Have you ever wondered why companies like MRF don’t have stocks? If we check the current market price of MRF shares, it is Rs 84,470 per share. The highest turnover in the last 52 weeks is ₹ 98,599. If the price per share is too high for this company, the interesting question is: why doesn’t the management/sponsor of MRF split the shares? This is curious, also because, buying shares at Rs 84,470 per share is not financially viable for most small investors.
In this article, we will answer this question. Here we will see why companies like MRF do not own shares. But before we talk about these expensive stocks, let’s understand why companies split their shares?
Interesting study on companies that have rapidly split their shares in the past
You may have heard about Infosys’ story of wealth creation. A small investment in 100 shares of Infosys in 1993 is now worth over 6.04 million rupees. (Also read: How to earn Rs 13,08,672 with a single share).
Infosys has repeatedly awarded bonuses and stock splits to its shareholders over the past 25 years. Therefore, Infosys’ share price is still at an affordable buy level for average investors. In fact, the price per share of Infosys could already be a multiple of the deficit if Infosys weren’t handing out so many bonuses and splits. Here is the history of Infosys bonuses and splits from 1993 to 2018 :
In addition, Wipro is another joint-stock with a similar history. Thanks to ongoing premiums and splits, Wipro shares remain in the buy zone for retail investors. Otherwise, had the management decided not to give any split or bonus, Wipro’s share price could have been more than a few lakhs, if not crores.
The big question – Why do companies share their shares?
Here are four common reasons why companies split their shares.
- Stock splits help companies make stock prices affordable to retail investors. For example, if a company is trading at Rs 3,000 per share and offers a 10:1 share split, it means that the share price will fall to Rs 300 per share after the split. So, which price is more affordable to the public – 3,000 rupees or 300 rupees? Apparently 300 rupees.
- Stock splits make shares more liquid and therefore increase trading volume. This is because the total number of shares outstanding increases after a stock split.
- The share split has no impact on the financial development of the company. Although the number of outstanding common shares of the Company increases after the split, their par value decreases in the same proportion. In general, stock splits do not affect financial results, so companies are willing to do them.
- Since small and micro investors tend to be more interested in affordable stocks, stock splits increase their participation and generally help companies create a diversified investor base for their shares.
In general, the stock split does not make much difference in terms of value, as the financial performance of the company remains the same. However, the stock split allows the company to keep its shares affordable to the public and thus maintain a broad ownership base.
Companies that don’t share their shares – list of the most expensive stocks!
The reasons for the stock split can be understood from the above paragraph. The next big question, though, is why don’t some companies split their shares? Why are the stock prices of many companies still in the 5-figure range on the stock market when they have the option to split their shares?
If you check the current share price of companies listed on the Indian Stock Exchange, you will find that there are many companies with a share price of more than Rs 5,000. Here are some of the best:
|Company||Industry||Market capitalisation (Rs. million)||Current price (Cr)|
|MRF Ltd.||Tyres and related items||35528.29||83770.55|
|Honeywell Automation India Ltd.||Consumer durables – electronics||39314.58||44465.85|
|Rasa Ltd.||Consumer Goods||303.2||31387.65|
|Page Industries Ltd.||Textile||33131.19||29703.75|
|3M India Ltd.||Varied||30843.25||27379.55|
|Sri Cement Ltd.||Cement and building materials||97260.35||26956.3|
|Nestlé India Ltd.||Consumer Goods||159994.65||16594.25|
|Abbott India Ltd.||Pharmaceuticals and medicines||31139.58||14654.4|
|Bosch Ltd.||Parts for cars||42343.13||14356.7|
|Yamuna Syndicate Ltd.||Trade||433.35||14099|
|Tasty Bite Eatables Ltd.||Consumer Goods||3559.82||13873.05|
|Procter & Gamble Hygiene & Health Care Ltd.||Household and personal effects||42288.06||13027.45|
|Bombay Oxygen Investments Ltd.||Industrial gases and fuels||153.74||10249|
|Bharat Rasayan Ltd.||Pesticides and agrochemicals||4082.51||9608.75|
|Bajaj Finserv Ltd.||Finance – Investments||149727.65||9408.7|
|Paulson Ltd.||Chemical Products||106.63||8885.9|
|Pauschak Ltd.||Chemical Products||2479.92||8046.15|
|Indiamart Intermesh Ltd.||e-commerce||24265.63||7991.65|
|Sanofi India Ltd.||Pharmaceuticals and medicines||17683.37||7678.2|
|TTC Prestige Ltd.||Consumer durables – equipment||10043.82||7231.65|
|Maruti Suzuki India Ltd.||Cars – passenger cars||214573.51||7103.2|
|Lakshmi Machinery Works Ltd.||Textile Technology||7439.48||6963.85|
|Atul Ltd.||Chemical Products||20425.57||6903.55|
|Ultratech Cement Ltd.||Cement and building materials||194197.97||6728|
|Procter & Gamble Health Ltd.||Pharmaceuticals and medicines||10543.51||6351.75|
|Wabco India Ltd.||Parts for cars||11639.55||6136.55|
|Kama Holdings Ltd.||Plastic products||3556.68||5512|
|Hawkins Cookers Ltd.||Consumer durables – equipment||2912||5507|
|Gillette India Ltd.||Household and personal effects||17895.31||5491.85|
|Bajaj Finance Ltd.||Financing – NBFC||324743.36||5389.15|
|Alkyl Amines Chemicals Ltd.||Chemical Products||10885.79||5332.85|
|Scheffler India Ltd.||Stock||16580.54||5303.95|
|Affle (India) Ltd.||Telecommunications – Equipment||13510.52||5299|
|Blue Dart Express Ltd.||Postal services||12436.88||5241.45|
|Bayer CropScience Ltd.||Pesticides and agrochemicals||22897.55||5094.9|
All of these stocks are difficult for the average investor to acquire. Even Maruti shares are trading above Rs 7,100 at current prices.
Why don’t companies like MRF do stock splits?
Here are some common reasons why some companies do not split their shares:
1. You are doing well. Why is separation necessary?
Many of these companies are already well established. So why would they want to share and do it at a discount?
For example, the MRF was trading at Rs. 6,358 in March 2010. As of March 2021, it currently costs 84,470 rupees. You could say that stocks were also expensive and unaffordable in 2010. Nonetheless, the company has performed well over the past 11 years, providing its shareholders with a return of more than 1.100%.
In a nutshell: If the company is doing well, why go through the unbundling process. She is already making money for herself and her investor, even though the stock price is high.
2. No financial benefit
There is literally no financial benefit to a stock split. The value of the shares after the split remains the same (the balance sheets and key figures do not change). Therefore, stock splits are not very attractive to management and sponsors unless they have a good reason.
3. Preventing speculators from entering
Stock splits increase liquidity and make the stock cheaper. This leads to increased participation by retail investors and traders. And when participation increases, so do speculation. On the other hand, high stock prices help keep traders and speculators away from stocks. Only serious investors will find these companies attractive and want to get into these stocks.
Another benefit of a high stock price is that it keeps novice investors away. Since new investors are generally attracted by low-cost firms and are not prepared to invest large sums, their shareholdings in such firms is usually small.
4. Limited public participation
The company’s high share price leads to limited public ownership. Private investors and traders cannot easily get into such stocks. Sometimes it also reduces the volatility of the stock price. Moreover, the promoters try to hold on to the voting rights by offering a high price for the shares. This keeps voting rights static, allowing owners to make important decisions without too much interference.
Moreover, a limited number of public shares also prevents scenarios such as a stealth takeover or, in the worst case, a hostile takeover. Expensive promotions discourage purchases.
5. Status and uniqueness symbol
Did you know that a share of Warren Buffett’s company, Berkshire Hathaway, is worth about 2.74 crore rupees? Yes, it’s true. The current share price of Berkshire Hathaway Inc. Class A is $3,77,440. Similarly, MRF is known for its extremely high share price in India.
A high stock price can sometimes be seen as a status symbol. Sharing this share means a loss of exclusivity.
There are no specific guidelines or rules issued by the SEBI or any stock exchange regarding stock splits. Consequently, the price of the shares can be as high as it wishes and the company is not obliged to offer a demerger.
As we discussed in this article, a high stock price has both advantages and disadvantages. The main advantage of a high price is that it keeps traders and speculators away from the stock. In any case, the company may decide whether or not to proceed with a stock split, depending on what is in its best interest.
That was it for this article on why companies like MRF don’t do stock splits. I hope this was helpful. If you have any doubts/questions about this topic, feel free to leave a comment below. I’d like to help you. Good luck and have fun investing!
Frequently Asked Questions
Why does MRF not split stock?
MRF does not split stock because the company wants to retain the uniqueness of its shares as being the most expensive share in the Indian stock market.
Is it worth buying MRF share?
The share of a company is worth buying based on growth from the current price. So, it is worth buying MRF share if you have analyses that the company will grow in future.
Can MRF shares be split?
Yes, MRF management can decide to split the share when they want to.