Bajaj Auto’s share price soared 5% on January 9th, fueled by the announcement of a seemingly lucrative share buyback. The offer: Rs 10,000 per share, a hefty 43% premium over the current market price. A bonanza for investors, right? Not quite.

A closer look reveals a caveat – the limited size of the buyback significantly reduces its accessibility for retail investors.

While the Rs 4,000 crore buyback program sounds substantial, it targets only 1.41% of the company’s outstanding shares, amounting to a mere 40 lakh shares. Analysts at Nuvama predict a low acceptance ratio for retail investors, likely under 10%. This means only a fraction of shares tendered by individuals will be repurchased, dampening the initial excitement despite the enticing price tag.

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Institutional Advantage

Institutional investors, on the other hand, are expected to embrace the offer with open arms. Nuvama estimates their acceptance rate to be around 1.3%, potentially yielding a respectable 55-60 basis points on their holdings. Furthermore, promotor participation in the buyback will further reduce the share availability for public shareholders, leaving retail investors with even slimmer odds.

Past BuyBacks

This isn’t Bajaj Auto’s first venture into buybacks. In July 2022, the company repurchased shares worth Rs 2,500 crore at Rs 4,600 apiece through the open market route. The current program, however, operates through a tender offer route, requiring shareholder approval via a postal ballot. While the formal approval process is underway, investors should carefully weigh the low acceptance probabilities and potential yields before tendering their shares.

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A Cautious Call for Retail Investors:

Bajaj Auto’s buyback, while presenting a seemingly attractive price, comes with a caveat of limited accessibility for retail investors. The small size of the program and higher participation potential for institutional investors significantly restrict the benefits for individuals. Careful consideration and thorough research are crucial before making any investment decisions based on this buyback offer.

Key Takeaways

• Bajaj Auto’s share buyback boasts a premium price, but its small size restricts accessibility, particularly for retail investors.
• Institutional investors are predicted to have a higher acceptance rate than retail investors.
• Promotor participation will further limit the number of shares available for purchase in the buyback.
• Retail investors should weigh the potential yield against the low acceptance likelihood before making decisions.

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Top auto manufacturers by Mcap in India

Top auto manufacturers by Mcap
	Mcap (₹ lakh crore)
Maruti Suzuki	3.13
Tata Motors	2.89
Bajaj Auto	2.02
M&M	2.01
Eicher Motors	1.06