Mumbai, March 16: Cipla today said it will consider a plan to divide its shares that carry a face-value of Rs 10, into those of smaller, but unspecified, denominations.
Recently, Motor Industries Company (Mico), an auto ancillary firm, had announced a stock split to increase its liquidity on the bourses. Wockhardt, a pharmaceutical major, had also unveiled a similar move last month.
Cipla shares opened at Rs 1,170.20 on the Bombay Stock Exchange today and closed at Rs 1,198.45, with 731 deals for 11,077 shares. The stock split is expected to increase the trading volume and facilitate better price discovery.
A stock spilt is similar to a bonus issue in so far as it increases the number of shares with an investor.
However, in a bonus issue, the reserves are reduced by the number of shares issued, which is considered a dilution in equity.
When a company splits its stock, it issues additional equity to existing investors by reducing the face-value of a share.
For instance, Mico Bosch plans to sub-divide a stock with a face value of Rs 100 into 10 shares of Rs 10 each.
Therefore, if the recommendation of the board is accepted by shareholders, an investor in Mico would stand to gain 10 shares with a face value of Rs 10 each for every stock of Rs 100.
Stock splits became popular after the Securities and Exchange Board of India (Sebi) abolished the par value of a share, provided it is dematerialised and the face value is not below Re 1.
Following this, Hindustan Lever split its stock in the ratio of 10:1 for every share, with a face-value of Rs 10.
Infosys Technologies and Wipro had split their shares at the height of the IT boom.
ACC had also spilt its shares with a face-value of Rs 100 each by issuing 10 shares of Rs 10 each.
All the companies that have split the share value so far have seen an increase in liquidity on the bourses. Most stocks are marked by poor liquidity which hampers price discovery.
Yusuf Hamied, Cipla’s promoter, earned a name for himself and his company by offering a three-drug cocktail for around $304 per year against its existing cost of around $12,000. The same medicine is now available for $727 from other pharma majors.
