Bajaj Auto shares gain 2% ahead of record date for its biggest buyback worth Rs 5,633 crore

Shares of two-wheeler and three-wheeler maker Bajaj Auto rose 2% to Rs 10,268 on the BSE on Monday as investors positioned themselves ahead of the June 24 (Wednesday) record date for the company’s largest-ever share buyback programme worth Rs 5,633 crore.

In May, Bajaj Auto’s board approved a proposal to repurchase up to 46.94 lakh shares with a face value of Rs 10 each, representing 1.68% of its total paid-up equity capital. The buyback, with a maximum size of Rs 5,633 crore, will be carried out through the tender route at Rs 12,000 per share, a premium of over 19% to the stock’s previous closing price.

Also read: Bajaj Auto nears record date for Rs 5,633 crore share buyback at 19% premium. Should you participate?

Bajaj Auto buyback history

The proposed buyback follows the company’s Rs 4,000 crore share repurchase programme in 2024, which was conducted at Rs 10,000 per share. A share buyback is a corporate action through which a company purchases its own shares from existing investors, generally at a premium to the prevailing market price.

Should you participate?

For investors who do not currently own Bajaj Auto shares, the buyback by itself should not be the sole reason to buy the stock, said Harshal Dasani, Business Head at INVasset PMS. He noted that investment decisions should primarily be based on the company’s business prospects and valuation. However, for existing shareholders, participation in the buyback can be worthwhile given the mechanics of the reserved category.”The buyback typically comes at a premium to the prevailing market price, with retail shareholders (those holding shares worth up to Rs 2 lakh) sitting in a reserved category that historically sees acceptance ratios close to 100% of tendered shares,” Dasani said.

Under SEBI regulations, 15% of the total buyback size must be reserved for small shareholders. According to a research report by Anand Rathi, this translates into approximately 7.04 lakh shares worth Rs 844.92 crore at the buyback price being set aside for shareholders holding shares worth up to Rs 2 lakh on the record date.

Read more: Bajaj Auto’s Rs 5,633 crore share buyback at 16% premium: Key things to know

The company has not yet disclosed the entitlement ratio for the buyback. Based on the buyback price of Rs 12,000 per share, a small shareholder can acquire a maximum of 17 shares and remain eligible for the reserved category, estimated Sunny Agrawal, Head of Fundamental Research at SBI Securities.

“Assuming an acceptance ratio of 55%, 9 shares will get accepted for buyback at Rs 12,000/share. The remaining 8 shares will remain with the investor,” he said. Assuming the market price remains unchanged at Rs 10,000, the overall return on investment would be nearly 10.6%, according to the analyst.

“The return potential can be higher if the stock gains from the CMP of Rs 10,000, as well as if the acceptance ratio is higher.

Bajaj Auto shares have gained 22% over the past one year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)