Shares of Bajaj Finserv jumped 4.5 percent on Tuesday in intra-day trade, in an otherwise weak market, after the company announced that its board will consider a maiden bonus issue and stock split plan.
"The board of directors, at its meeting scheduled on July 28, 2022, will also consider a proposal for the sub-division of equity shares of the Company of the face value of ₹5 and/or issue of fully-paid bonus equity shares to the members of the Company," Bajaj Finserv said in a BSE filing.
Just in July so far, the stock has surged 20 percent as against a 4.5 percent rise in benchmark Nifty. However, for the 3 previous months, the stock has been an underperformer. In June, the stock lost 15 percent, in May, it fell 13 percent and in April, it declined 12 percent.
In 2022 so far, the stock has lost 20 percent while it is down 4 percent in the past 1 year. Meanwhile, the Nifty has fallen 4.5 percent in 2022 YTD and is up 5 percent in the past 1 year.
In today's trade, the stock rose as much as 4.5 percent to hit its day's high of ₹13,199.
What is a stock split?
As the name suggests, a stock split means splitting a single stock into 2 or more stocks. No additional shares get issued in a stock split but existing shares get multiplied. This also gets done in a particular ratio. Suppose a firm has announced a stock split of 1:2, then every 1 share, will become 2. So if you own 20 shares of a firm, after the split, you will hold 2*20 which is 40 shares without any additional costs.
A stock split is a corporate action, where a company splits its shares into multiple new ones. Split shares neither add any new value nor dilute the ownership stake of the shareholders. However, what they do is increase the number of shares of the company.
The main benefit of a stock split is to increase the liquidity of the stock as well as to reduce its share price to make it more accessible to retail investors.
What is a bonus issue?
Bonus shares are basically additional shares issued by a company to its pre-existing shareholders. These are fully paid shares and the shareholders do not have to incur any extra costs to get them. The number of bonus shares you receive depends on the number of shares of the firm you already hold.
Earnings preview
In the June quarter, Bajaj Finserv's consolidated revenue is expected to rise 25.8 percent year-on-year (YoY) to ₹17,542 crore due to a pick-up in the lending business, according to the brokerage house ICICI Securities.
"Healthy growth in assets under management (AUM) is expected to boost operational performance. Focus on individual business in life insurance & continued revival in health & credit protect the business in general insurance may support premium accretion. Moderation in slippages (in lending business), claims (in the insurance business) and base effect is expected to result in 61 percent YoY growth in earnings at ₹1,346 crore," added the brokerage.
The company is expected to announce its June quarter results on July 28.
In the March quarter of FY22, Bajaj Finserv's consolidated net profit rose 37.48 percent to ₹1,346 crore against a profit of ₹979 crore posted in the corresponding quarter last year. Its net revenue for that quarter also jumped 22.58 percent to ₹18,862 crore from ₹15,387 crore in the same quarter last year.
