Eicher Motors hits 2-month high, rallies 12% in 3 days on stock split plan

Shares of Eicher Motors were trading higher for the third straight day, up 4 per cent at Rs 15,589 on the BSE on Thursday after the company announced stock split plan to make the stock more affordable for the small retail investors and increase liquidity. The company manufactures the iconic Royal Enfield brand of motorcycles which leads the premium motorcycle segment in India.

In the past three trading days, the stock has rallied 12 per cent, as compared to a 4 per cent rise each in the S&P BSE Sensex and the S&P BSE Auto index. The stock hit a 2-month high today and was trading at its highest level since March 20, 2020.

“The board of directors of the company is scheduled to meet on June 12, 2020, to consider and approve sub-division/split of the equity shares of the face value of Rs 10 each of the Company in such manner as may be determined by the board,” Eicher Motors said in an exchange filing on Monday. The board will also consider and approve audited standalone and consolidated financial statements for the four-quarter and financial year ended March 31, 2020, it added.

A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed. This has the practical effect of increasing liquidity in the stock.

Meanwhile, Royal Enfield volumes declined by 17 per cent year-on-year (YoY) to 163,000 units in January-March quarter (Q4FY20) due to weak demand and the lockdown; however, analysts at Kotak Securities expect standalone revenues to decline by 14 per cent YoY led by 3 per cent YoY increase in ASPs due to price increases led by the introduction of BS-VI in a few of its models. The brokerage firm expects EBITDA to decline by 27 per cent YoY for Royal Enfield, largely driven by negative operating leverage in 4QFY20.