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Demerger of bajaj

Demerger of bajaj



Analysis of Demerger of Bajaj group

Analysis of Demerger of Bajaj group



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  • Rs 4,269.8 crore in April – March 2007 as against Rs 2,715.6 crore in FY06. We on the conservative basis have assumed 35% and 20% growth in non-single premium and 20% and 15% for single premium for FY08 and FY09 respectively.

Demerger of bajaj Demerger of bajaj Presentation Transcript

  • Demerger of Bajaj
    “Division of a Company with two or more identifiable business units into two or more separate companies ”
    Partnering a deal with Kawasaki for instance to gain access to the distribution network that it enjoys in the Asean region and partnering with Taiwanese companies to gain access to the Chinese markets
    SECTION – 2(19AA) of Income Tax Act, 1961.
    (Rule 19 (2) (b) of SCR Rules)
    At least 10 per cent of securities issued by a company was offered to the public through advertisement & following conditions were fulfilled:
    (a) minimum 20 lakh securities was offered to the public;
    (b) the size of the offer to the public ≤ Rs. 100 crores ; and
    (c) the issue was made only through book building with allocation of 60 % of the issue size to QIBs
    2. It shall offer at least 25 % of each class to the public through Advertisement & Shares applied in pursuance of such offer were allotted
  • Bajaj Auto Ltd
    Company History
    Bajaj Auto Limited is India's largest manufacturer of scooters and motorcycles
    The Bajaj Group was formed in the first days of India's independence from Britain
    Its founder
    Jamnalal Bajaj
    Type Public
    Founded 1945
    Headquarters Pune, Maharashtra, India
    Key people Rahul Bajaj (Chairman), Rajiv Bajaj (Managing Director), Sanjeev Bajaj
  • Aftermath of the unseemly
    fight between the Ambani
      Bajaj senior perhaps feels it’s wiser to let sons Rajiv and Sanjiv have their own little empires to run
    Rajeev’s Love for Sanjeev has
    motorcycles been more of
    & technology & has a number’s
    worked hard to build man, will
    the business. Inherit finance
  • Why Demerger
    They can focus & strengthen on these core businesses and competencies.(Unlocking value)
    • a) The auto company would focus
    on auto business (market share in
    the motorcycle segment increased
    from 22.9% in 2001-02 to 33.5% in
    2006-07, at that time they recently
    started operations in Indonesia. Exports were about 20%)
    • b) The wind power and financial services company will focus on wind-energy generation, insurance, consumer finance and new initiatives in financial services space (has set up a total of 138 windmills, Bajaj Allianz Life Insurance & General Insurance ranked second in among private insurers in India)
  • Continue…
    • c) The primary investment company will focus on new business opportunities. (Bajaj Auto Finance with plans to become a full-fledged consumer finance company offering a complete range of finance products)
    2) The two new companies will be able to tap (on an arm’s length basis) into the cash pool of the investment company to support future growth initiatives, if required.
  • Continue…..
    The demerger will enable the investors to hold separate focused stocks.
    The demerger will facilitate more transparent benchmarking of the companies with its peers in their respective industries.
    The restructuring will create 3 separate entities
  • Unlisted Reason
    It will also allow the Bajaj family to increase their stake in the holding company cheaply. Since the Bajaj family and its friends hold about 47 per cent in the current Bajaj Auto, if they increase their stake to 5o % or more.
    They have increased to 50 %
    (http://www.youtube.com/watch?v=d8Zp9yNQN dE)
  • Investment BankerJM Financial Group
  • Structure prior to demerger
  • Post demerger structure Spun Off
  • Bajaj Auto Ltd
    • The Board of Directors of Bajaj Auto Ltd agreed to a demerger on 17th May 2007.
    • Demerger effective date, viz. 20 February 2008.
    • For every share held in Bajaj Auto Limited.
    would continue to hold one share of BHIL (formerly BAL) of the face value of Rs.10/- each fully paid up,
    has been allotted one share of the new BAL of face value of Rs.10/- each fully paid up and
    has been allotted one share of BFS of face value of Rs.5/- each fully paid up.
  • The demerger was done in two stages
    Stage I: The auto business will be transferred to Bajaj Holding and Investment Ltd
    (BHIL), plus Rs 1,500 crore in cash and cash equivalents
    a) Other financial, insurance and wind power business will be transferred to
    “Bajaj Finserv Ltd” (BFL) plus Rs 800 crore in cash and cash equivalents
    b) Existing Bajaj Auto to shall own 4.35 crore shares of Rs 10 each i.e. Rs 43.5
    crore in BHIL and 4.35 crore shares of Rs 5 each i.e Rs 21.8 crore
    • Stage II:
    a) BHIL would be renamed as new “Bajaj Auto” (BAL) to reflect the nature of
    b) The old BAL would be renamed as “Bajaj Holding & Investment Ltd”(BHIL) and would be investment company
  • Share swap ratio
    • Each shareholder of existing Bajaj Auto shall receive
    • 1 share of Rs 10 of BHIL – holding company for investments
    • 1 share of Rs 10 of new BAL
    • 1 share of Rs 5 of BFL
  • Share capital structure of new entities
  • Day 1
     Bajaj Auto Ltd: Bajaj Auto, Bajaj Finserv and Bajaj Holdings & Investments on day 1 of relisting recorded a market cap of Rs 22,239 crore as against Rs 21,042 crore on March 13, 2008 which was the last day before the demerger, an increase of around 5.6 per cent.
  • Different Share Prices
  • Demerger Analysis EVA Valuation
  • Inferences from Bajaj Demerger Study
    • The Auto division unlocked value for shareholders (its EVA more than that of composite business)
    • BFL and BHIL showed negative EVA, clearly indicating that capital was not properly used by them
    • It highlights that demergers can unlock significant shareholder value. The markets also reacted positively, with both scrips appreciating when the news of the demerger broke out On the day it was announced.
  • Results & Findings
    Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share went up to 6.98% in 2007-08 form 5.66% in 2006-07.
    It has increased to 10.2% in 2008-09 then it reduced to 7.7% in 2009-10.
    Rank 1st in Number of policies sold in the private sector.
  • Results & Findings
    Net profit for the quarter ended March 2010 rose by 67.26% to Rs 251.90 million.
    • Capacity has been increased to 1 lakh units p.a. to 2.75 lakhs per month and will be increased to 3 lakhs per month.
    • 32% of the market share is under Bajaj Auto
    • Partnering with Kawasaki for gain in the Asean region and partnering with Taiwanese companies to gain access to the Chinese markets
    Balance sheets of Bajaj Auto older one, new Bajaj Auto, Bajaj Finserve, Bajaj Holding & investment
  • http://portfolio.rediff.com/quotes/bajaj%20life%20insurance
  • Lets Go On A Ride