Bajaj Finserv stock split

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Bajaj Finserv stock prices went up by 10 percent to Rs 14,579 on the BSE after the board agreed to split the shares in the ratio 1:5 and issue bonus shares in the ratio 1:1. On July 28, 2022, it was announced by the board that going forward the face value of existing shares will be subdivided in the ratio of 1:5 implying that each existing share of Rs 5 will be divided into 5 shares of Rs 1. In addition to the stock split, the board also announced the issue of 1 bonus share for every equity shareholder.

To illustrate this,

Bonus Issue

No of shares held before bonus.

Share price before Bonus issue

Value of Investment

Several shares held after Bonus.

Share price after Bonus issue

Value of Investment

1:1

1

14500

14500

2

7250

14500

What is Stock Split

Stock split is an action which neither adds nor dilutes the ownership of existing shareholders and there is no impact on the market capitalization of the company as well, it just adds on more shares by reducing the value of existing shares. The major benefit of split shares is that it enhances the liquidity of existing shares as it reduces the price of shares and makes them affordable for small retail investors which will make buying and selling of these shares easier as well as increase the shareholder base of the company.

We will illustrate this with an example:

Split Ratio

Old FV

No of shares you own before split

Share Price before split

Investment Value before split

New FV

No of shares you own after the split

Share Price after the split

Investment value after the split

1:5

10

1

14500

14500

2

5

2900

14500


What will be the Impact of the decision

Since the news broke out, the stock of Bajaj Finserv has surged up to 16 percent in the last three trading sessions whereas in July the stock surpassed the market by 33 percent in comparison to 7 percent surge in the S&P BSE Sensex. Post the stock split the authorized shares of the company will reach 1 Billion equity shares with a face value of Rs 1 and after the issue of bonus shares the authorized capital shares of the company will jump to 2 Billion equity shares with the same face value of Rs 1. Bajaj Finserv is the holding company under the Bajaj group and among India’s most sought-after NBFCs in the Indian market with over 50 million customers across the country.

Why did Bajaj Finserv take this decision?

In response to recent announcements, the company's management said that as and when the share price rises, it will be harder for small investors to own the shares of Bajaj Finserv, so to promote inclusivity and reward existing shareholders, the company has approved the above actions. Over the years,  and its subsidiaries have grown significantly in terms of business and performance, and the highest share price among our competitors with the smallest capital bases is reflected in the share price of the company, which reached Rs 12,200 in October 2021.

The management further added that to incorporate the above changes the company will have to add a clause by amending the memorandum of association and carry out shareholder voting by way of postal ballot on the decisions announced. He also said that the company intends to complete the whole process by September 2022.