Bonus share wealth creation: A case study of BPCL and HPCL
Upstox
4 min read • Updated: May 9, 2024, 2:12 PM
Summary
Indian OMC giant BPCL and HPCL are considering a bonus issue this week on May 09. Over the years BPCL's 3,315 shares (₹1 lakh) turned into 39,780 shares(₹2.4 crore), while BPCL has given 4 bonuses since 2000. Here’s a detailed bonus share history of BPCL and Hindpetro.
The two prominent OMCs Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation (HPCL), have recently announced that they are considering issuing bonus shares in their upcoming board meetings to be held this week.
Both BPCL and HPCL have informed shareholders that their board meetings will be held on May 9, Thursday. This is to consider both the financial results for the quarter and the financial year ending March 31, 2024, and a bonus issue.
Ahead of annoucement, BPCL shares trades 1.4% lower at ₹611 per share, while HPCL trades at 517 per share, down 1.1% as of 9:30 am on NSE.
These public sector companies are primarily engaged in refining crude oil and marketing petroleum products. The government of India holds a majority stake in both companies, either directly or indirectly. Both the Central Public Sector Enterprises (CPSE) are designated as Maharatna companies.
Bonus History and Analysis
Let's begin with BPCL, the third-largest refining company in India by market capitalization, following Reliance and Indian Oil Corporation.
BPCL has issued bonuses four times since 2000. Out of four times in three instances the ratio is 1:1. The last time when the bonus share was announced in 2017, it was in the ratio of 1:2.
To give you an example, an investment of ₹1 lakh made in the year 2000 would have given you 3,315 shares of the stock at an average price of ₹30.16. Fast forward to today, the same would have turned into 39,780 shares and the total value would have been ₹2.41 crore.
| Announcement Year | Stock Price ₹ | Qty | Ratio | Bonus Qty | Total Qty |
|---|---|---|---|---|---|
| 2000 | 30.16 | 3,315 | - | - | 3,315 |
| 2000 | 39.15 | - | 1:1 | 3,315 | 6,630 |
| 2012 | 116.75 | - | 1:1 | 6,630 | 13,260 |
| 2016 | 363.75 | - | 1:1 | 13,260 | 26,520 |
| 2017 | 458.55 | - | 1:2 | 13,260 | 39,780 |
| 2024 | 606.00 | - | - | - | 39,780 |
| The current value of Investment amount of ₹ 1 lakh | ₹2,41,06,680 | ||||
| Absolute Return | 240.7 Times |
(Source: NSE)
Hindustan Petroleum Corporation Ltd (Hindpetro)
Moving on to Hindpetro's bonus history, the company announced bonuses twice since 2000. First in 2016, where the ratio was 2:1 (2:1 means that for every share held, shareholders would receive an additional two shares) and second in 2018, where the ratio was 1:2 (1:2 means one bonus share for holding two shares of the company). Doing a similar calculation of total investment made in Hindpetro in 2016 - an amount of ₹1 lakh would have got 527 shares and the same in 2024 would have turned to 2,372. The total amount would have almost been ₹12.19 lakh.
| Announcement Year | Stock Price Rs | Qty | Ratio | Bonus Qty | Total Qty |
|---|---|---|---|---|---|
| 2016 (1st Jan) | 189.75 | 527 | - | - | 527 |
| 2016 | 266.15 | - | 2:01 | 1,054 | 1,581 |
| 2018 | 340.40 | - | 1:02 | 791 | 2,372 |
| 2024 | 514.00 | - | - | - | 2,372 |
| Current value of Investment amt of ₹ 1 lakh | ₹1,219,208 | ||||
| Absolute Return | 12 times |
(Source: NSE)
As we can observe from the above tables, the potential of wealth creation through bonus shares becomes evident for long-term investors. Not only does it contribute to capital appreciation, but due to bonus issues, the holding quantity of the investor continuously increases.
The above comparative analysis acts as a case study of how bonus issues can multiply investors’ wealth over the long term.