Demerger of Bajaj

DEMERGER
“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.

 CONDITION FOR LISTING
(Rule 19 (2) (b) of SCR Rules)
1. 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
Or
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
• Origins
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
brothers
  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
1) 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…..
3) The demerger will enable the investors to
hold separate focused stocks.

4) The demerger will facilitate more transparent

benchmarking of the companies with its
peers in their respective industries.
5) 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 Banker

JM Financial Group
 Risk factors after
Demerger

Internal factors External Factors

Busine Techn Mana legal Gover Volati
Indus SEBI,
ss Plan ology geme proce nmen le
Change change edings try RBI Prices
nt t
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
business
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
BHIL BAL BFL

Authorised capital 15.00 15.00 15.00

(shares in cr)

Issued capital 10.11 14.47 14.47

(shares in cr)

Face value (Rs10) 10.00 10.00 5.00

Amount (Rs crore) 101.18 144.68 72.34

 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
Bajaj Holdings and
Bajaj Auto Ltd Bajaj Finserv Ltd
Investment Ltd
("BAL") ("BFL")
("BHIL")

At Demerger 945 700.20 700

2008 End 391.20 241.60 149.50

2009 End 1761.70 620.05 345.40

Current Price 2121.55 640.60 438.90

 Demerger Analysis
EVA Valuation
  Composite BAJAJ AUTO BAJAJ FIN. SERVICES BHIL

Re 12.67% 13.04% 13.39% 11.71%

Rd(1-t) 5.20% 5.20% 5.20% 5.20%

D/E 0.3 0.84 0.26 0.19

WACC 10.95% 9.46% 11.70% 10.67%

C.E. 7542.32 2921.93 1491.88 3128.51

NOPAT 963.86 751.35 35.15 177.37

EVA 138.17 474.91 -139.4 -156.46

179.05
 In spite of the huge v

Bajaj has a widespread

categ the Indian market,

In
high performance
struggled to make
Bajaj is not a globally
compared to its JV

Bajaj SWOT
Analysis

Davidson will be intr

Indian m arket w
The increase in t
immergi
level motorcycle

compe
There is a growing glo

mate
growing at
The gearless tren
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
 BIBLIOGRAPHY
• http://www.businessworld.in/index.php/Auto
mobiles/Hamara-Bajaj-Hamara-Rahega/Page-
3.html
• http://www.accessmylibrary.com/coms2/sum
mary_0286-7770561_ITM
• http://www.vccircle.com/blog?page=5
• Balance sheets of Bajaj Auto older one, new
Bajaj Auto, Bajaj Finserve, Bajaj Holding &
investment
• http://www.bseindia.com/xml-data/corpfiling/
AttachHis/Bajaj_Holdings_&_Investment_Ltd_
250609.pdf
• http://portfolio.rediff.com/quotes/bajaj%20lif
e%20insurance
• http://en.wikipedia.org/wiki/Bajaj_Auto
• http://www.karvy.com/articles/bajaj.htm
• http://www.mysensex.com/nifty/8762-new-lo
ok-boards-demerged-bajaj-auto.html
• http://tejas-iimb.org/articles/38.php
• http://www.slideshare.net/pkvijay/unlocking-t
he-value-through-corporate-restructuring-gval
ior-seminar-corp-res-190507
• http://finance.yahoo.com/q/b?s=BAJAJAUT.B
O+Financial+Blogs
Lets Go On A Ride