Bajaj Auto Ltd. has announced a share buyback at close to a 19% premium to the Current Market Price of ₹ 3,874. The company intends to buy back 5.43 million shares which constitute around 1.88% of the paid-up share capital as of June 27, 2022 at ₹ 4,600. This brings the aggregate buyback amount to ₹ 2,500 crores. In a general sense, buybacks send a positive signal to the investors. This is due to the fact that a buyback reflects promoter’s confidence in the company. However, it has led to a disappointment in the case of Bajaj Auto as the buyback is through the Open Market route and not the Tender Offer route. Additionally, the buyback amount is much less as compared to D-Street's expectations. The amount is close to 9.61% of the Paid-up Share Capital and 8.71% of the free reserves (including the Securities Premium account). The current reserves of the company are worth ₹ 29,750 crores. The reasons for this could be that the company feels keeping reserves and cash in a tepid demand scenario is a wise strategy. Additionally, there has been a weak domestic demand in the two-wheeler segment and the company witnessed a 30.5% decline in the YoY volume in this segment. The company will also need cash to invest in upgrading technology and to invest in technologies which may be used in Electric Vehicles. In terms of valuation, the stock is trading at a reasonable 18.3 times FY24 projected earnings. In short, the road ahead for Bajaj Auto is expected to be arduous with headwinds affecting revenue and profit growth. The uncertainty in the near-term earnings ramp-up makes the premium to market price in the buyback offer quite meaningful for existing shareholders. However, the ₹ 2,500 crore buyback size and its relatively low impact in boosting earnings leaves little room for re-rating of the stock in the near term. Thank you.
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ReplyDeleteCrisp and clear analysis of the buyback 👏
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