Mitul Shah on what Bajaj Auto share buyback means for co and investors

“For Bajaj Auto or any auto company, this will be definitely considered a positive development and it is a good way to pay back to the investors of the company with huge cash,” says Mitul Shah, Head Of Research, Institutional Equity, Reliance Securities.

Were you expecting a buyback from Bajaj Group and now that they have announced this, what is the cash levels, where do you expect the buyback or how much of a money to come in, considering their capex?
Bajaj Auto as per their press release during the Q4 FY22 result has highlighted that their cash and cash equivalent at the end of financial year 2022 is around Rs 19,000 crore. In addition to that, we are in the middle of June. By the time the buyback is complete, probably it will be by the end June. The annual cash profit would be roughly around Rs 6,000 crore plus. So quarterly we can assume Rs 1,500 crore level.

So by the end of June, there would be Rs 20,500 crore in cash and they announced a dividend of Rs 140 per share which is an outflow of around Rs 4,000 crore. After dividend payout, there will be Rs 16,500 in cash and cash equivalent at the end of June with the company. We can assume that annual capex is not very high at Rs 500-600 crore.. Anywhere, Rs 10,000-12,000 crore cash in the balance sheet is more than sufficient.

All this calculation leads to roughly Rs 3,000-5,000 crore in buyback value and the price is right now at around Rs 3,900. So buyback would be somewhere in the range of Rs 4,000-4,500.

The Bajaj Group has not been expected to do a buyback. How would you look at it?
This is probably happening for the first time in the history of Bajaj Auto and probably in the last 15-20 years, not only is Bajaj the first auto company, we have also seen activities in IT companies. Investors have appreciated these buyback in IT companies.

So for Bajaj Auto or any auto company, this will be definitely considered a positive development and it is a good way to pay back to the investors of the company with huge cash. Bajaj and Maruti are the only companies within automobiles having such a huge level of cash on balance sheet.

Other companies are always in a cash crunch or have heavy debt on the balance sheet. This company is considered to be much different and unique and the positive development from the stock price point of view as well as investors confidence in the company point of view.