The re-listing of the shares of Jamshri Ranjitsinghji Spinning and Weaving Mills a couple of days ago may have raised a few shareholders’ eyebrows, as the stock’s price on the BSE zoomed a 100 times.

The stock last traded at ₹21.2 on February 20 and was under suspension due to corporate restructuring. However, when it got re-listed on April 10, the stock opened at ₹2,226 and closed that day at ₹2,220. The stock is currently hovering around at ₹2,027 on the BSE.

If you think that the investors’ wealth in the loss-making Jamshiri Ranjitsinghji zoomed by 100 times, then you are mistaken, as the price move was explained by the company consolidating its share’s face value to ₹1,000 from ₹10.

This has put Jamshri Ranjitsinghji Spinning and Weaving Mills in a unique club, as no other company’s stock in the Indian market currently has a face value of ₹1,000.

About half-a-dozen companies Bombay Oxygen Investments, Kaycee Industries, Victoria Mills, Lakshmi Mills Company and Raja Bahadur International have a face value of ₹100, while Ravalgaon Sugar Farm and Polson carry face value of ₹50.

Why consolidation?

At a time when companies are going for stock split of face value to as low as ₹1 to attract greater trading interest, Jamshri Ranjitsinghji Spinning has strangely gone in for a reverse stock split.

According to Investopedia.com, a reverse stock split is a type of corporate action which consolidates the number of existing shares of the stock into fewer, proportionally more valuable, shares. The process involves a company reducing the total number of its outstanding shares in the open market, and often signals a company in distress. The company has been going through a rough time in the recent past. According to it, factors such as ‘demonetisation and implementation of GST’ had resulted in fall in demand for its products. Besides, a steep rise in the cost of inputs, excess production capacities and changing technologies had adversely impacted conditions for the textile industry as a whole.

Further, the company’s plant and machinery are fast becoming obsolete due to changing technologies and this had prompted it to outsource production to other entities with latest technologies, the company has said.

“Due to these factors, the company’s production has reduced causing some of its plant and machinery to become idle,” it said, and added that it proposes to sell some of the idle plant and machinery at the company’s factory at Solapur.

The net proceeds from sale of the idle plant and machinery would be utilised to repay its existing loans and reduce its interest burden. Besides, they may also be utilised to enhance the working capital of the company or for general business purposes, the company said.

Rationale

However, according to a company filing, the rationale for consolidation is that it will result in increase in trading price of each share which will attract the attention of institutional investors and fund managers.

Further, it claims, the increased price per share will generate interest among investors and post this consolidation, the number of shares will be reduced and thus the cost of trading for shareholders. Though the last two trading sessions saw slightly higher activity in the stock, one has to wait and watch whether institutions and funds will evince interest, going forward, just because the face value has shot up.

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