Time Technoplast bonus shares after 18 years: Explaining today’s optical 50% drop

Time Technoplast, along with Pidilite Industries, will turn ex-bonus in the ratio of 1:1. In simple terms, for every Time Technoplast share an investor owns, he will receive one additional share free of cost. This is the company’s second bonus issue after August 2006, when it had also issued shares in the same 1:1 ratio, data compiled from corporate database AceEquity shows.

On Monday, Time Technoplast closed at Rs 477.75 apiece on the BSE. When markets open today, the price will automatically adjust to reflect the bonus issue and would theoretically trade around Rs 239 per share. On some trading apps, this may appear as a sudden 50 per cent fall. However, investors need not worry — the decline is only optical, as their shareholding doubles with the issue of new shares. Importantly, there is no dilution of equity.

The key appeal of bonus shares lies in the fact that they come free of cost. To fund the issue, companies draw from their free reserves and surplus, while the new shares carry the same face value as existing ones.

The effect of a bonus issue is straightforward: it raises the number of outstanding shares, reduces the company’s free reserves, and lowers earnings per share (EPS). Accordingly, the stock price adjusts downward in proportion to the additional shareholding.

While bonus issues and stock splits may appear similar, their objectives differ. A bonus issue distributes accumulated earnings by rewarding shareholders with free additional shares while keeping the face value unchanged. A stock split, on the other hand, breaks existing shares into smaller units to improve liquidity, thereby reducing the face value. For instance, in a 1:5 stock split, one share is divided into five smaller shares, with dividend entitlement shrinking proportionally. In a bonus issue, dividend entitlement remains unaffected.

Brokerage Motilal Oswal Financial Services (MOFSL), in an August note, projected a return on capital employed (RoCE) of 20 per cent for Time Technoplast in FY26, driven by cost reduction measures such as automation, re-engineering of machinery and moulds, and optimization of the working capital cycle. It added that consolidation of products and manufacturing units is underway to further improve efficiency.