Bajaj Auto slips 2% as share buyback fails to cheer investors

Bajaj Auto slipped nearly 2 per cent to a low of Rs 3,787 in intra-day trade on Tuesday a day after the two-wheeler major announced its share buyback worth Rs 2,500.

The company intends to buy back 5.43 million shares, aggregating up to 1.88 per cent of its paid-up share capital via the open market at Rs 4,600 per share.

As of 09:24 AM, the stock traded 1.8 per cent lower at Rs 3,793 as against a 0.5 per cent decline on the S&P BSE Sensex. The stock was down 4.2 per cent from its high of Rs 3,790 touched in trades on Monday in the run-up to the share buyback announcement. 

So far this calendar year, Bajaj Auto has been an out-performer. The stock has surged nearly 17 per cent while the benchmark Sensex has declined over 9 per cent in the same period.

The investors seem to be disappointed as the share buyback is through an open market route and not tender offer. In an open market buyback, the company purchases shares directly from the market at the then prevailing price. Whereas, in case of tender offer, the shareholders get an opportunity to tender their shares at a specified price within the time frame.

However, in general, share purchases by companies and promoters are seen as a positive signal about the management’s confidence in the fundamentals of a business. 

“The company, at its meeting held on Monday, has approved the proposal for buyback of the fully paid-up equity shares with a face value of Rs 10 from existing shareholders (except promoters, promoter group, and persons in control of the company). It would be from the open market through the stock exchange mechanism at a price not exceeding Rs 4,600 per equity share,” it said in a statement.

The company last went for such a move almost 22 years ago in the year 2000 at a price of Rs 400 per share. Thereafter, since FY08, Bajaj Auto has paid dividends to shareholders with the amount going up each year, from Rs 20 per share to Rs 140 at the end of FY22.