If REPL offers 1:1 bonus, what would your gains be?

If REPL offers 1:1 bonus, what would your gains be?
By Shravan Sreenivasula, CNBC-TV18

Reliance Power is considering bonus issue to all its shareholders excluding promoters. That is, the bonus issue will be for non-promoters.

Non-promoters’ holding is about 22.8 crore shares. The public shareholding is 10.1%. The market is expecting the bonus issue to be at around 1:1 or 1:5 ratio, which means one bonus share for every share that a person holds or one share for every five shares that a person holds. Considering that ratio in our analysis, the public stake holding will go up from 10.1% to anywhere between 11.9-18.3%.

The cost of acquisitions may come down. If one looks at the QIB portion which is subscribed at about Rs 450, will come down to about Rs 375, if the ratio is 1:5; will come to Rs 358 from Rs 430, in case of retail investors.

In case of 1:1 ratio, then it will be Rs 225 for QIBs and Rs 215 for retail investors. If one takes a scenario where the current share price is held – around Rs 420, then the QIB portion will make a profit of about 10%, if the ratio is 1:5 and retail investors would make about 15% if the ratio is 1:5. But if the ratio is 1:1, they will make a huge profit – about 70% in case of QIBs and about 78% in case of retail investors.

But would the price be Rs 420? Maybe not. If one is reminded of last week, many people were talking of Rs 340 or Rs 350 to be the equilibrium price for the stock. So if one considers that particular thing, the profits for people would boil down to a ratio of 1:3. So if the ratio is above 1:3 – either 1:3, 1:2 or 1:1, then the investors would see profits in their accounts which is the main intention for the company to come ahead with this particular bonus issue. Another thing to watch out for is Reliance Energy - where the shareholding would reduce from 45% to anywhere between 41%-44%.