Most analysts maintained their neutral stance on Bajaj Auto after the company announced buyback of shares at a 20 percent premium to the prevailing prices. Assuming the buyback happens at a maximum price of Rs 4,600, it will buy back about 54 lakh shares.
The analysts are concerned about the stock’s valuation at the current prices which, some believe, does not leave much room for an upside. There are other risks of a slowdown in exports as well amid rising inflation and recession worries.
Morgan Stanley maintained its equal weight (EW) stance on the stock, citing in-line valuations and risk of high-margin export slowdown. At the end of the March quarter, the company had said its export volume for January-March period fell by 8 percent.
The company has said its international business recorded its highest ever sales of over 2.5 million vehicles for FY22. With sales of over $2 billion, exports now contribute over 52 per cent of its net sales. So, any slowdown at this front will hurt the company.
One relief is that the company will continue to hold a sizable cash balance after the buyback. As on March 2022, surplus cash and cash equivalents with Bajaj Auto stood at Rs 19,090 crore, following a dividend payout of Rs 4,051 crore.
Morgan Stanley has a target of Rs 4182, meaning a potential upside of about 10 per cent from current prices.
UBS also maintained its neutral stance, keeping the target price at Rs 3,800, which is close to the current prices. The broker said reduction in paid-up share cap will be 2.2 percent, assuming maximum buyback. It prefers TVS Motor and Eicher Motors in the two-wheeler space.
Some analysts and market participants believe given the cash at hand, buyback size of Rs 2,500 crore is “underwhelming”. The impact is also visible on the share price that fell another 1.5 percent on Tuesday.
Citi also maintained sell with a target price of Rs 3,400, citing low capex in recent years, headwinds in demand in expert markets and losing market share to its competitors.
Though some domestic analysts believe these concerns are a bit overblown.
Ashwin Patil, Senior Research Analyst at LKP Securities, believes that the stock definitely holds a good value through its intrinsic performance and can reach levels of Rs 4,400, and deserves a buy rating. He warned that investors should not hope that the buyback will drive the prices though."It's an open market buyback and not through a tender offer. This means that the stock may not reach those levels by the time the buyback offer closes. Therefore for retail investors, there may not be any significant upside because of this buyback,” he said.