Bajaj Auto's Shares Decline right after the Buyback

Just after a day of the two-wheeler major announcing the stock exchanges, Bajaj Auto slipped nearly 2% to a low of Rs 3,787, this Tuesday. 

The company had approved a buyback of shares, which disappointed the street both in its size and its approach. 

While the street was anticipating a higher amount given that the Auto Major has over Rs 19,000 crore of cash in its books, the board approved the buyback of only up to Rs 2500 crore. 

The company aims to buy back 54.35 lakh shares or 1.88 percent of the paid-up share capital via the open market at Rs 4,600 per share.

“We wish to inform you that a meeting of the Board of Directors of the Company is scheduled to be held on Monday, 27 June 2022, inter-alia to further deliberate on the proposal for buyback of fully paid-up equity shares of the Company in accordance with the Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018," Bajaj Auto informed in an exchange filing last week.

Baja Auto has been an exceptional performer so far this year. However, the investors are disappointed as the share buyback is through an open market route and not a tender offer. In an open market buyback, the company purchases shares directly from the market at the then prevailing price. Whereas, in the case of the tender offer, the shareholders get an opportunity to tender their shares at a specified price within the time frame.

In general, share purchases by companies and promoters are seen as a positive signal about the confidence of the management in the fundamentals of a business. 

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