Bajaj Auto share buyback: Should you sell shares or skip the offer?

Shares of Bajaj Auto were in focus today a day after the firm announced a share buyback worth Rs 2,500 crore. The buyback represents 9.61 per cent of the total paid up share capital. The firm said its board cleared buyback of shares at a price not exceeding Rs 4,600.

The buyback price was 20.64 per cent or Rs 787.2 higher to the Friday's close of Rs 3,812.80 on BSE. Meanwhile, shares of Bajaj Auto were trading 0.34 per cent higher at Rs 3,875 against the previous close of Rs 3,862.05.

The auto stock touched an intraday high of Rs 3,906 on BSE. It also fell to an intraday low of Rs 3,784.3, falling 2.01 per cent on BSE.

Shares of Bajaj Auto were trading higher than 5-day, 20-day, 50-day, 100-day and 200-day moving averages. The stock has gained 19.14 per cent in 2022 and fallen 7.4 per cent in a year.

Total 0.16 lakh shares changed hands amounting to a turnover of Rs 5.99 crore on BSE. The market cap of the firm rose to Rs 1.12 lakh crore.

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Here's a look at whether you should sell shares in the buyback or the stock will deliver better returns if you give this buyback a miss.

"The size of the buyback is Rs 2,500 crore and at a price of Rs 4,600. However, it's an open market buyback and not a tender offer. This means that the stock may not reach those levels by the time the buyback offer closes. Therefore, for retail investors, there may not be any significant upside because of this buyback. However, we believe that the stock definitely holds a good value through its intrinsic performance and can reach levels of Rs 4400 which is as it is our target price. Maintain Buy," said Ashwin Patil, Senior Research Analyst at LKP Securities.

Goldman Sachs assigned a buy call with a target price of Rs 4,250 on the Bajaj Auto stock.

 "Analysis indicates buyback is likely to improve FY24E returns on equity by 180 bps to 25% though unlikely to cause much change in earnings per share or Net Cash/EBITDA ratios The minimum buyback size is for $160m (max $320m), compared to $3bn in cash & liquid investments on balance sheet," said Goldman Sachs.

UBS has turned neutral on Bajaj Auto with a target price of Rs 3,800.

"Reduction in total paid-up share capital will be 2.2 per cent, assuming maximum buy-back of Rs 2,500 crore," the international brokerage said.

Morgan Stanley has given a target price of Rs 4,182 on Bajaj Auto.

"Assuming that buy-back happens at maximum price, the company will buy back 5.4 million shares. The number of shares could, however, be higher if buyback price is lower than the maximum limit. Out of total outlay, the firm will utilize at least 50 per cent of amount (Rs 12.5 billion)," the brokerage house said.

Based on the Minimum Buyback Size and Maximum Buyback Price, the company would purchase a minimum of 27,17,392 equity shares, Bajaj Auto said.