Bajaj Auto, India’s third-largest two-wheeler manufacturer, bought additional shares in group investment firm Bajaj Holding & Investment in the June quarter to further bolster its stake in the holding company.
The Pune-based maker of Pulsar and KTM brand of bikes bought 5.9 lakh shares worth little over Rs 201 crore in Bajaj Holdings & Investment (BHIL) during Q1 FY20. The secondary market has seen a significant spike in interest for BHIL shares thanks to the buying spree of Bajaj Auto.
This is, in addition to the 2.91 million shares that Bajaj Auto bought in BHIL during the March quarter for Rs 994 crore. As a result, the bike maker’s overall stake in BHIL has gone up to 3.14 percent from zero in 2018.
In return, BHIL too bought shares in Bajaj Auto. Little over 5.45 million Bajaj Auto shares were bought by BHIL as part of investment operations, BHIL clarified. BHIL’s stake in Bajaj Auto has gone up to 33.43 percent by end of June 2019 against 31.54 percent at the end of March 2018.
Group companies buying each other’s shares signifies the confidence they possess in business operations of each other and the positive mid to long term outlook of the business.
Last year, Tata Sons bought shares of its troubled group firm Tata Motors. Earlier Godrej Industries shored up its stake in Godrej Consumer Products. Earlier this year, Mahindra & Mahindra raised its stake in subsidiary SsangYong Motor Company.
A section of Bajaj Auto shareholders, however, raised objections at the 12th annual general meeting of Bajaj Auto held in the final week of July. The shareholders were perturbed by the fact that Bajaj Auto, which is a manufacturing company, invested nearly Rs 1,000 crore in a group investment firm, which they considered not to be a core business activity of Bajaj Auto.
At the end of the June quarter, Bajaj Auto surplus cash and cash equivalents stood at Rs 17,126 crore as against Rs 16,368 crore as on March 31, 2019, a growth of 4.63 percent after the buying of shares in BHIL. Bajaj Auto also paid a dividend of 600 percent or Rs 60 per share during the last financial year.
Responding to shareholder queries, Rahul Bajaj, chairman, Bajaj Auto said, “The question (from shareholders) was ‘what is the purpose of this investment, why this cross-holding and this investment will reduce the return on capital employed if Bajaj Holding shares are not sold at profit’. There is nothing wrong with cross-holding. Yes, it is a strategic investment. If we need, we can sell (the shares) but we don’t intend to make money on that by selling.”
As per BSE data, there has been a 15.5 percent rise in the value of shares of BHIL between January-August 2019. Sensex, during the same period, grew 3 percent.
“All these transactions are legal; this group does not do anything, at least knowingly illegal, improper and immoral. Cross holding is very much allowed. In fact, BHIL holds shares in group companies whose market value exceeds Rs 78,000 crore. Each company of the Bajaj Group will benefit by buying of shares. What will happen tomorrow nobody knows. We have more faith in ourselves than we have in other companies. There are 45 companies with the NCLT. We don’t want to be in that category. We are differentiating ourselves than the others,” added Bajaj.
BHIL also has stakes in listed Bajaj Group entities like Bajaj Finserve, Mukand and Bajaj Electricals. Several members of the Bajaj family and various listed and unlisted companies of the group make up the promoters of BHIL whose collective stake stands at nearly 50 percent.
Rahul Bajaj also highlighted that the reason why Bajaj Group has managed to steer clear of any financial mess that has troubled other companies is because of the zero exposure to debt.
“The only Bajaj company based in Pune which borrows money is Bajaj Finance because it is a consumer finance company and it is the nature of its business. BHIL and Bajaj Auto are debt-free. All the (troubled) companies are in a mess because of debt. I have been told by top industrialist, “Loan sab lete hain, return koi nahi karta,” added Bajaj.