Utsavik Consumer makes a 9:1 bonus issue before its IPO. Show what happens to the share count, an employee's options, the strike and the price, and whether the employee's stake changes in value.

Shares go from 50 lakh to 5 crore, the employee's options from 10,000 to 1,00,000, the strike from Rs 180 to Rs 18 and the price from Rs 2,700 to Rs 270; the employee's intrinsic value is Rs 2.52 crore before and after. The company is worth Rs 1,350 crore either way. The only money that moves is Rs 45 crore shifted from reserves to share capital in the accounts. The thing to check is the plan's adjustment clause, because without it the same employee would hold Rs 9 lakh.

Cut a pizza into 80 slices instead of 8 and everyone at the table has ten times as many slices and exactly as much pizza. A 9:1 bonus gives every holder nine new shares for each one held, so the share count multiplies by ten, each share is worth a tenth as much, and nobody's share of the company changes. Utsavik's 50 lakh shares become 5 crore. The last round's Rs 2,700 a share, which valued the company at Rs 1,350 crore, becomes Rs 270 on ten times the shares, the same Rs 1,350 crore. In the accounts, Rs 45 crore of reserves is moved to share capital to pay the Rs 10 face value on 4,50,00,000 new shares; no cash leaves the company.

Options are a right to buy shares at a fixed price, and both the number and the price are written in old shares. The plan's adjustment clause multiplies the option count by ten and divides the strike by ten, so 10,000 options at Rs 180 become 1,00,000 options at Rs 18. The cost to exercise is the same Rs 18 lakh either way. Intrinsic value, options times price less strike, is 10,000 times Rs 2,520, Rs 2.52 crore, before, and 1,00,000 times Rs 252, Rs 2.52 crore, after. Her stake is 0.2% of the shares before the bonus and 0.2% after.

When the option plan, or a particular grant letter, has no adjustment clause and nobody fixes it before the record date. Then the employee still holds 10,000 options at Rs 180 on a share now worth Rs 270: Rs 9 lakh of intrinsic value, Rs 2.43 crore less than before, transferred to the shareholders by silence. Most plans carry the clause; the diligence step for an investor, and for the employee, is to read it. The same check applies to warrants, convertible notes with a fixed conversion price and any anti-dilution formula written in per-share rupees: each needs its own adjustment, or the bonus quietly re-prices it.

Convention and liquidity. A listed share priced in the hundreds of rupees fits the way lot sizes, price bands and retail orders usually work, and a float of 5 crore shares trades more smoothly than one of 50 lakh. The bonus is cosmetic for value and real for mechanics: it changes the number every later document is written in, so every per-share term must be restated at once. If the IPO then prices at an illustrative Rs 300, the employee's 1,00,000 options are worth Rs 2.82 crore, from the price move and not the bonus. One limitation to state: the tax on exercising options is charged on the share's value less the strike at exercise, under rules that change, so the employee should confirm the current treatment before exercising rather than rely on a figure from memory.