The announcement of a share buyback by Bajaj Auto at an alluring price of Rs 10,000 per share has sent ripples through the financial markets, propelling the stock’s value by 5%. This development, while garnering attention and enthusiasm, raises pertinent questions about the actual impact on retail investors. Despite the seemingly attractive buyback price, the limited size of the offer is anticipated to restrict the benefits for most retail shareholders, with an expected acceptance ratio of less than 10%.
Limited Shareholder Benefits
Bajaj Auto witnessed a 5% surge in its share price on January 9, following the company’s enticing share buyback offer of Rs 10,000 per share. However, despite the appealing buyback price, the majority of retail investors may not fully benefit from this lucrative opportunity. According to calculations by Nuvama, the small size of the buyback offer is expected to result in an acceptance ratio of under 10%.
Buyback Details and Market Reaction
On January 8, the Bajaj Auto board approved a Rs 4,000-crore share buyback at Rs 10,000 per share, representing a premium of 43% over the last closing price. The buyback involves the acquisition of 40 lakh shares through the tender route, equivalent to 1.41% of the total outstanding shares. The announcement led to a 5% increase in the stock’s value at the market opening on January 9.
Analyst Insights and Acceptance Scenarios
Analyst Abhilash Pagaria from Nuvama Alternative and Quantitative Research outlined acceptance scenarios. Institutional acceptance is estimated at around 1.3%, with a potential yield of 55-60 basis points at the current market price. Initial calculations suggest that retail shareholders may experience an acceptance ratio ranging from 4-10%.
UBS Issues ‘Sell’ Call
Following the stock’s uptrend since the buyback announcement, UBS brokerage firm issued a ‘sell’ call on Bajaj Auto stock. UBS anticipates a significant portion of the buyback benefits to go to the promoters. The firm has set a target price of Rs 5,600 for Bajaj Auto shares.
Promoter Participation and Previous Buyback
Bajaj Auto promoters, holding a 54.94% stake in the company, are expected to participate in the buyback. Analysts suggest that even if the promoters were to opt out, which seems unlikely, it might only marginally affect institutional acceptance. This marks Bajaj Auto’s second share buyback in two years, following the purchase of shares worth Rs 2,500 crore in July 2022 at Rs 4,600 per unit.
CFO’s Perspective
In an interaction with CNBC TV-18, Bajaj Auto’s CFO Dinesh Thapar stated that the promoters are unlikely to dilute much stake through the buyback, projecting the promoters’ stake to be around 55% post the completion of the buyback.
Conclusion
In conclusion, Bajaj Auto’s recent announcement of a share buyback at Rs 10,000 per share has propelled its stock price by 5%, creating a buzz in the market. However, the enthusiasm may be tempered for most retail investors, given the limited size of the buyback offer, resulting in an expected acceptance ratio below 10%. Analyst insights from Nuvama suggest varying acceptance scenarios for both institutional and retail shareholders.
Despite the attractive buyback price, UBS has issued a cautious ‘sell’ call, anticipating a significant portion of the buyback benefits to flow towards the promoters. The firm’s target price of Rs 5,600 reflects concerns about the stock’s recent uptrend since the buyback announcement.
Bajaj Auto’s promoters, with a substantial stake in the company, are likely to participate in the buyback, further influencing the distribution of benefits. This marks the company’s second share buyback in two years, following a similar move in July 2022.
In the midst of these dynamics, the perspective of Bajaj Auto’s CFO, Dinesh Thapar, suggests that the promoters intend to retain a substantial stake even after the buyback, providing insight into their strategic approach.
As investors navigate this buyback opportunity, careful consideration of the acceptance ratios, promoter participation, and market dynamics will be crucial in making informed decisions. The market’s reaction to this development underscores the complexity and strategic implications of share buyback decisions for both companies and investors alike.
