Stock splits are one of the common strategies deployed by corporations to make their shares more accessible and attractive to investors. One recent example is Vedanta Limited, which will split into separate entities for aluminium, oil and gas, power, and iron & steel. In a strategic move that reflects its focused growth and commitment to shareholder value creation, the company has announced a major Vedanta demerger plan, expected to be completed by September 30, 2025
What is a Stock Split?
A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing additional shares to existing shareholders. This action reduces the stock price proportionately while improving the company’s market capitalisation.
Example: In the recent case of the Vedanta stock split, each Vedanta shareholder will get ONE new share in each of the newly demerged companies. In simpler words, Vedanta’s shareholders will get one additional share in each of the four newly demerged companies, along with the shares they hold in Vedanta.
What are the Kinds of Stock Splits?
Forward Stock Split: It is one of the most common types, which increases the number of shares and reduces the price per share proportionately. This stock split maintains the company’s overall market capitalisation while increasing the availability of shares in the market.
Reverse Stock Split: In contrast to a forward stock split,areverse stock split reduces the number of outstanding shares while proportionally increasing the share price. The companies sometimes use this kind of stock split to maintain listing requirements or signal strength in the market.
Key Benefits of Stock Split
Some of the benefits of a stock split are:
Higher Liquidity: One of the main advantages of a stock split is increased liquidity. For example, a Vedanta stock split would imply an increase in the number of shares and the trading volumes. It gives international investors easy access to trade in shares.
Attracts New Investors: After the demerger, new investors can buy more shares due to the low price per share. This may increase demand for the stock, lead to the entry of new investors, and increase the value of the stock. To take an example, as witnessed in the Vedanta stock split case, the restructuring will result in pure-play businesses in aluminium, iron ore, copper, oil and gas, and power, making it appealing to investors around the world.
Better Market Sensibility: Low share prices enable more investors to buy the stocks in the company because of the affordable stock value. A stock split enables the company to appear more confident in its journey, therefore, motivating long-term investors and aiding the stock demand.
Vedanta: Real-Life Examples of Stock Splits in India
Vedanta Limited, one of the leading companies, has proposed a Vedanta stock split through demerger, which is expected to be completed by September 2025. Vedanta demerger has been approved by 99.99% shareholders, along with 99.59% and 99.95% of secured and unsecured creditors, respectively. The details regarding the Vedanta demerger include:
- Vedanta Limited: The existing Vedanta Ltd. (NSE: VEDL) will retain its stake in Hindustan Zinc.
- Vedanta Aluminium: This newly established business entity will house Vedanta’s aluminium business.
- Vedanta Oil & Gas: Managing India’s largest private sector oil and gas operations, this business entity contributes significantly to domestic crude oil production.
- Vedanta Power: This entity will include all Independent Power Plants at Vedanta, including the Talwandi Sabo Power Limited, 600 MW Jharsugada power plant, 1200 MW Athena plant and the 1000 MW Meenakshi plant.
- Vedanta Iron and Steel: This company will include domestic iron ore operations, Liberia assets, and ESL Steel Ltd., targeting growth in the steel industry.
Final Words
Stock splits, whether forward or reverse, significantly impact investor participation and market dynamics. More companies are considering restructuring options as a way to attract a broader investor base and support financial inclusion. Vedanta demerger will set the benchmarks; it is expected to unlock shareholder value, increase global competitiveness, and reduce India’s import dependence in key sectors like energy and metals.
Indeed, Vedanta stock split will amplify these benefits, strengthening the company’s position in India’s corporate sector.