Many people start their investment journey in an attempt to make money. It is possible to build financial wealth by investing in the stock market. While doing so, it is important to understand a few terms that come along with investing in shares. It is popular for many people to invest in popular stocks as they are considered to be more reliable. One such stock is MRF. The current share price of an MRF stock is ₹80,084. The main reason behind this exorbitant amount of one share is the fact that MRF has never split its shares during its time of being publicly traded in the stock market.
Typically, all companies offer a split of shares to investors. However, MRF does not follow this trend. This article explains about stock splits and the potential reasons why MRF didn’t split its shares along with the MRF split history.
What is Stock Split?
The concept of split stock has been a confusing aspect for many. Let us first understand what a split stock is and then dig deeper into why MRF won’t split its shares. Let us consider an example to understand this concept better. Consider that you have a full pizza. There are several ways in which you could split the pizza. You could split them into 4 pieces, 8 pieces, and so on. No matter how many pieces you split the pizza into, the overall amount of pizza remains the same. Splitting works the same way when it comes to company stocks too.
A company splits its shares into different shares during the time of a stock split. For instance, a 1:5 split would translate to one share benign split into 5 parts. A 1:1 stock split would mean that one share is split into two parts. The ultimate point is that, during a stock split, the number of shares increases. However, despite the increase in the number of shares, the amount of overall capital remains the same.
Why do Companies Split Their Shares?
Companies splitting shares is a common sight in the stock market. Here are 3 main reasons why companies split their shares.
Affordable Pricing
Many companies offer a stock split during different times in their journey of being publicly traded. Splitting of stocks does not reduce the overall share capital of the company. By splitting shares, companies make their share prices more affordable for investors. For instance, consider the share price of a particular company to be ₹2,000. This company offers a share split of 1:10. In this case, the share price of each share of this company would come down to ₹200. This affordable pricing would lead to more investors buying the shares of a particular company.
Higher Liquidity
One of the main reasons why companies split their shares is to increase liquidity. With more shares, comes more liquidity. This increased liquidity will ultimately improve trading volume. The reason behind this is that the number of total shares available will increase after a stock split.
No Effect on Financial Results
Many companies are on board with splitting their shares as it has no impact on their financial results. It does not affect the financial development of the country in any way. As there are no contingencies to splitting stocks, many companies are more than happy to split their shares.
5 Reasons Why MRF Won’t Split Its Share
However, MRF is an exception when it comes to splitting shares. Let us first have a look into the MRF share price bonus history. In the years 1970 and 1975, MRF offered a share split of 1:2 and 3:10 respectively. Since 1975, there have been no share splits offered. Here are 5 potential reasons as to why MRF won’t split its shares.
Their Performance Is Good
Many companies split stocks to make their share prices more affordable that would thereby result in more investors buying their shares. The ultimate result of this would be an increased inflow of capital for the company. When it comes to MRF, the company has strong fundamentals and is performing at a great pace. Over the past 11 years, MRF has increased in value by 1100% and has provided great returns to its investors.
Retain Existing Participation
Stock splits by companies typically increase the liquidity of the stock and also makes the stock more affordable. This thereby leads to an increased inflow of investors. MRF would like to keep speculators away as much as possible. One of the ways to achieve this is to not split their shares. Not splitting shares also keeps novice investors away from investing in MRF.
Symbol of Uniqueness
Unlike several companies that would like to be widespread, MRF aims to be so while also retaining its uniqueness. By not splitting its shares and maintaining its extremely high price, MRF has ensured to retain exclusivity. Retaining its high share price without splitting shares is a major contributing factor for its uniqueness. This symbol of status is something that makes MRF stand out.
Limited Public Shareholding
When an investor invests in a particular stock, they are bound to have voting rights when it comes to taking a certain decision that is extended to the public shareholders. As the MRF stock split is not offered, the existing investors get to hold on to their voting rights. This would also help to decrease volatility in the share price. More often than not, stocks that have a higher share price have lower chances of being acquired. Expensive stocks tend to steer away from acquisitions.
No Financial Benefits
Splitting a share provides no financial benefits to MRF whatsoever. As splitting shares does not particularly offer any financial advantage, MRF has not indulged in any share splits since 1975.
In a Nutshell
While many companies offer share splits, MRF has ensured not to. The company has steered away from share splits to maintain its exclusivity and also keep speculators as well as newbies away. Nonetheless, MRF has strong fundamentals and has increased in value over the years.
