Mumbai: Reviving a two-year-old proposal, Bajaj Auto Ltd, India’s second biggest motorcycle maker, is set to restructure the company to unlock the value of its growing insurance business.
The directors of the company will consider a proposal “for demerger” on 17 May, the company informed the Bombay Stock Exchange (BSE) on Thursday after market trading hours. The Pune-based company will also announce its quarterly results that day.
Industry sources suggest the demerger is aimed at resolving a family dispute between chairman Rahul Bajaj’s two sons Sanjiv Bajaj and Rajiv Bajaj. After the break-up, Rajiv is likely to lead the auto business while Sanjiv is expected to take care of the finance business.
“Splitting Bajaj Auto and transferring some of the Rs6,500 crore of cash it has will improve the finance and insurance businesses,” Rahul Bajaj has said in the past. He and other Bajaj Auto officials couldn’t be reached for comment on Thursday.
The company’s promoters hold close to 30% stake in Bajaj Auto and foreign institutional investors hold close to 20%. Public shareholding in the company is 26.50%.
Bajaj Auto is in both general as well as life insurance businesses through Bajaj Allianz General Insurance Co. Ltd and Bajaj Allianz Life Insurance Co. Ltd, respectively. Both are joint ventures between Bajaj Auto and Allianz AG, the world’s largest general insurance company. Bajaj Auto holds 74% stake in both firms with the rest being held by Allianz. Both the insurance companies are among the top firms in both segments. Bajaj Auto is also into the business of lending money through Bajaj Auto Finance Ltd, a listed entity. Bajaj Auto holds over 38% stake in Bajaj Auto Finance.
Analysts say the company’s cash reserve could be around Rs7,000 crore. The company’s investment portfolio had a market value of Rs8,468 crore as of December. Shares of Bajaj Auto gained 1.7% to Rs2,609 on BSE on Thursday, lifting its market capitalization to Rs26,397.86 crore. At that level, Bajaj Auto is the second largest firm in the auto space after Tata Motors Ltd, and ahead of Maruti Udyog Ltd, Mahindra & Mahindra Ltd and Hero Hond Motors Ltd, the country’s largest two-wheeler company. Bajaj Auto Finance ended Thursday on BSE at Rs428.65, gaining 2.14%. Its market capitalization was Rs1,515.28 crore.
Analysts are valuing the company’s insurance business at around Rs650 a share while the liquid investment treasury is valued at roughly Rs700. This puts the valuation of the core auto business at over Rs1,250 per share. “The talks for a split has been known for the last two years. And there is only a little upside expected now,” said an analyst with a foreign brokerage firm who could not be named as his firm does not allow him to speak to the media.
“The valuation of the new companies will depend fully on the parameters of the de merger as it will decide how the treasury fund is going to be divided,” said Umesh Karne, senior research analyst, Emkay Share and Stock Brokers Ltd.
Bloomberg also contributed to this story.