The power company CESC Ltd has announced a 1:10 stock split. Here is a quick round-up of what a stock split is and how it benefits investors.
CESC’s stock split
The ex-date for this issue is 17 September ‘21. So, investors should buy the shares of CESC latest by 16 September ‘21 to be able to benefit from the stock split.
On 15 September, CESC’s shares were trading at ₹890. After the 1:10 stock split, the per share price will be adjusted accordingly. As an investor, it is important to keep in mind that though the number of outstanding shares will increase but its market value will remain the same.
In the June quarter, the company reported a 23% year-on-year growth in revenue to ₹3,216 crore. In the same period, the company's net profit also increased by 34% to ₹280 crore.
What is a stock split?
A stock split is a corporate action in which the company divides the existing shares into multiple shares. 1:10 stock split means the total issued shares of the company will increase ten times. For example, if an investor is holding 10 shares of the company, after the split he or she will have 100 shares.
How does this impact the company’s share price? The share price falls but its total market value remains the same. It’s important to note that after a stock split, the stock price falls in the same proportion as the split ratio. In this case, the share price will be 1/10th. For example, assume that the share price of a company before the stock split is ₹100. So, after the split, the price of each share will typically be ₹10.
A company chooses to split its stock so that it can reduce the stock price and make it more affordable for most of the investors and also increase the liquidity of shares.