Indian Railway Catering and Tourism Corporation (IRCTC) while announcing its quarterly earnings on Thursday also said that its board has 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. This is subject to the approval of Ministry of Railways, shareholders and other approvals.

Shares of IRCTC today surged to a new high of 2,727, up over 5% on the BSE. IRCTC has given multibagger returns by rising over 5 times since its IPO issue price of 320 per share. The stock split will help enhance liquidity in the capital market, widen shareholder base and make the shares affordable to the small investors, the company said.

A stock split increases the number of shares that are outstanding by issuing more shares to the current shareholders. Stock split decreases the market price of the individual shares, however, does not result in changing the market capitalization of the company.

For example, in IRCTCs 1:5 stock split, for every 1 share held by a shareholder, it will become 5 shares. The authorised share capital will remain the same at 250 crore while post-split the number of shares will increase to 125,00,00,000 ( face value of 2-each), from 25,00,00,000.

A company engages in stock-split decision to make its stock more affordable if its price levels are very high, which in thus would lead to increase in liquidity in the stock.

IRCTC expects the stock split process to be completed within three months from the date of receipt of approval of from Ministry of Railways, Government of India.

The state-owned company entered the primary markets by listing in October 2019 and enjoys a strong monopoly. It has 100% market share in rail network. It’s also the only entity authorised to manage catering services on trains and major static units at railway stations. The government holds 67.40% stake in IRCTC.

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