Infrastructure and construction company Unity Infraprojects announced that it will consider a stock split when its board meets on January 29, to review its December quarter results. The company will also take enabling approval to allow foreign institutional investors to hold up to a 49% stake in the company, compared to a 24% stake at present.
In a stock split, the existing face value of the share is split, say from a face value of Rs 10 to a face value of Rs 5, which will be a 2:1 split, or two shares of Rs 5 each issued for every one share of Rs 10 held. Unity has a face value of Rs 10 and its share price is up by 4% at the time of posting, but had hit a 52-week high today.
Stock splits do not alter valuations in theory, as the equity capital remains the same and only the shares in issue increase. Also, unlike bonus issues, even if the dividend ratio is maintained, the shareholder does not get a higher quantum of dividends. In practice, however, there is a feel good factor among retail investors about more shares being issued for free. Also, since the absolute value of one share will fall depending on the ratio, that may win over fence sitters who were discouraged by the per share value. Unity’s share price has jumped to about Rs 630 at present from levels of Rs 67 in March 2009. Typically, companies choose to issue stock splits when the share price has risen sharply in a short period of time. The company had recently raised money (end-December) through a qualified institutional placement, raising Rs 73 crore by issuing equity at Rs 506 per share.