Tata Steel on Sunday said it would consider a stock split of the equity shares of the company at the board meeting to be held on May 3. The face value of the shares is Rs 10 each.
The steelmaker has benefited enormously from the sharp increase in the prices of steel over the past two years. The company’s realisations per tonne increased to Rs 75,210 in Q3FY22 from Rs 51,649 in Q3FY21 and Rs 44,522 in Q3FY20. However, with raw material prices having increased sharply, the Ebitda per tonne has fallen in recent quarters from Rs 34,982 per tonne in Q1FY22 to Rs 28,659 in Q3FY22.
The company’s net debt has declined sharply over the past few quarters and stood at Rs 69,300 at the end of December, 2021. In Q2FY20, the net debt was hovering around Rs 1 trillion. Tata Steel is expected to end FY22 with revenues of Rs 2.1 trillion compared to Rs 1.5 trillion in FY21. However, the management had indicated post the Q3FY22 results announcement that the margins for the local business will contract further in Q4FY22 due to higher costs and lower prices whereas margins in Europe will improve sequentially due to contract revisions.
In the December 2021 quarter, margins had softened sequentially for the Indian and European businesses due to higher costs. The Tata steel stock, which has risen over four-fold over the last two years, has gained 18.7% so far in 2022. With a market capitalisation of Rs 1.6 trillion, the steel major boasts the third rank among the group companies after TCS and Titan Company.
“(The company) to consider a proposal for sub-division of the equity shares having a face value of Rs 10 each, in such manner as may be determined by the board of directors, subject to regulatory/statutory approvals as may be required and the approval of the shareholders of the company,” Tata Steel said in a stock exchange filing.The company’s board of directors will also consider dividend recommendations for the financial year ended March 31, 2022.
Stock split makes scrip affordable
Companies split a stock to increase the number of outstanding shares with a view to boost the stock’s liquidity. Although the number of shares outstanding increase by a specific multiple, the share price drops in proportion to that multiple. Therefore, the split does not make the company more valuable. While the net value of an existing shareholder’s stock doesn’t change with a split, the smaller face value of the stock can attract fresh demand from investors. Essentially, the stock becomes more ‘affordable’ allowing more investors to buy the share.