Increase in the Authorised Share Capital

Discussion in 'Fundamental Analysis' started by rkgoyal_98, Dec 12, 2006.

  1. rkgoyal_98

    rkgoyal_98 Well-Known Member

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    Dear Seniors,

    Plaese guide me on the news Item posted for HMT on BSE

    Increase in the Authorised Share Capital of the Company from Rs 500 crore made up of 50,00,00,000 equity shares of Rs 10/- each to Rs 600 crore made up of 60,00,00,000 equity shares of Rs 10/- each by the creation of 10,00,00,000 equity shares of Rs 10/- each which shall rank pari passu with the existing Equity Shares and consequential amendments in the Memorandum and Articles of Association of the Company.


    What will the effects of this on the financials of the Compay

    Thanks
    Rajeev
     
  2. ivanboesky

    ivanboesky Active Member

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    Depends on what price the shares were issued. The face value of the shares is Rs. 10, so the authorised share capital increased by Rs. 100 crore. The closing price of HMT today was around Rs. 71.50. If the new shares were issued at a lower price, the current shareholders would be worse off, while if the shares were issued at a premium, the current shareholders would be better off.
    As it stands, earnings per share would reduce, but adjustments would have to be made to include the additional shares issued.
     
  3. aca_trader

    aca_trader Active Member

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    Till the time shares r issued n paid up, there will not be any financial impact except the miniscule fee paid to ROC.

    Regards,
    --Ashish
     
  4. RSI

    RSI Well-Known Member

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    Namaste Rajeev,
    You may be knowing that there is authorised capital and issued capital in respect of each and every company. Authorised capital means, the total share capital of the company, which it can have. Issued capital means, how much of it has been raised from the authorised capital. That means, shares can be issued from authorised capital only. Say, if the company has Rs.60/- Crores of authorised capital divided of six crores shares of Rs. 10/- each, then the maximum shares that the company can issue is six crore shares. Not more than that. Issued capital means, how much of authorised capital has been raised. That is how many shares have actually been allotted to the shareholders out of the authorised capital. If the company has already issued 5 crore shares of Rs. 10/- each, that means, the company has already utilised Rs. 50/- crores of its authorised capital and the balance shares it can issue is only one crore shares of Rs. 10/- each. As long as the company does not issue shares from the authorised capital, there will not be any cause to worry. Because, only issued shares will be entitled for dividend, bonus, rights etc. Hope this reply satisfies you
    R. S. Iyer
     
  5. rkgoyal_98

    rkgoyal_98 Well-Known Member

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    Since the news item is for HMT belonging to Govt. of India as such i was looking for further possibilities. One of my friend has told that Govt. is making some move to revive PSU's and HMT is one of those. In this regard what kind of move further may be there about this company and what kind of impact it can ave on The Share price.
    Thanks
     
  6. aca_trader

    aca_trader Active Member

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    Issue of share capital is usually positive and is not the cause of worry as it brings funds to the company for future expansion. As most of the times, the companies are able to issue shares at a high premium to their book value, the positives far outweigh the likely impact on Dividend,EPS,etc.

    Regards,
    --Ashish
     

  7. RSI

    RSI Well-Known Member

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    The question is of view point. Whether you are viewing the glass as half full or half empty. Some of these opportunistic promoters, who after seeing these sorts of runaway bull markets, issue shares at huge premium or in the form of bonus or in the form of hugely discounted rights issue etc., so as to make quick money. The issued share capital is blotted up without any tangible benefit to the company or to the shareholder. Invariably, there will be downtrend after every bull cycle. The amount of outstanding issued share capital assumes huge importance when the earnings of the company dwindle and the valuation of the stock takes a beating.
    Happy trading
    R. S. Iyer
     
  8. Agilent

    Agilent Member

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    Ivan

    Trust u noted the distinction pointed out by Ashish... authorised and issued and paid up are three different concepts ...

    A co can have an authorised capital of a 100 cr with only 5 cr issued ... its the latter which will impact EPS etc , if at all

    Thanks Ashish

    AGILENT
     
  9. ivanboesky

    ivanboesky Active Member

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    Yup Agilent, sure did. I know the difference between the two.
    Answered the question assuming that the shares would be issued. Thats why I pointed out the comparion between the issued share price and the current market price.
     
  10. Agilent

    Agilent Member

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    Correct u are ... my friend

    Hope Goyal is reading

    Rgds

    AGILENT
     
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