TD Power Systems Ltd on Tuesday (August 30) announced that its board has approved a stock split (sub-division of equity shares) in the ratio of 1:5.
This means that one share of Rs 10 will be split into five equity shares with a face value of Rs 2 each. The stock split is subject to shareholders’ and other required approvals.
Why the stock split
Talking about the stock split, the company said it is to encourage the participation of small investors by making it more affordable and consequently enhancing the liquidity of the company's equity shares.
"The record date for the purpose of sub-division of equity shares or stock split will be decided at the forthcoming annual general meeting (AGM) and will be intimated to the stock exchanges,” the company said in a regulatory filing.
The company expects the stock split exercise to be completed approximately three months from the date of receipt of approval from the shareholders of the company.
Also, the board has approved the alteration of the capital clause of the memorandum of association of the company on account of the sub-division of equity shares subject to the approval of shareholders of the company.
What it means for retail investors
For retail investors, the stock split mathematically means that if you hold Rs 1,000 worth of shares and that is split into 10 shares worth Rs 100 each, your holding in the company is still worth the same.
But with market movement depending on perception and psychological factors as well, retail investors often like to hold stocks of companies that are issuing a stock split since that is considered a sign of a thriving business. This results in upward market movement, which along with higher volume and liquidity may result in prices of the share being pushed up.
TD Power Systems said its consolidated net profit more than doubled to Rs 21.49 crore in the June quarter on the back of higher revenues. The total income rose to Rs 211.06 crore in the quarter from Rs 165.41 crore a year ago.
