IRCTC Stock Advances After Stock Split

Indian Railway Catering and Tourism Corporation’s stock has been split in the ratio of 1:5, implying that shareholders will have five stocks in exchange for one stock.

A stock split only increases the number of shares; the company’s fundamentals and valuations remain the same. However, the IRCTC stock saw a 15 per cent rise during the trading session despite a large fall in the broader markets.

The company’s board had approved the stock split, splitting one share of face value Rs 10 into five shares of Rs 2. The record date had been set as 29 October.

The company had decided to go in for the stock split to make the stock more affordable for retail investors, thereby enhancing liquidity and making the stock affordable.

For instance, a stock with a value of Rs 500 would be converted into five stocks of Rs 100 during a stock split.

IRCTC’s stock is one of the most expensive stocks in the market, trading at around 40 times the revenue, because of its position as a profitable technology monopoly.

The stock had shot up from its Initial Public Offering price of Rs 370 per share to a peak of Rs 6,393 per share within two years — a return of almost 20 times. Given the high price of the stock, the management decided to split the stock.

In recent days, the IRCTC stock has seen some turbulence, falling around 30 per cent from its peak. The company commands a high valuation despite being a public sector unit whose revenues are highly dependent on the government.

Zerodha founder Nithin Kamath warned retail investors against being carried away by looking at lower prices.

“Every time a company announces a stock split, retail investors tend to buy the stock wrongly thinking that the stock has become cheaper," said Kamath. “It has no impact on the fundamentals of the company," he added.