Sapphire Foods India Limited, the operator of KFC and Pizza Hut outlets, has seen its share price surge by 7% following the announcement of a stock split. This strategic move has garnered significant attention in the stock market, and in this article, we will delve into the details, the rationale behind the stock split, and its potential impact on the company’s future.
What is a stock split?
Before diving into the specifics, let’s briefly explain what a stock split is. A stock split is when a company increases the number of its outstanding shares to boost the stock’s liquidity. For example, in a 1:5 stock split, each existing share is divided into five shares. Although the number of shares increases, the total value of the shares remains the same because the split does not change the company’s overall market capitalisation.
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Sapphire foods stock split details
Sapphire Foods announced that its board has approved the division of one equity share, with a face value of ₹10, into five equity shares, each with a face value of ₹2. This announcement was made after market hours on Wednesday, June 19, 2024, and had an immediate positive impact on the company’s stock price.
On Thursday, the Sapphire Foods share price opened at ₹1619.95, marking a 4% increase from the previous close. The stock continued to rise, reaching a high of ₹1672.75 on the BSE, culminating in a gain of over 7%. This increase comes on the heels of a steady upward trend, with the stock having risen more than 15% in the last month alone.
Market reaction and technical analysis
The market reacted positively to the stock split news. On June 20, Sapphire Foods’ stock was trading at ₹1655.00, up by ₹97.50 or 6.26%. The previous day, the stock closed at ₹1557.50, which was a 2.87% increase from its prior close of ₹1514 on the BSE.
In terms of trading activity, 6,474 shares of Sapphire Foods were exchanged, amounting to a turnover of ₹1.01 crore. The market capitalisation of the firm rose to ₹9,926.46 crore. The stock has shown a 13.34% increase over the past year and a 10.56% rise since the beginning of this year.
Technically, Sapphire Foods’ stock is trading above its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating a strong upward trend. The relative strength index (RSI) of the stock stands at 71.4, suggesting that it is currently in the overbought zone.
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Reasons behind the stock split
The primary rationale for the stock split, as stated by Sapphire Foods, is to improve the liquidity of its equity shares in the capital markets. By increasing the number of shares and lowering the face value, the company aims to widen its shareholder base and make its shares more affordable for retail investors. This move is expected to enhance trading activity and make the stock more attractive to a broader range of investors.
Future outlook and strategic moves
The stock split is expected to be completed within three months from the date of approval by the shareholders. The company has also proposed altering the Capital Clause (Clause V) of its Memorandum of Association (MoA) to reflect this subdivision of equity shares. The exact date for the 15th Annual General Meeting (AGM) and the record date for the stock split will be announced in due course.
Sapphire Foods operates 872 restaurants across India, Sri Lanka, and the Maldives, including 431 KFC outlets, 432 Pizza Hut outlets, and 9 Taco Bell outlets. The company reported a restaurant sales figure of ₹2588 crore for FY24, with Q4FY24 sales at ₹630 crore. Earnings before interest, tax, depreciation, and amortisation (EBITDA) for Q4 were ₹103 crore, while the full-year EBITDA stood at ₹472 crore, representing a 19.2% EBITDA margin.
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Recent financial performance
In May 2024, Sapphire Foods reported a remarkable 411.2% increase in profit, amounting to ₹135.48 crore for the fourth quarter of FY23, compared to ₹26.50 crore in the same quarter the previous year. The company’s revenue from operations was ₹560.41 crore, a 12.8% increase from ₹496.83 crore in Q4FY22. Notably, the India segment delivered a growth of 23%, showcasing the strong performance of the company in its home market.
Changes in leadership
Alongside the stock split, Sapphire Foods announced some changes in its board of directors. Paul Robine resigned as a Director, effective immediately, and Norbert Fernandes, who was previously appointed as an Alternate Director, also ceased to hold the position. However, Fernandes was then appointed as an Additional Director on the board, effective immediately.
Conclusion
The announcement of a 1:5 stock split by Sapphire Foods has significantly boosted investor confidence, leading to a notable increase in the company’s share price. This strategic move is aimed at enhancing liquidity, widening the shareholder base, and making the stock more affordable for retail investors. With a strong financial performance, a growing footprint in key markets, and a proactive approach to corporate governance, Sapphire Foods appears well-positioned for continued growth.
Investors will be keenly watching the forthcoming AGM for further updates on the stock split and other strategic initiatives. As always, it is essential to conduct thorough research and consider professional advice before making any investment decisions.
