Bajaj Auto share price jumped 5 percent on January 9 after the company announced an attractive share buyback price of Rs 10,000 per share. However, while the buyback price looks attractive, most retail shareholders may not be able to receive this bonanza, as the small size of the buyback offer will limit the acceptance ratio to under 10%, according to Nuvama calculations.
The share buyback announcement has driven the stock trade 5 percent higher at the opening on January 9.
Moreover, since the stock has run up since the buyback announcement, brokerage firm UBS has issued a ‘sell’ call on the Bajaj Auto stock, expecting a major portion of the buyback to go to the promoters.
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Earlier, on January 8, the Bajaj Auto board approved a Rs 4,000-crore share buyback at Rs 10,000 per share, at a premium of 43 percent to the last closing price. Bajaj Auto will buy 40 lakh shares through the tender route, or 1.41 percent of the total outstanding shares.
Limited opportunity
Abhilash Pagaria, analyst at Nuvama Alternative and Quantitative Research, laid out the acceptance scenarios. The institutional acceptance is estimated to be at around 1.3 percent with a potential yield of 55-60 basis points, at the current market price of Rs 6,983. As for retail shareholders, initial calculations show a possible acceptance ratio in the range of 4-10 percent.
Bajaj Auto promoters will also participate in the buyback. The promoters hold a 54.94 stake in the company, while the remaining 45.06 percent rests with public shareholders. Pagaria of Nuvama said that if the promoters were to opt out, which is unlikely, it could have driven the general (institutional) acceptance estimate to about 3 percent. However, retail acceptance is said to remain unchanged.
Stock call: UBS says ‘sell’; check target price
UBS said that while the buyback price is steep, promoter participation implies that the promoter group will potentially receive Rs 2,200 crore of the Rs 4,000-crore offer. UBS has a target price of Rs 5,600 on the Bajaj Auto share, advising to sell since the stock has run up 6 percent since the buyback announcement.
This is Bajaj Auto's second share buyback in as many years. The auto major had in July 2022 purchased shares worth Rs 2,500 crore from holders at Rs 4,600 a unit.
The automaker said its Board has set up a buyback committee and has delegated the power to do all such acts, deeds, matters and things as it may, in its absolute discretion, deem necessary, expedient or proper in connection with the buyback.
In an interaction with CNBC TV-18, Bajaj Auto's CFO Dinesh Thapar said that the promoters will not end up diluting much stake and promoters' stake post the buyback could be around 55 percent.
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