Tata Steel has announced to split its stock. Tata Steel is splitting its stock in the 1:10 ratio. It means that every shareholder will get 10 shares for every single holding. On Monday, investors held buying sentiment on Tata Steel shares with quarterly results and stock split being the main focus.
Tata Steel: What is Stock Split?
Under a stock split, the listed company increases the number of shares that are outstanding by issuing more shares to the current shareholders. The stock split also decreases the market price of the individual shares, however, does not result in changing the market capitalization of the company. For example, Tata Steel’s stock split is a 1:10 ratio, this means a shareholder’s one equity share in the company will increase to 10 shares and the price of the shares on the ex-split date will also decrease ahead. This will make a shareholder have more shares in the company at a cheaper price.
Tata Steel has fixed July 29 as the record date to determine the eligibility of shareholders for the split of shares having a face value Rs 10 each.
As per the market guidelines, a company can fix a record date for corporate actions like dividends, stock split, and bonus issues only after receiving approval from shareholders. Tata Steel has received shareholders’ approval at the 115th annual general meeting of the company held on June 28, 2022. With the record date set on July 29 (Friday) for the stock split, this means Tata Steel shares will turn ex-split on July 28.
With a market cap of Rs 1,14,302 crore, as per BSE on Friday, Tata Steel is a large-cap corporation that operates in the ferrous metals segment of the country.
Tata Steel: Why a Stock Split?
Domestic rating agency ICRA recently released a report wherein it said that a sharp rise in commodity prices along with increased competition will have an adverse impact on the profitability of the construction industry which is already battling with input cost pressure due to a considerable rise in major commodity costs, particularly steel and cement. Companies could see a decline in operating profitability by 100-200 basis points in the current fiscal.
In the Tata Steel case, the stock split will help the company to increase liquidity, thus beating the impact of rising commodity prices on profitability to some extent.
It is also observed that when the share price of a company is high, it splits its stock to make the shares more affordable to small investors. Once the Tata Steel stock is altered and becomes cheaper, it will attract more investors and the trading volume will increase.
Tata Steel: Financials
The company has reported nearly 13 per cent year-on-year decline in consolidated profit at Rs 7,765 crore for the quarter ended June 2022, impacted by higher input cost and tax expenses. Revenue during the quarter increased by 18.6 per cent YoY to Rs 63,430 crore during the quarter. Consolidated EBITDA stood at Rs 15,047 crore, despite the sharp rise in input costs especially coking coal and gas prices in Europe, down by 7 per cent YoY.
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