rs)	123.8	112.9	29.6	20.5	102.9
TTM PE (x)	5.1	4.7	5.7	10.5	28.8
TTM Price to book (x)	1.8	1.6	1.3	2.8	2.5
Dividend yield (%)	6.7	5.9	7.1	1.4	0.3
Industry PE	15.1
Industry PB	2.2

Data Source: Ace Equity, Equitymaster

For more on BPCL, watch the below video where Co-head of Research at Equitymaster talks about the company's valuations.

In Conclusion

Considering that a bonus issue is supposed to indicate growth prospects, what happens when you hold for a longer time?

Studies from the past suggest that buying and holding stocks at the time they are undergoing a corporate action might not be an outright successful strategy - but it has an edge, some edge in the short term and especially more in the long term.

While a bonus issue does not affect the total shareholding of the individual shareholder or the value of the investment, it is good for investors who are tired of paying high taxes on income from dividends.

When fundamentally strong companies like BPCL announce bonus shares, it usually boosts the investor's faith in the company. Mainly because it signals the company is committed to its shareholders.

Issuing bonus shares also increases the liquidity of a stock, thereby increasing retail participation. This could potentially give a boost to the share price. However, there is little evidence for the same.

Moreover, much like dividend payments, bonus issues are discretionary. They are highly dependent on a company's earnings and management policy. And both these factors can change.

That's it for today, happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...