Case Study: Bajaj Finance Bonus Issue and Stock Split – CA Final AFM
Corporate actions such as bonus issues and stock splits are not merely procedural; they represent strategic financial tools used by companies to manage market perception, share liquidity, and investor sentiment.
Let’s analyse the 2025 Bonus Issue and Stock Split by Bajaj Finance Ltd using key AFM concepts.
1. Corporate Action Breakdown
| Action Type | Ratio | Effect |
|---|---|---|
| Bonus Issue | 4:1 | 400% increase in share quantity |
| Stock Split | 1:2 | Halves the face value and doubles shares |
Impact on Shareholders:
If an investor held 50 shares:
- After 4:1 bonus → 250 shares
- After 1:2 stock split → 500 shares
Share price drops in proportion, so total market value remains unchanged.
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2. Relevance to CA Final AFM Topics
A. Valuation of Equity Shares
- Pre-bonus/split: Share price reflects earnings per share (EPS) on fewer shares.
- Post-bonus/split: EPS drops (more shares), but market cap remains same (theoretically).
Key concept:
Market Cap = No. of Shares × Market Price per Share
Remains constant, unless there’s a change in business fundamentals.
B. Impact on EPS and Valuation Multiples
EPS gets diluted, so students should evaluate:
- Adjusted EPS
- P/E Ratio stability
- Intrinsic value pre/post action
This is important while analysing valuation during M&A, IPOs or strategic investment decisions, a core AFM theme.
C. Liquidity and Market Perception
From an investment management perspective, the split and bonus:
- Improve stock affordability → Increased liquidity
- Attract small retail investors
- Signify management confidence
Strategic implication: While no change in intrinsic value, increased demand might push the market price higher, reflecting behavioural finance principles.
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3. Financial Analysis (Based on FY25 Q4 Results)
| Metric | Q4 FY25 | YoY Growth |
|---|---|---|
| Net Interest Income (NII) | ₹98.1 bn | +22% |
| Net Profit | ₹44.8 bn | +17% |
| AUM | ₹4,166.6 bn | +26% |
| Gross NPA | 0.96% | — |
| Net NPA | 0.44% | — |
Source: Equitymaster
Capital Structure of the Last 5 Financial Years
| Period | Instrument | Authorized Capital | Issued Capital | – P A I D U P – | ||
|---|---|---|---|---|---|---|
| FromTo | (Rs. cr) | (Rs. cr) | Shares (nos) | Face Value | Capital | |
| 2023 – 2024 | Equity Share | 150 | 123.80 | 618,007,991 | 2 | 123.60 |
| 2022 – 2023 | Equity Share | 150 | 121.09 | 604,420,832 | 2 | 120.88 |
| 2021 – 2022 | Equity Share | 150 | 121.09 | 603,279,841 | 2 | 120.66 |
| 2020 – 2021 | Equity Share | 150 | 120.52 | 601,565,625 | 2 | 120.31 |
| 2019 – 2020 | Equity Share | 150 | 120.34 | 599,946,491 | 2 | 119.99 |
Source Moneycontrol
Key AFM Link:
- Credit risk analysis (NPA)
- Capital Structure
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4. Return Analysis (FY20–FY24)
| Metric | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Profit (₹ Mn) | 52,638 | 44,198 | 70,282 | 115,077 | 144,512 |
| ROE (%) | 16.4 | 12.1 | 16.2 | 21.4 | 19.1 |
Source: Equitymaster
AFM Integration: Use of NPV-based valuation, and Financial Modeling to project future cash flows and estimate fair valuation after corporate action.
5. Investor Outlook – Long-Term vs Short-Term (AFM Decision-Making)
- Long-Term Investors: Benefit from improved liquidity, psychological ownership, and dividend potential.
- Short-Term Traders: The stock may see gains because small investors will now be able to invest in it, which they couldn’t do earlier. Since one share has become ten shares, the price per share has decreased due to a stock split, making it more accessible and potentially beneficial for positional trading.
AFM Decision Matrix: Apply tools like Fundamental vs Technical analysis, Investment Appraisal, and Risk-Return framework to evaluate buy/hold/sell decisions.
Conclusion – Strategic Use of Bonus and Split
From an AFM standpoint, Bajaj Finance’s 2025 bonus and split are strategic moves to:
- Reinforce market confidence
- Enhance affordability
- Signal long-term strength
It’s a non-dilutive capital restructuring technique that boosts shareholder engagement without affecting intrinsic value.
Exam-Ready Takeaways for CA Final Students
- Corporate Actions must be understood from both accounting and valuation perspectives.
- Use financial modeling to assess impact on share price, EPS, and shareholder wealth.
- Analyse post-action metrics like adjusted PE ratio, book value per share, and dividend distribution policy.
FAQs
1. How important is this case for CA Final students?
This case study on Bajaj Finance is relevant for CA Final students, especially in the Advanced Financial Management (AFM) subject in the topic Security Valuation.
It serves as a practical example to understand the significance of Earnings Per Share (EPS) and how corporate actions like bonus issues and stock splits affect key financial metrics.
It also helps students apply these concepts during their post-qualification journey as finance professionals.
2. If I have 300 shares of Bajaj Finance, how many shares will I have after the bonus and stock split?
You can calculate it step-by-step:
- Bonus Issue: For every 1 share, you get 4 bonus shares.
So, 300 shares × 4 = 1,200 bonus shares.
Now, your total shareholding = 300 + 1,200 = 1,500 shares (all at ₹2 face value). - Stock Split: Each ₹2 share is split into two ₹1 shares.
So, 1,500 × 2 = 3,000 shares.
After both the bonus issue and stock split, you will hold 3,000 shares in total.
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