IRB Infra’s stock split: What is it and when will it reflect in the demat account?

Engineering and construction company IRB Infrastructure Developers’ record date for the 10-for-one or 10:1 stock split is February 22.

Shareholders approved the stock split through a postal ballot, with 99.99 percent of them voting for the resolution. The outcome was shared with the exchanges on February 6.

What is a stock split?

It is when a company decides to split one stock by various multiples. In case of IRB Infrastructure, it is a 10:1 split—an existing investor will get 10 units for every stock held.

Does this multiply the value of the company by the same factor?

Nope. In fact, it divides the price of a share by that factor. In IRB’s case, the face value of its share before the stock split was Rs 10. After the stock split, it came down to Rs 1 (10 divided by 10). The market value of the stock is around Rs 289.15, so after the stock split, the stock will be valued at a tenth of that.

Also read: IRB Infra’s Dec quarter sales at around Rs 1,514 crore, sees 18.37% YoY rise

Why do companies do it?

If they think that the stock is priced too high and is discouraging investors, then companies can decide on a stock split. They can also choose a stock split to increase liquidity in the stock, again to get more people to buy into the company.

IRB’s management, too, said that the stock split was being done to increase liquidity and widen shareholder participation in the stock.

Also read: IIFL Wealth Management gains as board considers dividend, bonus shares and stock split

How do investors react to a stock split?

Usually, they respond by buying more. This could be because the stock suddenly looks more affordable. This could also be because the investors believe that the company is set to see a sudden increase in growth and that the company may have reduced the stock price to keep it affordable when that earnings growth comes through.

In IRB’s case, the stock had been appreciating considerably—by nearly 40 percent–over the 12 months to January 5, 2023, which was the day the board approved the stock split.

On February 17, the stock closed at around Rs 289, or 4.5 percent lower than the day on which the company’s board cleared the split.

What is the record date?

The record date is a cut-off date of sorts. An investor is eligible for the stock split (or any other corporate action such as issuing dividend) only if he/she owns the stock on the record date.

The stocks will be credited to the demat account four to five days after the record date.

On February 17, the stock closed 1.05 percent lower at Rs 288.80 on the National Stock Exchange.