Why MRF Share Price Is So High?

In the past 5 years, that is starting financial 2017, the MRF share price has escalated by more than 47%, and has reached its all-time peak price of ₹ 96,973/- in Feb 2021. So an interesting point to ponder, why is MRF share price is so high and even then manages to keep rising?

It is vital to find the reasons behind this phenomenon as MRF shares already lead the most expensive stocks on the exchanges list. Let’s understand this massive pricing and ever-increasing graph of MRF by a simple example.

Suppose an investor invested ₹ 10,000 in MRF 10 years back stock, then they would have made a profit of more than 900%, effectively turning the invested amount into more than ₹ 90,000.

This typically indicates that there is a steady growth in MRF and its investors have not felt discouraged by the increasing share price over the years. This is truly a unique stock and the curiosity around, why MRF share price is so high, is justified.

Let’s go into the details of why MRF share price is one of the costliest shares in the Indian stock market?

Why MRF Share is So Expensive?

MRF or Madras Rubber Factory went public in 1961 with the face value of Rs 10. Since then the company is able to give a return of as high as 1100% to its investors in the past 11 years.

But why its share price is so high?

Above all, is it a good idea to invest in MRF shares now?

Let’s find out the primary reason of what is the major reason for the highest price of the share in India.

MRF Share Does Not Split

Stock split effectively increases the number of shares that are up for trading (free-float) by splitting the existing shares into a factor or ratio that management decides.

Considering the example of stock split, the ABC company the share price which is Rs 5000 per share announces a stock split in 10:1 this means that now the stock price would be Rs 500, and the number of shares increases by the multiple of 10.

So here the investor having 50 shares of ABC company would now have a total of 500 shares in the demat account.

And with a stock split, the price per share also dips without affecting the overall market capitalization.

Most of the blue-chip companies would be costliest if they have not split their shares ever. Considering the example of Infosys, the current CMP of the share is around 1800/ share would be around 6.04 crores now.

The company was listed in 1993 and has split its stock 7 times since 1997. This increases the number of shares, affecting its face value but providing value to investors who are willing to invest and earn high returns.

Now, unlike Infosys or many more companies, MRF has never implemented a stock split, thus it is one of the reasons that MRF share price is so high. 

Why MRF Shares Don’t Split?

But why MRF has not implemented a stock split is another critical question. Although these are managerial strategic decisions, they still can be critiqued upon.

So here we are with some of the major reasons why MRF has not split its shares ever:

1. Good Performance: Stock price whether it was ₹20,000 a few years back or ₹80,000 at present has attracted serious and potential investors toward it. Now think of the time, when its price was 20k, no doubt it was expensive at that time as well but still investors who had invested in it earned a potential gain and returns years later. In all, it is growing continuously and providing growth benefits to its investors since the time of listing.
2. Want to Keep Speculators Away: With a stock split, the share price of the company decreases which attracts more speculators thus increasing the volatility. By not choosing to split shares, companies like MRF are able to keep such speculators away from their shares. This makes the stock more stable and available only for serious investors in the market.
3. To Stay Unique: Not only its product, but its share price is something that brings uniqueness to the company and helps it to gain the attention of investors who want to stay and invest seriously in the share market.
4. Limited Public Shareholdings: Other than this, although the shares of the company are listed and thus available for the public i.e. retail investors, with high share price (due to non-splitting) only gives its hold and voting rights to limited investors in the market. Thus when it comes to making a specific decision, most of the power stays in the hand of the promoters of the company.
5. No Financial Benefits: Last but not the least, splitting of stock does not give any financial benefit to the company and thus the company stays away from making such decisions.

Conclusion

MRF share price is high and the reason is clear. So, if you are one who is looking forward to making a stable and long-term investment in the company, then choosing a company like MRF for investment can help you in achieving your financial goals.

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