Nestle's First-Ever Bonus Issue: Should You Buy A Stock Just Because It Is Issuing A Bonus?

Nestle Bonus News: Nestle Bonus News: Nestle India has announced its first-ever bonus issue in a 1:1 ratio, which means shareholders will receive one additional share for every share they hold. The bonus shares will be issued by capitalising Rs 96.4 crore from the FMCG giant's retained earnings, it said in an exchange filing on Thursday, June 26. The company has retained earnings of Rs 4,008.95 crore, as per the audited financial statements for the year ended March 31 2025.

If approved by shareholders, the number of outstanding shares will double from 96.41 crore to 192.83 crore. The record date for eligibility is yet to be announced.

Nestle India’s share price, as of 1:25 PM, traded at Rs 2,424.30 per share, up 0.83 per cent against its previous close.

Are Bonus Shares Actually A Bonus

Bonus shares are typically issued from the company’s accumulated profits or free reserves, and not from fresh cash inflow. In Nestle’s case, the company is using part of its Rs 4,008.95 crore retained earnings for this purpose.

Bonus shares, as opposite to its name, do not add any intrinsic value to your portfolio. All they do is increase the number of shares you hold while adjusting the stock price to match.

In Nestle India’s case, let say the current share price of Rs 2,424.30 stays the same before the 1:1 bonus ex-date. After the bonus shares are adjusted, Nestle’s share price would adjust to Rs 1,212.15. While the number of shares in investors’ portfolio doubles, the stock’s price halves.

Suppose, an investor holds 10 shares of Nestle, after a 1:1 bonus, the number of shares would double to 20, however, at the same time, its share price also halves, keeping the holding value of investors the same.

Why Companies Issue Bonus Shares

Companies typically issue bonus shares to send a positive message to investors that the management is confident about the business and its future growth.

It also helps reduce the stock's price, making it more affordable for retail investors. This can attract more interest from retail investors and increase trading volumes.

There is also a psychological element at play. Investors tend to feel good when they receive something extra, even if it does not increase their wealth. Bonus shares often create a positive buzz in the market, which helps improve investor sentiment. And for high-priced stocks like Nestle, a bonus can make the stock appear more within reach to smaller retail investors.