Mphasis BFL bonus issue

[mpreddy77]

Can anybody shed some light on the following financial mumbo jumbo.....


Mphasis Bfl Limited has informed the Exchange that the BODs at their meeting held on April 11,2005 has proposed a final dividend of Rs.3/- per equity shares of Rs.10 each in addition to the Interim dividend of Rs.1.50 per equity shares (Rs.3/- per share paid last year).The BODs has also recommended a bonus issue of one equity shares for every existing equity shares (1:1).

Basically whats the
+ Difference between stock split and bonus issue. Does it mean the price of the stock value remains the same in case of the latter???
+ What's final and interim dividend? In layman terms what does this translate into?

Also do you guys think this company has steam left? Especially after all the M&A's and quoting that the rev for its BPO and Services are via a single client?

 

[Neal]

Basically whats the
+ Difference between stock split and bonus issue. Does it mean the price of the stock value remains the same in case of the latter???
+ What's final and interim dividend? In layman terms what does this translate into?

There is no difference between a stock split and bonus issue. Internationally they call it a stock split whereas in India it is called a bonus issue to mislead the investors.

Interim Dividend
A dividend which is declared and distributed before the company's annual earnings have been declared. This declared dividend usually accompanies the company's interim financial statements.

Final Dividend
The final dividend declared at a company's Annual General Meeting (AGM) for any given year. This amount is calculated after all financial statements are recorded and the directors are aware of the company's profitability and financial health.

 

[badri2003]

dear neal,

sorry, i think u r not right on bonus shares. stock split reduces the base value of the share like rs1 or 2 or 5 where as in bonus the base value of the share remains the same, say rs. 10. When dividends r declared on base value, stock split share holders receive lesser dividends.

 

[mpreddy77]

Does this mean if Mphasis is trading at 300 and my stock doubles from 100 to 200, the price will still be 300 which in effect means i have doubled my value in the company. Am i reading right?

 

[esanthosh]

The difference is in a bonus issue, the face value of the share remains the same. The stock split reduces the face value. For example, a 1:1 bonus on a share with face value Rs. 10 provides the shareholders with two shares for every one held with face value Rs. 10. In the case of a split, say 1:5, the shareholders get 5 shares of Face value Rs.2 for every one share of Face Value Rs. 10 held by them.

Essentially, a stock split or bonus will reduce the share price to that extent from the Ex-Bonus or Ex-Split date. Thus Mphasis will come down to Rs. 150 on the X-Split date.

As such there is no difference to the total value as far as share holders are concerned. Stock Split and Bonus are wealth neutral.

There are two main points though.

1) In case of a bonus, for the computation of tax, the value of the bonus share is
taken as NIL.

2) In case of a stock-split, watch out for dividend%. The companies announce dividend percentage based on the face value of the share. The company might announce a 150% dividend. But, for a share with face value Rs. 10, it means Rs. 15 per share, where as for a company with Face Value Rs. 2, it is Rs. 3 per share.

Hope this clarifies.

 

[mpreddy77]

Thanks santosh! That cleared the cobwebs...to summarize they could have as well called it a stock split as the net effect is the same. But somehow bonus sounds very investor friendly. What say?