Mumbai: Marking the culmination of Rahul Bajaj’s restructuring of his business conglomerate, two newly created subsidiaries of Bajaj Holdings and Investment Ltd: Bajaj Auto Ltd and Bajaj Finserv Ltd will be listed on bourses today.
Bajaj Auto is likely to be listed at Rs760 a share, while Bajaj Finserv will likely list at Rs577.50 a share, according to an average of listing estimates from four brokerages polled by Mint. At this sort of listing price, the market capitalization of Bajaj Auto is estimated to be at Rs10,996 crore and that of Bajaj Finserv at Rs8,355 crore. On 23 May, the market capitalization of Bajaj Holdings stood at Rs 6,814 crore.
Separate entities: Bajaj group chairman Rahul Bajaj had identified unlocking shareholder value as one of the reasons for demerger.
As a result, the total market capitalization of the three companies will be about Rs26,165 crore, a 24% increase over the market capitalization of the original Bajaj Auto on 13 March, the last day before its delisting, of Rs21,042 crore, based on data from the Bombay Stock Exchange (BSE).
If the brokerage estimates hold up, the separation of Bajaj’s automotive and financial services businesses is set to unlock an estimated value of about Rs5,123 crore. In the same period, the benchmark Sensex index of BSE has only risen just 5.64%.
Mint has not taken into account the market capitalization of associate company Bajaj Auto Finance Ltd since it has continued trading on BSE and trades at Rs275.25 a share.
Indeed, Bajaj group’s chairman Rahul Bajaj had identified unlocking shareholder value as one of the reasons for separating the firm’s automotive and financial services businesses, though it is also being driven by the need to accommodate the separate corporate ambitions of Bajaj’s two sons.
Sanjiv Bajaj will handle the financial services business, while Rajiv Bajaj will continue to head the auto operations.
“Bajaj Auto stock was trading around Rs2,100 before the demerger. Ideally, the combined value of the stocks of the three demerged entities should add up to this price,” said Mahantesh Sabarad, a sector specialist at Mumbai-based investment bank Centrum Capital Ltd.
The auto business of Bajaj should be valued at a premium to Hero Honda Motors Ltd’s stock valuations, comparing the bottom line of the two firms, noted the head of research at a foreign brokerage operating in India. He didn’t want to be identified.
This research head, while bearish on the auto sector, where sales especially in two-wheelers have fallen all of last fiscal due to tighter credit conditions, is more positive on Bajaj Finserv. “The plans to start an asset management company may attract higher investor interest in this firm,” he said.
Auto analysts say that the demerger of Bajaj group will help in better valuations of the company’s different business comprising two- and three-wheeler manufacturing, life and non-life insurance, vehicle financing and wind power.
“Earlier, it was difficult to put a value on the insurance business when the company was consolidated,” said Piyush Parag, an auto analyst with Religare Securities Ltd. “The demerger brings more focus on all businesses.”
Religare has valued Bajaj Auto at Rs820 a share, and Bajaj Finserv at Rs570 a share.
Bajaj announced the demerger last May, under which the company was split into three entities. The company created two subsidiaries: Bajaj Holdings and Bajaj Finserv.
Its auto business, with all assets and liabilities along with investments in Indonesia and a few vendor companies, were transferred to Bajaj Holdings. It also holds Rs1,500 crore in cash and cash equivalents.
Bajaj’s wind power project, investments in Bajaj Allianz General Insurance Co. Ltd and Bajaj Allianz Life Insurance Co. Ltd along with associate company Bajaj Auto Finance were transferred to Bajaj Finserv. It also holds Rs800 crore in cash and cash equivalents.
Bajaj Holdings was renamed as Bajaj Auto to reflect its business operations and the erstwhile Bajaj Auto was renamed as Bajaj Holdings, which is now the holding company, focusing on new business opportunities for the group.
Bajaj is issuing one share each in Bajaj Auto and Bajaj Finserv for every share held in Bajaj Holdings.
This means that shareholders will be alloted one share of Bajaj Auto with a face value of Rs10 each and a share of Bajaj Finserv at a face value of Rs5 each for every share they hold in Bajaj Holdings. Effectively, they end up holding 70% of the new companies, while the holding company will have 30% in each of the two new companies.
“Bajaj Finserv is now a core insurance company with life insurance, non-life insurance and the auto finance business,” said S. Ramnath, director, research at IDFC-SSKI Securities Ltd. Ramnath estimates the listing price of Bajaj Auto to be in the range of Rs650-700 a share and Rs700-800 a share in the case of Bajaj Finserv.
firstname.lastname@example.org Ashwin Ramarathinam contributed to this story.