Tata Steel Stock Split: Should You Buy?
Tata Steel Stock Split: Overview
Tata Steel(TATASTEEL) is a global steel company with operations in 26 countries. With a turnover of $18.3 billion and over 100,000 employees, Tata Steel is one of the world’s largest steel companies. Its operations span the entire value chain, from raw steel production to completed steel products. The company's products include steel and related products, such as rebar, wire rods, sheets, and tin plates.
We have done a detailed analysis of Tata Steel's business, its competitive advantage, share price trend and a lot more . Click here to read.
Tata Steel Announces Stock Split: What is a Stock Split?
A stock split is a corporate action in which the company divides its existing shares into multiple shares of smaller value. This is usually done to lower the price per share and make it more affordable for investors. The stock split can be done in two ways:
1) A reverse stock split, which reduces the number of outstanding shares by combining them into one share of larger value, or
2) A forward stock split, which increases the number of shares by dividing them into many shares of smaller value.
In most cases, a company will do a reverse stock split when it needs to raise capital because it does not have enough money to fund its operations. A stock split is a proportional reduction in the number of shares outstanding. The objective of a stock split is to make the price of the shares more affordable for a broader range of investors. Stock splits are also used to increase liquidity, as it becomes easier for investors to buy or sell smaller quantities.
How would the Tata Steel Stock Split Work?
If a firm believes that the price of its shares has grown to a point where the average investor cannot buy them, it may split its stock. Current shareholders will now own more shares for a reduced cost per share owing to the Tata Steel stock split.
Tata Steel plans to distribute its shares in a 10:1 ratio. Tata Steel's stock ended the day on July 19th, 2022, at ₹920. If the price on a split day stays the same, each share would then become ten shares, with a value of ₹92 each. Each share would then be worth one-tenth of what it did before the split, and each shareholder would own ten times as many shares as they did before.
However, do keep in mind, that an investor's position in Tata Steel would have the same overall value and the overall market capitalization is not affected.
The reasoning behind the split is that a stock with a single share price of above ₹900 can be psychologically demoralizing for some investors. Due to the potential perception that the stock is now expensive, the firm decides to divide it into smaller shares, each of which has a lower price. However, not all companies follow this rule. For instance, MRF is the most expensive stock and the top tyre producer in India. There haven't been any share splits since MRF provided share splits in the ratios of 1:2 and 3:10 in 1970 and 1975, respectively. As of June 2021, MRF had 4.2 million outstanding shares, and each share now trades for around ₹80,000 in the market.
Tata Steel Corp Stock Split History
Tata Steel has split its stock three times previously and this would be the fourth time that Tata Steel’s stock is splitting. The following is the list of all historical stock splits of Tata Steel:
- Aug 11, 2004 - 1.5:1 Stock Split
- Oct 29, 2007 - 1.131:1 Stock Split
- Jan 31, 2018 - 1.05:1 Stock Split
- Jul 29, 2022 - 10:1 Stock Split
Why is Tata Steel Stock Splitting?
An increase in a company's stock price is an indicator of success. This is advantageous, but it also implies that investors will now find it more difficult to purchase the highly soaring shares. As a result, businesses may split their shares to lower the price and increase the stock's appeal to individual investors. It is common practice to divide your stock to make it look more appealing from per-share pricing to stimulate buying of the shares when a stock starts to creep up and looks costly.
Tata Steel Stock Split 2022: Will the share price go up?
Here are three reasons why the share price will probably keep rising once the Tata Steel stock split 2022 is complete:
- Revival from correcting market: Since the start of the May period, the Nifty has continued to fluctuate along with larger markets. Tata Steel had a substantial correction in the metals sector as a result of the dramatic drop in metal prices brought on by concerns about a possible worldwide recession. However, given that it reversed from its Put base following the correction of approximately 45 percent from the peak, it is currently in a pullback pattern. Experts anticipate new long positions in the stock in the upcoming sessions, continuing the recent momentum witnessed in the stock.
- Fundamental analysis encouraging investors: Tata Steel is a company that offers a high dividend yield and has shown excellent profit growth at a CAGR of more than 76% over the previous five years. Tata Steel's stock is now trading at a low price to book value (P/B) of 0.92 times its book value, with a book value per share of Rs. 958.50.
Tata Steel Stock Split: When is the right time to buy?
If you wish to buy, hold, or sell your stock shortly before or soon after the split, you shouldn't expect your choice to vary too much. Any price rise that the market believes would occur after a stock split is disclosed prior to the split, so by the time it really occurs, the price has already compensated for that increase.
Since the market capitalization, or the value of the firm, is determined by the number of shares outstanding multiplied by the share price, it is common for there to be little to no benefit, if any, to purchasing a particular stock just before a split. Hence, it can be said that since the Tata Steel stock split announcement, the company’s shares have been carried over with the effect of the Tata Steel stock split news and the majority of the impact that the split would have had has already been reflected in the stock price.
What are the Implications of the Tata Steel Split?
There is no doubt that Tata has had strong growth. The stock price of Tata Steel has decreased by 45% from its record high to its current level. The correction has been a staggering 21% in just one month. The main causes, which include the recession and global difficulties, have caused challenges in the entire commodity market. Numerous brokerages frequently draw attention to the health of their balance sheet, which has never been stronger.
According to research studies, the revenue gain that Tata Steel and other steel businesses received as a result of the disruptions caused by the post-Covid and Russia-Ukraine war is almost entirely gone now.
Experts also said that the corporation had greatly decreased its debt. In addition, it reported a profit of 40,000 crores for the fiscal years 2021–2022. The debt decreased from 1.16 lakh crores in FY20 and 88000 crores in FY21 to 75000 crores in FY22. Additionally, the stock continues to pay a 6% dividend return. Taking into consideration these facts, analysts generally concur that Tata Steel is still in a strong position to develop over the long run.
When is the Tata Steel Stock Split happening?
The move to split shares was approved during the Annual Shareholder’s Meeting and the date has recently been announced for the split record, as 29th July 2022.
When did Tata Steel Stock Split?
Tata Steel stock has three times in its entire history since its IPO, excluding the most recent announcement. The Tata Steel stock split dates were 11 Aug 2004, 29 Oct 2007, and 31 Jan 2018.
What has led to Tata Steel stocks falling?
The reason behind it is the Indian government imposing a hefty export tax of 15% in order to cool down the steel prices in India, to tackle inflation. Shares of Tata Steel, SAIL, and Jindal Steel nosedived by 16% after the news. The iron and steel product category has witnessed a net trade surplus in the last two years – since the outbreak of COVID-19 – with the total surplus standing at $14.1 billion (approx. ₹1,07,000 crore) in 2020-21 and 2021-22. The local steel giant has a track record of generating strong operational results while upholding sound financial policies and the probability of rating is expected to increase over the next 12 months if the recent performance and credit metrics improve. However, Tata Steel's well-thought-out capital allocation strategy, which prioritizes debt reduction above capital expenditure and new projects makes it a much more preferred choice for investors in the long run.
What was the ratio of the previous stock split?
The previous split which took place on 31 January 2018 had a Tata Steel stock split ratio of 1.5-for-1, which means that for every unit of stock held by a shareholder, he/she received half of a stock additionally.