Why RIL Stock Price Dropped by Nearly 50% on Monday
On Monday, Reliance Industries Ltd (RIL) shares saw a sharp drop of nearly 50%, creating confusion among investors. However, this was not due to a market loss but rather a result of the company’s bonus share issue in a 1:1 ratio.
What Happened?
- Bonus Issue Adjustment:
Shareholders received one additional share for every share they owned, effectively doubling the total outstanding shares. Consequently, the share price was adjusted to reflect this change.- Friday’s Closing Price: ₹2,655.45
- Monday’s Adjusted Opening Price: ₹1,338 (reflecting a 49.61% drop on paper).
- On an adjusted basis, RIL shares actually saw a 0.77% gain on Monday, showing stable investor confidence.
What Are Bonus Shares?
A bonus share issue increases the total number of a company’s outstanding shares, lowering the price per share but keeping the company’s total market capitalization unchanged.
- Purpose: To make shares more affordable to retail investors and improve market liquidity.
RIL’s Track Record with Bonus Shares
This is RIL’s 6th bonus issue, the largest of its kind in India.
- Previous Bonus Issues:
- 1:1 in 2017 and 2009
- 6:10 in 1983
- 3:5 in 1980
Since the 2017 bonus issue, RIL’s shares have risen by 266%, reflecting the company’s strong growth trajectory. For context, RIL shares were priced at ₹725.65 in September 2017 and closed at ₹2,655.45 last Friday.
What’s Driving RIL’s Growth?
- Diversified Business Model:
- RIL operates in multiple sectors, including telecom, retail, petrochemicals, and now green energy.
- Telecom: Jio’s ARPU (Average Revenue Per User) grew by 7% QoQ, reaching ₹195, with further growth expected after recent tariff hikes.
- Retail: This segment continues to perform steadily, contributing significantly to RIL’s revenue.
- Focus on Green Energy:
- Investment: ₹75,000 crore earmarked for new energy projects.
- Future Potential: While current estimates don’t fully account for green energy returns, this segment could significantly impact RIL’s long-term growth.
- Market Position:
- RIL is leveraging its strength in telecom and retail to expand revenue streams.
- JM Financial notes that RIL’s proactive approach to green energy aligns with market trends, strengthening its competitive position.
What Should Investors Know?
- Price Adjustment is Normal:
The recalibration of the stock price is a standard procedure for bonus issues. It does not reflect a loss but an adjustment to account for the increased share count. - Enhanced Accessibility:
With a lower share price, retail investors now find it easier to invest, broadening RIL’s investor base. - Short-Term Trends:
- Despite a 10% drop in the past month, RIL shares are up 2.53% YTD, indicating resilience.
- Comparatively, the BSE Sensex rose 9.87% in the same period.
Analyst Outlook
Analysts remain positive to neutral on RIL’s stock:
- Opportunities:
- Telecom and retail segments are expected to continue driving growth.
- Green energy investments could unlock significant value over the long term.
- Challenges:
- Slower growth in refining and petrochemicals may offset gains in other segments.
Final Thoughts
RIL’s bonus issue has not only made its shares more accessible but also reaffirmed its commitment to shareholder value. With a diversified portfolio and significant investments in future-forward sectors like green energy, RIL remains a strong player in the market.
Investors should keep an eye on developments in RIL’s green energy initiatives and its telecom performance, as these are likely to drive its next phase of growth.
