The power of a bonus issue: How Rs 1,000 becomes Rs 1.40 crore and generates multibagger returns of 13,88,285 per cent!

From just 2857 quantities purchased initially, the quantity grew to 38.44 times just through the bonus issue, reaching 1,09,833 shares.

bonus issues always excite investors because they provide additional shares at no cost, based on the ratio announced by the company and the holding as of the required date. When a company announces that the board will consider a bonus issue, investors often try to buy the company’s shares or accumulate them if they already own them, in order to receive the additional shares offered by the company as a bonus issue.

In this article, we will analyze a Large-Cap auto component manufacturing company that has distributed almost 9 times bonus shares to its investors. The company's shares are currently trading at around Rs 126 per share on the BSE. The last issue was announced in 2022, according to the latest available details, with a ratio of 1:2. This means that for every 2 shares investors held in their account, they would receive 1 additional share.

Also read Invested in the wrong stock type? Here are 6 types of stocks to consider for your portfolio!

Now, turning your attention to the calculation parts: How many times has the company announced a bonus issue and what were their ratios? Additionally, how does Rs 1000 become Rs 1.4 crore, allowing investors to earn a multibagger return of 13,88,285 per cent?

As per the above table, an investor who bought the company’s shares in January 2000 when the shares were trading at Rs 0.35 per share would have acquired around 2857 shares at that time. Following the mentioned bonus issues, the investor would receive additional bonus shares during this timeframe, totaling around 1,06,976, and eventually reaching a total of 1,09,833 shares (including bonus shares).

The current market price of the shares is around Rs 126.4 per share. Based on this, the current value comes out to be Rs 1.38 crore (Rs 126.4 per share * 1,09,833 shares), yielding a return of 13,88,285 per cent during this timeframe. The quantity grew from 2857 to 1,09,833 shares, representing an initial investment of Rs 1000 which has now become Rs 1.38 crore, signifying a gain of 13,88,285 per cent. Furthermore, if the company had not announced any additional bonus during this period, the absolute return would have been around 36000 per cent during the same period.

Let me reveal the company’s name, it is Samvardhana Motherson International Ltd which is primarily engaged in the manufacturing and sale of components to automotive original equipment manufacturers. As per the Quarterly Results, the company’s revenue increased by 27 per cent in Q3 FY4 while PAT surged by 26 per cent during the same period.

Investors must keep this penny stock on their radar.

Disclaimer: The article is for informational purposes only and not investment advice.