Tata Tea okays 1:10 stock split

Tata Tea Ltd, the world's second largest manufacturer and distributor of tea, on Friday said that the company's board of directors has approved the sub-division of its share of face value of Rs 10 each into 10 shares of the face value of Re 1. The shares reacted positively to the announcement and closed at Rs 1054.45, up by 3.22 per cent on the Bombay Stock Exchange on a day when the benchmark Sensex was up 55 points to close at 17558.71.

The stock split by the company is primarily to facilitate participation of more retail investors in the trading of the stock. This will also become a attractive proposition for institutional investors like mutual funds.

Tata Tea said there would be amendments to the capital clauses to the memorandum and articles of association of the company. "The company proposes to seek consent of the shareholders for the aforesaid by a postal ballot in accordance with Section 192A of the Companies Act, 1956 read with the companies (Passing of the Resolution by Postal Ballot) Rules, 2001," it said.

Analysts say a stock split takes place when the company wants to boost liquidity. In case of Tata Tea, the split ratio is 1:10. The current price of the share also gets divided by 10.

"The company may have long term returns in liquidity and share price appreciation with the stock-split due to the 'signaling effect'," says an analyst.

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