Tata Steel jumps 5% after turning ex-date for 1:10 stock split

The company had fixed Friday, July 29, 2022 as the ‘Record Date’ for the purpose of determining the eligibility of shareholders for the purpose of sub-division /split from Rs 10 to Re 1.

Shares of Tata Steel were up 5 per cent at Rs 100.45 on the BSE in Thursday’s intra-day trade after the stock turned ex-date for subdivision of shares in a ratio of 1:10 today.

The company had fixed Friday, July 29, 2022 as the ‘Record Date’ for the purpose of determining the eligibility of shareholders for the purpose of sub-division /split of every one fully paid-up equity share having face value Rs 10 each in the share capital of the company, into ten fully paid-up equity shares having face value Re 1 each.

The board of directors of Tata Steel on May 03, 2022 had approved a proposal of sub-division of the equity shares of the company having a face value of Rs 10 each to Re 1. The rationale behind the split is to enhance the liquidity in the capital market, to widen shareholder base and to make the shares more affordable to small investors, the company said.

A stock split is a corporate action, where a company splits its shares into multiple new ones. Split shares neither add any new value, nor dilute the ownership stake of the shareholders. However, what they do is increase the number of shares of the company.

The main stock split benefit is that the shares of a company generally see increased liquidity. Since shares have now become more accessible to retail investors, more people would show increased demand for it, which can increase liquidity in the counter. Buying and selling shares will be far easier after a stock split.

At 11:30 AM; Tata Steel traded 4 per cent higher at Rs 99.75, as compared to 1.5 per cent rise in the S&P BSE Sensex. A combined 72.52 million equity shares have changed hands on the NSE and BSE. In past two weeks, on an average sub 7 million shares were traded on the counter before stock split.

In the past one month, the stock has gained 13 per cent, as against a 6.5 per cent rise in the Sensex. However, in the last three months, the stock has underperformed the market by falling 21 per cent, as compared to 1.6 per cent decline in the benchmark index.

Meanwhile, Tata Steel’s profitability is expected to decline in Q2FY23 (Q2FY23E EBITDA/t of ~Rs 14,300) driven by lower steel prices marginally offset by lower coking coal cost and higher volume. The full effect of lower coking coal prices will be reflected in Q3FY23, thereby improving margins. Tata Steel Europe’s profitability too is expected to fall due to lower prices and higher coking coal cost due to lag impact, analysts at Centrum Broking said in Q1 result update.

“We expects release of working capital in H2FY23. A 6mtpa pellet plant and 2.2mtpa cold rolled mill is expected to be commissioned in H2FY23.High operating profits will help Tata to deleverage further in FY23 with net debt of ~Rs 533 billion at FY23‐end (FY22E‐end: ~Rs 576 billion) after including effect of NINL acquisition (~Rs 121 billion) which was completed on July 4, 2022. We do not foresee any further major acquisition by Tata in FY23,” the brokerage firm said.

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