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NEW DELHI : Bajaj Auto Ltd on Monday announced that its board has approved a plan to buy back shares worth as much as 2,500 crore from the open market.

The maximum offer price for the buyback will be capped at 4,600 per share, the Pune-based maker of two- and three-wheeled vehicles informed stock exchanges.

The offer represents 9.61 % and 8.71% of the aggregate of the total paid-up share capital and free reserves of the company, Bajaj Auto added.

Shares of the company ended over 1% higher to close at 3,855 apiece on the NSE, almost in line with a 0.85% rise in the benchmark index.

Bajaj Auto also said it has formed a buyback committee for the purpose and that the scheme will be launched in due course of time.

“The company will utilize at least 50% of the amount earmarked as the maximum buyback size, that is 1,250 crore (minimum buyback size). The company would purchase a minimum of 27,17,392 equity shares," Bajaj Auto said.

The company also said that the actual number of equity shares to be bought back and the company’s post-buyback shareholding will only be ascertained after completion of the exercise since it would be done from the open market.

Promoters hold a 53.77% stake in Bajaj Auto. Retail investors own 15.72%, while the rest is held by foreign institutional investors (10.49%), insurance companies (8.03%), mutual funds(4.8%) and others (7.19 % ).

Mitul Shah, head of research at Reliance Securities Ltd said Bajaj Auto’s buyback offer is below expectations in terms of the maximum buyback size, though the price cap of 4,600 marks a 19% premium to Monday’s closing price. Moreover, buyback through open market purchase may not take the stock price close to the upper band, which is not well received by investors. Therefore, the stock corrected from the day’s high after the buyback announcement, he said.

Deepak Jasani, head of research at HDFC Securities said the buyback may not result in stabilization of the stock price. The company said that is cash-rich; however, it is investing only 2,500 crore towards the buyback.

Analysts feel that Bajaj Auto may be holding on to cash to support the share price through some more buybacks in the future. Also, it could also be that the automaker may utilize the balance cash for either capital expenditure or may be eyeing some inorganic expansion plans that need to be watched for.

“Around 10% of the cash that Bajaj Auto would have in the balance sheet by end of fiscal year 2023, is being paid back to shareholders in the form of buyback of shares," said Deven Choksey, managing director at KRChoksey Investment Managers Pvt. “Paying back lower-yield cash to investors helps in improving earnings ratios."

The buyback comes as Bajaj Auto is set to face stiff competition from bigger rivals such as Hero MotoCorp Ltd in the switch to cleaner vehicles. Bajaj Auto earlier this month rolled out its first electric scooter from its new plant with a production capacity of 500,000 units a year, while Hero MotoCorp, the world’s top two-wheeler maker, plans to launch its first electric model on 1 July.

Bajaj Auto’s wholly-owned unit Chetak Technology and its vendor partners are planning to invest nearly 750 crore in the new EV manufacturing facility. It has sold 14,000 Chetak electric scooters and received 16,000 bookings.

With inputs from Bloomberg

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