Bonus shares, stock split effect: BSE SME IPO turns ₹1.20 lakh to ₹13.45 lakh in 10 years

Bonus shares, stock split effect: As Rome was not built in a day, a stock market investor can't become rich overnight. It is often said that money is not in buying and selling stocks but in waiting. This rule applies to the primary market investors as well. If an investor is convinced about a company's business prospects, then irrespective of size, one should stick with one's conviction and hold the stock as long as possible. An IPO investor is advised to keep the scrip as long as possible to create wealth on the premium that promoters of the company have offered to its investors in the primary market. So, by holding a stock for a long term, an allottee enjoys the benefit of both wealth creation. By having a stock for the long term, they want the benefit of various other rewards like dividends, bonus shares, stock splits, buybacks of shares, etc., which helps an IPO allottee in wealth compounding.

To truly grasp the potential for wealth creation through long-term investment, let's examine the journey of Captain Polyplast. The SME IPO, launched in November 2013 at a fixed price of ₹30 apiece, was listed on the BSE SME Exchange on 11th December 2013 at ₹33 apiece, delivering a 10 percent listing gain to the allottees. However, those who remained invested in the scrip despite the positive debut of the SME stock were rewarded with two bonus shares declared by the company board in 2014 and 2015. In 2018, the company board declared a stock split as well. These corporate decisions may not impact the company's fundamentals or an investor's absolute value, but they do significantly enhance the return of long-term investors, offering a beacon of hope for wealth creation.

Bonus shares history

When a company declares bonus shares, it also announces a date on which the shares will trade 'ex-bonus '. This means that the shares will trade without the value of the bonus shares. In the case of Captain Polyplast, the company declared bonus shares in a 1:5 ratio in 2014, and in 2015, it once again declared bonus shares in a 1:8 ratio. The stocks traded ex-bonus for the first time post-listing on 24th July 2014 to ascertain the eligible shareholders for issuance of bonus shares in a 1:5 ratio. Similarly, the SME stock traded ex-bonus on 8th October 2015 to ascertain the eligible shareholders for issuance of bonus shares in a 1:8 ratio.

Stock split history

The BSE website informs that the SME stock traded ex-split just once after its successful listing. It traded ex-split on 19th September 2018 in a 1:5 ratio.

Bonus shares, stock split effect

The SME IPO, launched in November 2013, allowed bidders to apply in lots, with each lot comprising 4000 company shares. If an allottee had remained invested in this scrip until after its positive debut on Dalal Street, their minimum shareholding at the time of listing would have been 4000 company shares. After the 1:5 bonus shares, the shareholding would have surged to 4800 [4000 (1 + 1/5)]. Similarly, these 4800 shares would have surged to 5400 [4800 (1 + 1/8)]. This exponential growth in shareholding is a testament to the potential of long-term investments and should pique the audience's interest in the power of compounding.

After the 1:5 stock split, the shareholding of 5400 would have further surged to 27,000.

₹1.20 lakh turns to ₹13.45 lakh

The SME IPO was launched at ₹30 apiece, and bidders could apply in lots, each comprising 4,000 shares. This means that the minimum investment a bidder required to apply for the SME IPO was ₹1.20 lakh ( ₹30 x 4000).

Captain Polyplast share price is quoting ₹49.82 apiece on BSE. So, if an allottee had remained in the SME stock, sticking with one's long-term conviction, the absolute value of one's investment in the scrip would have risen to ₹13,45,140 or ₹13.45 lakh in nearly a decade.

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