Assistant Professor, JIMS, Kalkaji (best
Company:-IRCTC
Industry:-Railways
About The Company
Indian Railway Catering and Tourism Corporation Limited (IRCTC) was established in 1999 by the Government of India as a public limited company to meet the requirements of travelers of the Indian Railways. IRCTC offered various services and products, including catering, online ticketing, and packed drinking water, among others. Over the period, the company established itself as a strong player with a sound fiscal position, thanks to a monopoly in online train ticketing for Indian Railways.
In 2019, IRCTC went in for an IPO and was subsequently listed at a premium of more than 101% over the offer price of Rs. 320. IRCTC stock’s growth story continued and share price touched Rs. 2,331.30 till July 2021. Company’s management decided to go for stock split in October 2021. Before the stock split, IRCTC stock hit a record high of Rs. 6,369 on October 2021. The IRCTC stock was performing well and numerous analysts suggested holding the stock after the stock split. Still, some experts advised investors against investing in any stock after the stock split.
Crucial highlights:
- Company with No Debt
- Growth in revenue every quarter for the last 2 quarters
- Profit growing every quarter for the last 2 quarters
- Improvement in book value per share from last 2 years
- Company with Zero Promoter Pledge
Market Capitalization –Rs 57,376
Net income: 528.57 crores INR (US$74 million, 2020)
Total assets: 3,249.83 crores INR (US$460 million, 2020)
Revenue: 2,353.53 crores INR (US$330 million, 2020)
Founded: 27 September 1999
What was the challenge?
To study the effect of a stock split on the market price of the company.
Financial Performance of IRCTC
By offering multi-service results to both domestic and international customers, IRCTC was able to achieve around 71% growth in net profit over the previous year with it increasing from Rs. 3.08 billion in FY2018-19 to Rs. 5.28 billion in FY2019-20. But due to the impact of the Covid-19 pandemic, the net profit of the company dropped to Rs. 1.89 billion in FY2020-21.
Share Price Movement
After listing on the exchanges of IRCTC for Rs. 881.70 on October 14, 2019, the share price showed an upward move and reached Rs. 1,930.05 level as on February 20, 2020. On February 24, 2020, the company declared an interim dividend of Rs. 10 per share. After the announcement of the dividend, its share price fell to Rs. 982.55 in March 2020. Thought, after the share price of IRCTC started improving and it touched Rs. 1,384 in September 2020.
The Stock Split
As per the decision of the IRCTC Board, October 28, 2021, was set as the ex-date of the Stock split, and October 29, 2021, was decided as the record date of the stock split. After this decision, the company did a stock split in the ratio 1:5 on 28 October 2021. Consequently, the face value of each IRCTC share was Rs. 10 which was divided into five equity shares with a face value of Rs. 2 each. This means that an investor holding one share of IRCTC before the stock split tured into the owner of five shares of the company after the stock split. However, the overall market capitalization of the company remained almost the same. A stock split allows a company to break each existing share into a number of new shares without affecting its market capitalization (the total value of all its shares) or each investor’s stake in the company Stock split can be a good sign for both existing and potential shareholders.
Road Ahead
A sound financial position of the IRCTC along with the authorization of the GoI helped IRCTC create a monopoly market in India by acquiring the market share of 73% and 45% by October 2021 in the online train ticket bookings and packaged drinking water segments respectively. After the lifting of the Covid-19 lockdown, many people were expected to opt to travel by train, and for this the number of transactions on IRCTC website and mobile app has increased.. IRCTC also planned to enter the tour and travel planners business.
Conclusion
This lowers the price of the stock and increases its liquidity, making it more affordable for investors. A stock split splits a company’s shares into more shares, which in turn lowers the share price and increases the number of shares available. For existing shareholders of that company’s stock, this means that they will receive additional shares for each of the shares they already own.
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