Bonus and Right Issue wealth creation study: 1,000 shares of this Auto ancillary would have turned into ₹7.2 crore

But did you know that the company made its debut in the Indian markets on September 9, 1993? The market capitalization has multiplied from ₹ 23.8 crores to ₹ 86,230 crores today. Let’s look at the journey of Samvardhana Motherson International Ltd.

The story of “Mother and Son”

Samvardhana Motherson started with a meagre ₹1,000 'seed capital' that Vivek Chaand Sehgal took from his mother to make electrical wires. Thus, the name “Motherson” came into existence. Sehgal is a first-generation entrepreneur and came from humble beginnings. Motherson initially started as a T-Couple maker for the Maruti 800, the car that changed mobility in India. MSSL remained a small player for decades in the auto component industry.

Acquisitions that made Motherson a global leader

In 2009, as the world was passing through the aftershocks of the Lehman crisis, MSSL hit jackpot with the acquisition of UK-based Visiocorp's global rear-view mirror business. Sehgal bought Visiocorp, a $750-million company, for just $32 million in a stock and cash deal.

After this acquisition, MSSL's consolidated sales surged from ₹2,595 crore in March 2009 to ₹6,702 crore in March 2010. The impact of the deal extended beyond financial numbers. It gave the buyer world leadership in a product MSSL wasn't strong in. It has brought access to 16 manufacturing facilities across 12 countries, including Hungary, Mexico, Brazil, China, and Australia. Additionally, it gained access to esteemed clients such as BMW, GM, Ford, Peugeot-Citroen, Hyundai, Renault-Nissan, and Volkswagen.

Subsequently, in 2011, came the bigger acquisition of distressed German polymer giant Peguform. MSSL acquired an 80 per cent stake in Peguform for $82 million. It did sales of $1.5 billion in 2010, for $82 million. Peguform enhanced Motherson's portfolio with products like door trims, dashboards, and plastic moldings, along with manufacturing facilities spanning seven countries and esteemed clientele such as Porsche and Mercedes-Benz.

Motherson’s bonus and stock split story is as exciting as its acquisitions.

What is 'Bonus Share'

Bonus shares are additional shares given to the existing shareholders without any extra cost. Shares are allocated to the current shareholders based on the number of shares that they own. These are the company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

When the company issues bonus shares to its shareholders, the terms “record date” and “ex-date” are also mentioned. Let’s understand the terms “record date” and “ex-date”:

Due to the T+1 settlement cycle, ex-date and the record date for all corporate actions occur on the same date. Until the ex-date or the record date, a stock will trade with the benefits of the corporate action.

Bonus and Split History of Motherson

On September 9, 1993, Motherson went public, opening at a price of ₹41 with a face value of ₹10. A thousand shares in 1997, by 2024, would have been as follows:

Starting from 1997, Motherson has announced bonus shares on 10 occasions and underwent a stock split twice, in 2002 and 2004. In 2002, the stock underwent a 2:1 split, meaning 1 share was split into two. Additionally, in 2004, one share was split into five shares. During all the bonus issues, 1:2 bonus shares were issued.

Suppose an investor bought 1,000 shares in Motherson in 1993 and held onto them throughout. Their total share count would have increased to 5.76 lakh shares. Motherson traded at ₹41 on its IPO listing date and currently is trading at ₹125. These 5.76 lakh shares would have amounted to a corpus of ₹7.2 crore, turning an initial investment of ₹41,000 into a substantial corpus of ₹7.2 crore.

Conclusion

The Motherson wealth compounding story reminds Charlie Munger’s quote: “The big money is not in the buying or selling, but in the waiting”. Motherson's journey is a classic rags-to-riches Indian tale. Investors who participated in this journey would have amassed significant wealth.