The board of directors of Bajaj Auto has approved a large share purchase of Rs 4,000 crore at a hefty price of Rs 10,000 per share, representing a 43% premium over the previous closing price on January 8.
The business intends to repurchase 40 lakh shares through a tender offer, representing 1.41 percent of Bajaj Auto's outstanding shares. Notably, the promoters, who own 54.94 percent of the company, will actively participate in the repurchase.
The Board has formed a Buyback Committee to facilitate the process, with the authority to take all necessary steps connected to the buyback at its discretion. The plan is subject to shareholder approval by a special resolution via postal ballot, with full information and record dates to be disclosed subsequently.
This is Bajaj Auto's second share buyback in as many years, following a Rs 2,500 crore buyback at Rs 4,600 per unit in July 2022. Managing Director Rajiv Bajaj forecasts a larger buyback, with a cash balance of Rs 20,000 crore by the end of fiscal year 2024. He expressed confidence in the company's performance, emphasizing an outstanding 2023.
In July 2022, the two-wheeler company completed a Rs 2,500 crore share repurchase, acquiring shares at Rs 4,600 each. Following the news of the forthcoming share buyback, the recent increase in stock value demonstrates favorable market sentiment and investor confidence.
"From the company's perspective, the proposed buyback price, set at a significant premium over the current market price, sends a strong message of value." This premium frequently generates a favourable mood among investors, potentially driving up market prices in the short run. "This could mean an attractive exit point or an opportunity for capital gains for retail investors, particularly those who have been holding shares for a longer period," said Sonam Srivastava, Founder and Fund Manager at Wright Research.
According to Srivastava, the buyback reduces the number of shares in circulation, which may result in a greater earnings per share (EPS) ratio, further enhancing the stock's appeal. Overall, the repurchase announcement is likely to cause a rippling effect in the market, influencing not only Bajaj Auto's shares but also the larger sector or market indexes that it is a member of.
Bajaj Auto's Stock Performance over the Last Few Years
On January 8, Bajaj Auto's stock finished at Rs 6,980, practically steady from the previous close, outperforming the Nifty50 index, which fell 1%. The stock has gained approximately 5% since the news of the buyback. It has increased by an astonishing 93 percent in the last year, placing it second on the index after Tata Motors. The stock has gained nearly 8% in the previous week, and has gained 16.27% and 45.72% in the last month and six months, respectively. Year-to-date returns are 6%, but the stock has provided an incredible 97.56% return over the last year.
