Bajaj Auto slipped nearly 2 percent to a low of Rs 3,787 on Tuesday, a day after the two-wheeler major informed the stock exchanges that the company had approved a buyback of shares. This low happened as the buyback disappointed the street both in its size and its approach.
The Board approved a buyback of upto Rs 2500 crore while the street was anticipating a much higher amount given that Bajaj auto has over Rs 19,000 crore of cash in its books.
The company intends to buy back 54.35 lakh shares or 1.88 percent of the paid-up share capital via the open market at Rs 4,600 per share.
Rakesh Sharma, Executive Director, Bajaj Auto Ltd told CNBCTV18 that one thing to keep in in consideration while assessing this buyback is that promoters are not participating and they hold over 50 percent of the shares.
"The Rs 2,500 crore should be viewed in context with the non-promoter holding,” said Sharma.
Talking about how will the surplus be used, he said, "We will be looking for opportunities to expand the business, the dividend policy was put out a year back where we clearly stated that anything above Rs 15,000 crores we feel confident to distribute to the shareholders. We will meet next year again on assessing demands and how to address the surplus."
Bajaj Auto has announced buy back of shares after more than two decades. The Rs 4,600 buyback price is a steep 20.64 percent premium to Friday’s closing price of Rs 3,812.80.
Earlier on June 14, the company's board decided to defer the share buyback plan that was brought before it for consideration.
“We wish to inform you that a meeting of the Board of Directors of the Company is scheduled to be held on Monday, 27 June 2022, inter-alia to further deliberate on the proposal for buyback of fully paid-up equity shares of the Company in accordance with the Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018," Bajaj Auto informed in an exchange filing last week.
What is share buyback?
In a share buyback, a company buys its own outstanding shares in order to reduce the number of shares available for sale in the open market. This can be a tax-efficient way to return money to shareholders. The buyback of shares reduces the number of shares in circulation, which increases the value of the shares and the earnings per share (EPS).
The company has already announced the distribution of dividends to its investors at Rs 140 per share for the financial year 2021-22.
“In line with the company’s dividend distribution policy, the board of directors has approved/recommended a dividend at the rate of Rs 140 per share (1400 per cent) of the face value of Rs 10 each on equity shares for the financial year ended March 31. The said dividend, if declared by the shareholders at the ensuing annual general meeting, will be credited/dispatched on or around July 30," Bajaj Auto notified about dividend payment.