IRCTC stock has been hogging the limelight in the last few weeks mainly due to two reasons. Firstly due to the proposed IRCTC stock split and secondly due to its stellar run up to Rs. 6396 levels before the stock eventually corrected to around Rs. 4000 levels.
On 12th Aug 2021, the board of Indian Railway Catering and Tourism Corporation (IRCTC) had 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 ₹10 each into 5 equity shares at a face value of ₹2 each.
“Recommended the proposal for sub-division of Company’s 1 equity share of face value (FV) of ₹10/- each into 5 equity shares of face value of Rs.2 each, subject to the approval of Ministry of Railways, shareholders & other approvals as may be required,” IRCTC stated in a press release.
The record date for IRCTC stock split was later announced as 29th Oct 2021.
In this article let’s take detailed look at the IRCTC stock split process.
What is meant by stock split?
In a stock split, the number of outstanding shares are increased by issuing additional shares to the existing shareholders. Under such a situation, while the market price of share decreases it does not change the market capitalization of the company.
Simply it means, a stock split increases the number of shares and lowers the individual value of each share.
Let’s understand the IRCTC stock split with an illustration.
Suresh has 50 shares of IRCTC in his demat account which he has purchased for Rs.4000 per share. Irrespective of his purchase price, assuming if the stock splits for a price of Rs. 5000 on 29th October 2021, he will be holding 250 shares (50×5) of IRCTC in his demat account with a market price of RS. 1000 per share.
Reasons why companies opt for stock split?
The decision to split a stock is taken by the board of a company in order to make it stock more affordable in case the stock price levels are very high, thus resulting in increased liquidity in the stock.
Post IRCTC stock split, should you invest in the stock?
Incorporated in the year 1999, IRCTC is a PSU, wholly owned by the Government of India, under the administrative control of the Ministry of Railways. The company owns exclusive rights to provide online railway tickets, catering services to railways & packaged drinking water at railway stations and trains in the country. IRCTC has also recently diversified into other businesses including catering for non-railway events, budget hotels and e-catering executive lounges for customers.
IRCTC’s monopoly in its area of business gives it some exclusive advantages. From a long term perspective it appears to be a good investment bet. However, it is equally important to invest at the right price. Invest wisely after proper research.
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– Written and contributed by Pradeep Sukumaran.