Preserving Value: Exploring MRF's Choice to Avoid Stock Split

This report by Bhavya Rathod elucidates how stock price, in isolation, may not convey the true value of the company. The price of one share, among other factors, is also a function of the outstanding shares of the company. When shares' outstanding are low, and if the demand for that stock is high, the lower supply translates into a higher price for that share. When the price of a share keeps rising, it may reach a level that may become unaffordable to a lot of investors. Therefore, some companies opt for a 'stock split' so as to make the shares affordable and reach out to more retail investors

- Bhavya Rathod

MRF made waves and created history on Dalal Street by becoming the first Indian stock to reach the remarkable milestone of ₹100,000 per share on June 13, 2023. It is worth noting that MRF shares had touched their 52-week low of ₹65,900.05 on the BSE on June 17, 2022. Analysing the stock's performance over the past decade, it has outperformed the benchmark Sensex index on seven occasions. However, between 2018 and 2021, MRF underperformed the Sensex. In the current year of 2023, MRF shares have shown a positive growth of more than 13 per cent, while the benchmark Sensex has gained over 6.5 per cent. Although MRF has reached the significant ₹100,000 milestone, it is important to highlight the substantial disparity with the second-highest priced stock, namely, Honeywell Automation, which trades at around the level of ₹42,000.

This quote reflects Warren Buffett's belief that stock splits are inconsequential to the underlying value of a company.

He suggests that investors should focus on the fundamental aspects of the business rather than getting caught up in the optics of a stock split. Meanwhile, Warren Buffet's Berkshire Hathway Class A shares continues to be the most expensive stock in the world, with the share price trading close to USD 521,000 apiece (approximately ₹4.3 crore). Unless there is a Berkshire Hathaway stock split, the highest-priced stock status will remain with Warren Buffett's conglomerate. In response, Berkshire introduced cheaper class B shares in 1996, priced at a substantially more affordable price of close to USD 340 per share currently, but has consistently refused to split the company's original class A offering.