Thyrocare Technologies bonus shares explained: Why stock price may see steep fall today

Thyrocare Technologies Ltd will turn ex-bonus on Friday in the ratio of 2:1. The company shareholders will receive two additional shares for every one held, increasing their total holding to three shares. The stock settled at Rs 1,472 apiece on Thursday. When the market opens today, the share price will automatically adjust to reflect the corporate action. Some trading platforms may show this as a sharp drop in price, but investors need not be concerned. The decline will be optical, as the number of shares held will rise proportionately after the bonus issue, resulting in no dilution of equity. A bonus issue increases the number of shares in circulation, reduces free reserves and lowers earnings per share, leading to a proportional adjustment in the stock price. The bonus equity shares will be issued by capitalising amounts standing to the credit of the capital redemption reserve and/or securities premium account and/or free reserves, and/or retained earnings of the company, Thyrocare Technologies informed exchanges earlier. The Thyrocare Technologies' board recently approved and recommended increase in the authorised share Capital of the company from Rs 1,00,00,00,000 divided into 10,00,00,000 equity shares of Rs 10 each to Rs 3,00,00,00,000 divided into 30,00,00,000 equity shares of Rs 10, consequent alteration in capital clause of the Memorandum of Association subject to the approval of the shareholders of the company and other regulatory approvals, as may be required. Pre-bonus, issued, subscribed and paid‐up capital stood at Rs 53,05,38,970/- divided into Rs 5,30,53,897 shares of face value Rs 10 each. It stood at Rs 159,16,16,910 divided into 15,91,61,691 shares of Rs 10 each. The bonus issue will cost Rs 106.11 crore to Thyrocare Tech. While bonus issues and stock splits may appear similar, their objectives differ meaningfully. A bonus issue rewards shareholders by issuing additional shares out of accumulated earnings, without altering the face value of the stock. In contrast, a stock split divides existing shares into smaller units to improve liquidity, which results in a reduction in face value. For example, in a 1:4 stock split, each share is split into four, and dividend entitlement adjusts proportionately. In a bonus issue, however, dividend entitlement remains unchanged, as the shareholder’s proportional ownership in the company is maintained despite the increase in the number of shares.