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IRCTC stock to be split as firm looks to attract small investors; should you buy, or sell?

Financial Express - Business News, Stock Market News

privatization, asset monetizationIRCTC announced its decision to split the stock along with its quarterly results where the company reported a net profit of Rs 82 crore.
(image: REUTERS)

Indian Railway Catering and Tourism Corporation (IRCTC) has announced a stock split that will divide its shares into five equity shares. The company announced the decision along with its quarterly results yesterday. The stock split will see the face value of IRCTC’s share drop from Rs 10 each to Rs 2 each. The move, however, is subject to approval from the Ministry of Railways and other shareholders. Since listing on the stock exchanges, IRCTC has soared a massive 734% from its IPO price of Rs 320 per share to now trade at Rs 2,668 per share.

IRCTC announced its decision to split the stock along with its quarterly results where the company reported a net profit of Rs 82 crore, up from the Rs 24 net loss that IRCTC recorded in the same period last year. IRCTC’s revenue from operations was up 85% to Rs 243 crore, compared to Rs 131 crore in the corresponding quarter last year.

Stock split to attract small investors

The PSU firm said that it decided to split the stock to comply with the guidelines on capital restructuring of Central Public Sector Enterprises issued by the Department of investment and Public Asset Management (DIPAM), Ministry of Finance. Further IRCTC plans to enhance the liquidity in the capital market to widen shareholder base and to make the shares affordable to small investors.

“A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to current shareholders. The primary motive of a stock split is to make shares seem more affordable to small investors,” Ashish Chaturmohta, Director Research, Sanctum Wealth Management told Financial Express Online. He added that the move will make IRCTC stock easily accessible for retail investors, who now make up nearly 45% of the market participants. “The announcement is a positive move and (will) encourage retail investors to participate,” he added.

The share split will increase the number of IRCTC shares from 25,00,00,000 of face value Rs 10 each to 125,00,00,000 equity shares of face value of Rs 2 each. So far this year, IRCTC’s share price has soared 84%. “A stock split does increase participation in the stock and results in buying post the split, according to Vishal Wagh, Head of Research, Bonanza Portfolio.

Should you buy?

IRCTC has helped investors pocket smart returns since its listing in October 2019. Operating in a monopolistic market, IRCTC enjoys certain perks that attract investors towards it. “IRCTC in simple words, is a platform company having a monopoly business in passenger train booking. It is a B2C company with robust cash flow. Hence this company is a buy on dip candidate,” said Ashish Chaturmohta.

However, on the technical side, IRCTC is seen as a stock to clearly avoid by Vishal Wagh. “The up-move in IRCTC will get stalled if the stock does not break the level of Rs 2,750 at the earliest. On the downside the stock could go to Rs 2,300 apiece,” he added. Vishal Wagh added that investors should exit the stock while it sits below Rs 2,750, without waiting for the split to come into force.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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