Bajaj Auto: Riding High with a 5% Surge! Are You Missing Out on the Rs 10,000 Share Buyback Jackpot?

As for the retail shareholders, initial calculations show a possible acceptance ratio in the range of 4-10 percent

Understanding Bajaj Auto’s Share Buyback: A Closer Look at the Buzz

Introduction: Bajaj Auto’s Surprising Move

In a surprising turn of events on January 9, Bajaj Auto witnessed a 5 percent surge in its share price after announcing an enticing share buyback offer at Rs 10,000 per share. However, this seemingly attractive proposition comes with a twist that might leave many retail shareholders longing for a piece of the pie.

The Dynamics of Share Buyback

The Numbers Game

On January 8, the Bajaj Auto board gave the nod for a Rs 4,000-crore share buyback, offering a premium of 43 percent over the last closing price. The company plans to repurchase 40 lakh shares, equivalent to 1.41 percent of the total outstanding shares.

Acceptance Ratio Conundrum

According to calculations by Nuvama, the acceptance ratio is expected to hover below 10%. This raises concerns about how much of this financial bonanza will actually trickle down to the retail shareholders, given the buyback’s relatively modest size.

Market Response and UBS’s Cautionary Note

The announcement triggered a 5 percent spike in Bajaj Auto’s stock on January 9, reflecting the market’s initial positive sentiment. However, brokerage firm UBS has sounded a cautionary note by issuing a ‘sell’ call on the stock. Their concerns stem from the anticipation that a significant portion of the buyback might find its way into the hands of the promoters.

Insights into Acceptance Scenarios

Institutional and Retail Shareholders Dilemma

Abhilash Pagaria, an analyst at Nuvama, delves into acceptance scenarios. Initial estimates suggest institutional acceptance might reach around 1.3 percent, with a potential yield of 55-60 basis points at the current market price. Retail shareholders face a dilemma, with an expected acceptance ratio ranging from 4-10 percent.

Promoters’ Participation

Bajaj Auto’s promoters, holding a substantial 54.94 percent stake, are set to participate in the buyback. While this boosts the buyback’s overall size, it also raises eyebrows about the distribution of the offer among public shareholders.

UBS’s Take on the Situation

UBS, despite acknowledging the steep buyback price, flags concerns about the substantial promoter participation. They project that the promoter group might pocket a significant Rs 2,200 crore out of the total Rs 4,000-crore offer. UBS’s target price for Bajaj Auto stands at Rs 5,600, and they advise selling, citing a 6 percent surge in the stock since the buyback announcement.

A Second Buyback in Two Years

This marks Bajaj Auto’s second share buyback in two years. In July 2022, the company had repurchased shares worth Rs 2,500 crore at Rs 4,600 per unit. The decision underscores the company’s commitment to shareholder value and financial strategies aimed at maintaining a competitive edge.

The Board’s Authority and Promoters’ Stake

The automaker has empowered its Board with a buyback committee, granting them the authority to make decisions deemed necessary for the buyback. In a CNBC TV-18 interaction, Bajaj Auto’s CFO, Dinesh Thapar, reassured that the promoters wouldn’t dilute their stake significantly, estimating their post-buyback stake at around 55 percent.

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Conclusion: Navigating the Complex Terrain

In conclusion, Bajaj Auto’s share buyback has added a layer of complexity to its market dynamics. The allure of a high buyback price is tempered by concerns about the distribution and the potential dominance of promoters in the allocation.

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FAQs: Unraveling the Bajaj Auto Share Buyback Mystery

Can retail shareholders expect a significant share in the buyback?
- The acceptance ratio for retail shareholders is estimated to be between 4-10%, posing a challenge for them to secure a substantial share.
What prompted UBS to issue a ‘sell’ call on Bajaj Auto stock?
- UBS expressed concerns about the substantial participation of promoters, potentially limiting the benefits for other shareholders.
Is this Bajaj Auto’s first foray into share buybacks?
- No, this is the second share buyback in two years, indicating the company’s strategic approach to enhance shareholder value.
How has the market responded to the share buyback announcement?
- The stock witnessed a 5 percent surge on the day of the announcement, reflecting initial positive market sentiment.
What is the expected post-buyback stake of Bajaj Auto’s promoters?
- Bajaj Auto’s CFO estimates the promoters’ stake to be around 55 percent after the buyback.