Thyrocare share price plunges 65% today; why stock investors should not panic

Against a previous close of Rs 1,475.10 on the NSE, Thyrocare Technologies Ltd opened at Rs 510 on Friday, a 65.43 per cent decline that initially surprised some investors. The drop, however, simply reflected the stock turning ex-bonus in the 2:1 ratio.

A bonus issue rewards shareholders with free shares funded from accumulated earnings, without altering the face value. On certain trading platforms, non-adjusted prices may display such corporate actions as a steep fall, though investors had little reason to be alarmed. The decline was purely optical, as the number of shares increased in line with the bonus entitlement, with no dilution of equity and the face value unchanged.

On an adjusted basis, Thyrocare Tech shares opened 3.9 per cent higher.

A bonus issue increases shares in circulation, reduces free reserves and lowers earnings per share, leading to a corresponding adjustment in the stock price. In Thyrocare’s case, the bonus equity shares would be issued by capitalising the balances in the capital redemption reserve, securities premium account, free reserves or retained earnings, the company had informed the exchanges earlier.

The board recently approved an increase in authorised share capital to Rs 3,00,00,00,000, comprising 30,00,00,000 equity shares of Rs 10 each, from Rs 1,00,00,00,000. This required amendments to the capital clause of the Memorandum of Association, subject to shareholder and regulatory approvals.

Pre-bonus, the issued, subscribed and paid-up capital stood at Rs 53,05,38,970, divided into 5,30,53,897 shares of Rs 10 each. Post-bonus, it rose to Rs 159,16,16,910, comprising 15,91,61,691 shares of Rs 10 each. The bonus issue would cost the company Rs 106.11 crore.

While bonus issues and stock splits may appear similar, their objectives differ. A bonus issue distributes accumulated earnings in the form of additional shares without changing the face value. A stock split, in contrast, divides existing shares into smaller units to improve liquidity, reducing the face value. For instance, in a 1:3 split, each share is split into three and dividend entitlement adjusts proportionately. In a bonus issue, dividend entitlement remains unchanged, as proportional ownership stays intact despite the rise in the number of shares.