Bajaj Auto's m-cap surpasses Rs 2 trillion-mark on Rs 4,000-crore buyback

Bajaj Auto’s market capitalisation (market cap) hit Rs 2 trillion mark for the first time.

The stock of the two and three-wheeler major rallied 6 per cent to hit a new high of Rs 7,420 on the BSE in Tuesday’s (January 9) intraday trade after its board approved Rs 4,000 crore share buyback at Rs 10,000 per share.

The stock ended the day at Rs 7,093.75, up 1.55 per cent and its market cap a shade above Rs 2 trillion.

The buyback price is at a 41 per cent premium to the current closing price.

In the past one year, Bajaj Auto has outperformed the market by zooming 96 per cent.

By comparison, the S&P BSE Sensex was up 19 per cent and the S&P BSE Auto index 43 per cent during the period.

On Monday (January 8), Bajaj Auto said the company will buy 4 million shares via the tender route, representing 1.41 per cent of Bajaj Auto’s outstanding shares.

Company promoters, who currently hold 54.94 per cent stake, will also participate in the buyback, the company said in an exchange filing.

The company had purchased shares worth Rs 2,500 crore in July 2022 at Rs 4,600 apiece via open market route.

The buyback will help the company to distribute surplus cash to its shareholders holding equity shares broadly to the proportion of their shareholding, thereby enhancing the overall return to shareholders.

Brokerage firm Sharekhan has a ‘buy’ rating on Bajaj Auto with a revised price target of Rs 7,567 due to the company being a brand-focused play in the domestic market, ramp-up in Triumph’s distribution  network, market share gain in electric vehicle (EV) segment, its new product launch strategy, and expectation of gradual improvement in exports.

"With a healthy festive sale, Bajaj Auto continues to gain traction in the above 125 cc segment supported by its strong position in mass premium motorcycle markets. Export volumes are appearing bottomed out and and should improve gradually,” the brokerage firm had said in its January 2, 2024 report.

Its three-wheeler business has been reviving on return in demand and rise in CNG network in the domestic market.

The management indicated that the Red Sea issue has not materially hit its exports so far and assumes that this issue would not last long.

Meanwhile, with the launch of Triumph 400, Bajaj Auto has entered the premium motorcycle segment, given it has already been a leading player in the mass premium motorcycle segment.

The brokerage firm believes Bajaj Auto has been plugging the gaps in its portfolio and is playing with a bunch of brand portfolios in multiple segments.

Further. the brokerage firm believes that the listing of OLA electric would unlock the valuation for its EV business as it also enjoys around 10 per cent market share in electric two wheeler market and indicating that its electric three wheeler business is not a margin dilutive proposition.

Bajaj Auto has seen strong domestic volume growth in the festive season and has continued to see healthy demand for its vehicles even post the end of the festival season.

The company’s sharp focus on the 125cc+ segment within domestic 2W is yielding market share gains and positive mix change, analysts at KRChoksey Shares and Securities had said in the Q2 result update.

The uptick in demand for Triumph in the pro biking segment has surprised positively and will contribute incrementally to volumes and mix going ahead as Bajaj Auto ramps up capacity and distribution.

A strong trajectory in the domestic CV segment is expected to continue driven by increasing penetration of CNG and EVs, the brokerage firm said.

In addition to the buyback, the near term trigger would be the December quarter performance.

Domestic two wheeler volumes are up 44 per cent year-on-year (y-o-y) due to festival season and a low base of last year.

Export volumes would see a sequential improvement due to improvement in global macros.

Amber Shukla and Aniket Desai of Motilal Oswal Research have upgraded the target multiple of the stock to 18 times from 16 times to factor in the success of Triumph in the premium segment category and export recovery.

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