Explained: Motherson Sumi, Samvardhana Motherson didn't crash 32%. Bonus issue explains sharp price drop
Samvardhana Motherson International
and
Motherson Sumi
Wiring appeared to plunge over 32% in early trade on Friday, July 18, showing sharply lower prices in investor demat accounts. But the steep drop was not a market rout, it was a technical adjustment following the companies' 1:2
bonus issue
s that took effect today, with stock prices recalibrating accordingly and no impact on the overall value of shareholder holdings.
Samvardhana Motherson's bonus issue
Samvardhana Motherson shares began trading ex-bonus on Friday following the company's 1:2 bonus issue, its 11th such issue in the last three decades. Shareholders will receive one bonus share for every two shares held as of the record date, which was set for July 18. The last day to buy the shares and remain eligible was Thursday, July 17.
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For example, an investor holding 200 shares will be allotted 100
bonus shares
, increasing the total number of shares held to 300, with the per-share price adjusting proportionately.
On Thursday, July 17, the Samvardhana Motherson stock had closed at Rs 153.85 on the BSE. On Friday morning, it opened at Rs 104.65, a decline of around 32% on paper, reflecting the bonus adjustment. The stock was trading 0.3% higher by mid-morning.
This marks the 10th bonus issuance by Samvardhana Motherson since November 2000.
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First bonus since demerger for Motherson Sumi Wiring
Motherson Sumi Wiring, the demerged entity of Samvardhana Motherson, also implemented a 1:2 bonus issue, its first since listing. The record date was also July 18.
Shares of Motherson Sumi Wiring closed at Rs 64.40 on Thursday and opened at Rs 43.70 on Friday, implying a 32% decline on paper, again, a direct outcome of the bonus adjustment. The stock was up 2.5% in early trade.
The bonus ratio entitles shareholders to one bonus share for every two shares held. For instance, an investor with 100 shares will receive 50 bonus shares, increasing their total holdings to 150.
No change in investment value
Although the per-share price appears to have dropped significantly on paper, investors have not lost any value. The total worth of their holdings remains unchanged as the number of shares increases to offset the reduced price.
For example, a shareholder holding 300 shares of Motherson Sumi Wiring at Rs 60 apiece, a total value of Rs 18,000, will now hold 450 shares priced at approximately Rs 40 each, maintaining the same overall investment value.
Also read |
Motherson Sumi, Samvardhana Motherson International shares rise up to 4% on bonus share issue record date
Bonus shares to be credited next week
Both companies have announced that the deemed date of allotment for the bonus shares will be Monday, July 21. These bonus shares will be made available for trading on the next working day, i.e., Tuesday, July 22.
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