While the disapointment is understandable, the principle behind a stock split is not just to reduce the face value, but to do so in order to impart additional liquidity in the stock. But the stock holders do not benefit in any material manner, unlike in the case of a bonus issue which is also done to improve liquidity. A split in the face value will not bring in more participants, because since the stock is already fully dematerialised and investors can purchase as little as one share even today.

However, a crucial difference between a stock split and a bonus is the promise of higher dividend. A bonus is linked to the performance of the company and carries an implied promise of higher returns toshareholders and signals higher earnings. There is no such implication in the case of a stock split.

German Remedies
Some pharmaceutical stocks have begun to be rerated, given that the market has reworked expectations for the next quarter. The German Remedies (GRL) stock suffered a lot in the aftermath of its poor second quarter performance. But now, the expectation is that the company is back on track for reporting its normally robust growth rates of around 25-30 per cent.

The second quarter performance was depressed as a result of some accounting adjustments. As a result of this poor performance in Q2, the company reported a net profit of Rs 13.6 crore from Rs 11 crore in the previous years first half.

The expectation now is that GRL will report at least Rs 20 crore spread over the next two quarters, implying a 50 per cent growth over both the first half earnings and roughly 33 per cent growth over last year's second half earnings. "In addition to the improved earnings forecast, there is ageneral re-think on MNC pharma stocks following their recent underperformance," feels Jesal Shah, equity analyst, Inquire Research.

Aside from a general revaluation in line with the MNC pharma stock, there is also an element of undervaluation, specifically with regards to GRL, as compared to the other MNC pharma companies. GRL is valued at a forward price earning multiple of just 25 times, at its current price of Rs 1050.

Ashok Leyland
Ashok Leyland only recently completed a triumphant return to the black at the net level, after almost two years in the wilderness. Thanks largely to improved offtakes in the medium and heavy commercial vehicles, which obviously were a direct play on signs of a growing economic recovery.

But not content with this performance, the management at Ashok Leyland have decided to undertake a major transformation. News reports suggest that the truck major has decided a la Telco to reorganise its businesses in an effort to turn lean and induce cost savings.

On the anvilare plans to hive off its engine manufacturing into a separate company, a new unit for producing components and a JV with the TVS group for bus body building. Thus, in essence, what the management at Leyland is attempting to do is bridge the gap from a manufacturer to a marketing and operation-driven company.

All of which only augurs well for the future. This aside, the truck major's strategy to retire a part of its debt burden should also pay huge dividends in the interim.

All of which seems to justify the northward spiral of the stock from the Rs 50 levels in May to the current levels of Rs 108. Furthermore, with Telco diversifying into the highly competitive passenger car segment, Ashok Leyland is now the only automotive major focussed solely on the commercial vehicle segment. As such, any investor who wants an exposure to the commercial vehicle sector, will surely settle on the Ashok Leyland scrip.

Aaron Chaze & Percy Dubash