One Stock Split and One Bonus Share Announcement

  • Stock Market Analysis

Normally shares are sub-divided into smaller units to enhance liquidity in the stock. The other objective is also to ensure wider participation of retail investors in the scrip. Events like stock split, bonus share issues arise investors’ interest in the stock. However, investors should be watchful and should do due diligence before jumping into the fray. They should remain vigilant especially in the current bull market euphoria. We have come up with two stocks that have declared stock-split and issue of bonus shares. Let us check.

1. Earum Pharmaceuticals Ltd (BO: EARU )

Earum Pharmaceuticals Limited produces and distributes pharmaceutical products. The company offers tablets, capsules, ointments, creams, gels, powders, and syrup. Earum Pharmaceuticals markets its products globally. It is a smallcap company with a market capitalization of Rs 77.72 crore. In October, Earum announced considering a proposal to split the equity shares. On November 27, the company conveyed to BSE that it has fixed December 18 as the record date for the sub-division of equity share in the ratio of 5:1. It means five new equity shares for each existing equity share. Earum Pharma’s revenue in the quarter ended September 2021 grew 181.6% quarter on quarter to Rs 8.42 crore from Rs 2.99 crore. Its net profit came at Rs 5.4 crore compared to a net loss of Rs 3.41 crore in the June 2021 quarter.

Now note companies usually split shares so as to make them available for retail individual investors. In the case of Earum, the share closed at Rs 63 on November 26. Any retail investor can afford to buy the stock at this price. What is noteworthy is the fall in the company’s share since the announcement of the stock split. The stock delivered a negative return of 24.2% in a year, however, delivered a solid 95.65% return in the last six months. The stock's periodic returns have been highly uneven. Promoters’ holding in the stock remained unchanged at 70.04% in the last four quarters.

2. Axita Cotton Ltd (BO: AXIA )

Axita Cotton Limited provides textile products. The company manufactures and exports cotton bales and seeds. It is a smallcap company with a market capitalization of Rs 110.07 crore. On November 27, the company informed BSE that it has recommended the issuance of bonus equity shares in the ratio of 1:2 that is one bonus equity share of Rs 10/- each for every two fully paid-up equity shares subject to shareholders’ approval. Axita hasn’t yet declared the record date for the bonus share issue. The company’s revenue for FY2021 stood at Rs 618.94 crore, up 27.7% year-to-year from Rs 484.55 crore in FY2020. Net profit during the comparison period zoomed 9.65 times to Rs 3.73 crore from Rs 0.35 crore. Revenue CAGR stood at 71% for a 3-year period and net profit CAGR remained at 48% during the period. Its 3-year return on equity CAGR was 9%.

Taking a look at shareholding, we realize that promoters have decreased holding by 0.89% in September 2021 quarter. This is in sharp contrast with the stock price return. In a year, the scrip fetched 216.7%, 203.8% in year-to-date, 130.1% in six months, 32.9% in a month, and 20% in the last five days.

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  • Jayaram Tarikere Dasappa @Jayaram Tarikere Dasappa
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