Ashok Leyland shares soared as much as 3.5% to its intraday high of Rs 249.54 on the National Stock Exchange, a day after the company announced that the board of directors may consider the proposal for issuing bonus shares at the meeting scheduled on May 23. Alongside the bonus issue, the Hinduja group company will also declare its earnings on the date.
A company issues bonus shares for several reasons, primarily to reward shareholders and enhance their wealth by increasing their holdings. The commercial vehicle major earlier declared a second interim dividend of Rs 4.25 per share. Including its first interim dividend for FY25, the company has already declared Rs 6.25 of dividend on shares with a face value of Rs 1 apiece. If announced, this would be the first such corporate action by the company in 14 years. It had last issued 1:1 bonus shares in 2011.
Apart from rewarding shareholders, bonus shares also act as an alternative to paying cash dividends, helping a company to retain capital for future growth. If the board of Ashok Leyland approves issue of bonus shares, the company’s outstanding shares will increase, thus decreasing its earnings per share. And due to lower earnings per share the price-to-earnings ratio increases, making valuation of shares expensive. Hence, theoretically, share prices fall after bonus issue and become more appealing.
Currently, Ashok Leyland has 2.94 billion outstanding equity shares, according to the information available on the BSE. At its intraday high, the stock was trading over 13% higher than December close on the NSE. Ashok Leyland shares have risen over 18% in the last one year and 14% in one month. The stock currently trades 30% higher than its 52-week low level, which it touched in April this year. On the other hand, it is nearly 6% below its 52-week high level.
