IRCTC approves 1:5 stock split; here’s what it means for investors

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The board of Indian Railway Catering and Tourism Corporation (IRCTC) has approved the proposal for a 1:5 stock split or sub-division of shares. For a split of 1 share at a face value of Rs 10 each into 5 equity shares at a face value of Rs 2 each, it said. Should you buy sell or hold post the stock split? Here’s everything you need to know:

What is stock split?

A stock split increases the number of shares and lowers the individual value of each share. The market capitalisation of the company, however, remains unaffected.

Why do companies opt for stock split?

The primary motive of a stock split is to make shares seem more affordable to small investors. The boards of many companies decide to split the stock to also create more liquidity by making the price of the stock more attractive for a larger number of people, especially small investors.

What about IRCTC’s split?

In IRCTC’s cases, every one share held by a shareholder will become five shares. Similarly, IRCTC stock price would come down at around Rs 500 to Rs 550 from existing Rs 2,666 share levels. Post-split the number of shares will increase to 125,00,00,000 from 25,00,00,000. This sub-division of IRCTS shares won’t impact company valuations but it would become easy for small investors to invest in IRCTC stocks after the split.

IRCTC expects the stock split process to be completed within three months after receiving approval from government of India

What should investors do ?

IRCTC stock has had a sharp run up on the hopes of unlock and revenge spend on travel in the last couple of months.

In fact, the stock has risen 734% from its IPO price of Rs 320 in October 2019 to now trade at Rs 2668.

Q1 earnings have been positive as the company has reported a net profit of Rs 82 crore for the June quarter as compared to a loss of Rs 24 crore in the year-ago period and a profit of Rs 103 crore the March quarter.

Experts believe IRCTC is a platform company having a monopoly business in passenger train booking. It is a B2C company with robust cash flow. The stock split will make it easy for small investors to pick the stock, it will not benefit the company as such but the prospects of the unlock trade augur well for the company.

“Operating in a monopolistic market, IRCTC enjoys certain perks that attract investors towards it. It is a B2C company with robust cash flow. Hence this company is a buy on dip candidate,” said Ashish Chaturmohta.