Leading auto giant, Bajaj Auto, has approved a share buyback scheme worth Rs 2500 crore. As per the buyback scheme, the company will buy the shares from existing shareholders in the open market at a maximum of Rs. 4,600 per share.
Let us understand the share buyback and what it could mean for you to participate in it.
The Bajaj Auto buyback scheme will be implemented as an open market buyback where the shares will be bought by the company at the latest prevailing price. Generally, buybacks happen via a tender offer process where the price per share is fixed. The open market buyback route means that the company will continue to buy back its shares from the investors as the price remains volatile throughout the trading session. This means investors can sell their shares to the company at the market price. A sharp buying pattern can push the price of the stock up, and the company will continue to buy shares at the market price (which must not be more than Rs 4,600 per share) until it reaches its buying threshold of Rs 2,500 crore.
However, investors seem unenthused by this buyback offer from Bajaj Auto. Within 24 hours of the buyback announcement, Bajaj Auto’s share surged a meagre 0.57% and within the range, it has been trading at over the past few sessions.
However, there are advantages and disadvantages to participating in the buyback. Here’s what you need to know about the pros and cons of participating in the Bajaj Auto share buyback scheme:
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If you are a small shareholder who is looking to exit at a price higher than the current market price, then you could consider selling your shares through this buyback scheme.
However, if you are a long-term investor or believe the stock holds potential in the future, this share buyback from Bajaj Auto may not be your calling. In that case, you may want to give it a pass.
Note that, over the past 5 years, the stock has given a return of 39.08% CAGR and shows the potential of outperforming its peers. The company is the largest two-wheeler manufacturer in the country and has the highest dividend yield, ROE, and ROA among its peers. Analysts, as per media reports, too remain bullish on the stock.
The Bajaj Auto share buyback scheme may be a good opportunity for investors to exit at a higher price only if you were looking to sell the stock.
But keep in mind that there is an upper cap to the buyback price. And that the stock may have better prospects ahead. Alternatively, the stock may not see enough demand to push it to the Rs 4,600 per share threshold.
That said, each investor might face distinct advantages and disadvantages of the buyback.
Before deciding whether or not to sell your Bajaj Auto shares in the buyback scheme, you should consider your investment objectives and time horizon.