InvestorQ : Why did Eicher Motors spurt so sharply on 24 August?
Mahima Roy made post

Why did Eicher Motors spurt so sharply on 24 August?

Answer
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1 month ago


Eicher Motors stock spurted by 10% on Monday, the 24 of August after the 10:1 stock split became effective on the day. This is a trend and marks the third day of gains for the company. This is despite auto stocks being tepid in the current market conditions.

One can argue that stock splits are value neutral. A stock split is just changing the par value of the company. Effectively, the stock price in this case becomes one-tenth and the equity shares multiply by 10 times. So there is no fresh capital or business difference.

But these splits play a major role in bringing the stock into a more tradable range. For example, prior to the split, the stock of Eicher was trading at around Rs.22,500, which was too steep. Post the split it came down to about 2300 levels, which looks better.

But there is a fundamental story too for Eicher. Bookings are almost back to pre-COVID-19 level and fresh enquiries for Eicher products are at par with pre-COVID level. Eicher Motors will benefit from the shift in demand towards 250cc plus motorcycle categories.

For the Jun-20 quarter, Eicher had reported 66% fall in revenues and had also reported a net loss. But that was more of an exceptional quarter. For example, Royal Enfield is now the leading leisure motorcycle manufacturer in the UK, with its best selling Interceptor 650.