Reliance Is the most valuable Indian company but why is MRF the most expensive stock?
Currently, the most valuable company in India is Reliance Ltd. with a market capitalization of ₹16 lakh crore. The company is the single biggest constituent of NIFTY 50, at 10.8%. But the most expensive share in India is MRF, an Indian tyre manufacturer.
So why MRF share price is so high? The answer is in a concept called stock split, which you need to understand before getting to MRF.
What Is Stock Split?
A stock split is a corporate event, where the company decides to increase the number of shares to improve the liquidity of the share.
When a company’s shares slowly start to increase in value, it becomes expensive for retail shareholders to buy the stock. This makes the stock illiquid. To make their shares affordable to investors, companies decide to split the stock in multiples of 2, 3, or more.
Recently, Tata Steel split its stock in the ratio of 10:1. This effectively brought the share price from ₹1000 to ₹100 per share.
Keep in mind –
A stock split doesn’t do anything to change the value of the underlying share. It remains the same after the split. What changes in the number of shares that are available for investors to buy?
Use Of Stock Split
- Improve Company’s Liquidity
- Lower the price per share
- Makes shares affordable to investors
Now that you understand the concept of the stock split, let’s take a look at why MRF share price is so high.
MRF Share Price – Why It’s The Most Expensive Share In India
MRF is a tire manufacturing company in India. Short for Madras Rubber Factory, the company is famous for its share price which is the most expensive stock in the Indian markets. Currently, the share price is around ₹81,500 per share!
About the same price as a new Honda Activa. The reason for its extremely high value is simple –
The company never split its stock or issued bonus shares. Every time a company’s share price becomes too expensive for investors, the company decides to take a vote on splitting the stock.
This corporate action, called a stock split, effectively increases the number of shares in the market, but in no way affects the value of the share. The perfect example of this is the Tata Steel Stock Split that happened this year.
Prior to the 1:10 split, the stock was trading at around ₹1080 rupees per share. After the split, its per-share value would be ₹108 per share.
MRF Financial Performance
But what about the financial performance of MRF? Does it justify why MRF share price is so high? Let’s take a look –
1. Promoter Holding
Promoters of the tyre maker remain consistent over the past twelve months at a little below 28%. The majority of the shares are held by the public (43.5%), which is surprising given the share price.
Foreign Institutional investors (12.45%) and Domestic institutional investors (16.05%) combined hold 28.5%, which is slightly more than the promoters’ overall stake.
2. Sales And Profits
In FY 2022, MRF reported net sales of over ₹19,316 crores. This is higher than the reported numbers of 2018, which were ₹14,954 crores but profits were almost twice as high, at ₹1,131 crores in 2018 than they were in FY 2022 (₹669.2 crores).
3. Return On Investment
Year to date, MRF shares have given a return of 12.2% and 27.1% in the past 5 years.
There have been moments in the past when MRF almost reached the ₹1 lakh mark and missed. Its all-time high was ₹98,599 rupees per share!
That is ₹1 lakh for a single share of MRF.
4. Debt To Equity Ratio
The 5 Year D/E ratio is almost the same at 0.2 (2022) compared to its 2018 figure (0.21).
The company has managed its debt position consistently.
Why MRF Is Not Splitting Its Share?
Here are some of the reasons why MRF is not splitting its share:
- No requirement of capital inflow: A company splits its shares to make it more affordable as it attracts more investors resulting in more capital inflow. As the fundamentals of MRF are strong and it is performing at a great pace it does not require any additional capital.
- Retain Existing Participation: As the stock split increases the liquidity of the stock, it also increases the number of investors. Increasing the number of shares in MRF would attract more speculators which the company would like to avoid
- Retain the Voting Rights: Every individual who owns the shares of the company is entitled to have voting rights. As MRF does not offer any split, the existing shareholders will retain more voting rights.
A stock split doesn’t provide any major advantages to the company. As there is no unique advantage to splitting a share, MRF has chosen not to do so.
Splitting the share does not increase its value. Additionally, there is a lower scope of volatility when the stock price is too high for traders and speculators.
That’s the end of this blog on MRF and “why MRF share price is so high”. We hope you have understood stock splits and how they factor into the liquidity of companies. For more such titles and articles, visit our blog section. Happy Investing!
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