Institute of Management Technology, Ghaziabad

Post-Graduate Diploma in Management, 2022-24

Business & Corporate Finance
APO Group-6
Topic: Bajaj Consumer Care Share Buyback
Submitted to Prof. Puja Aggarwal Gulati

Program & Batch PGDM 2022-2024

Section and APO Group A-6
Vedant Sarogi 220103206
Harshit Nag Mula 220103070
Indrakshi Basu 220103077
Siddhant Shukla 220101117
Baibhav Ghosh 220102020
Adhiraj Singh 220103012
 Bajaj Consumer Care Share Buyback
Introduction
Bajaj Consumer Care Ltd is a company that makes hair oils. Some of the notable brands
under which the company sells hair oils include Brahmi Amla, Amla Shikakai, and Jasmine
hair oil. Bajaj Almond Drops is a premium brand that is presently the market leader in the
light hair oil class and is the company's main product. They also make oral care items under
the Bajaj black teeth powder brand. Shishir Bajaj Group of Companies' second largest firm is
Bajaj Consumer Care. Bajaj Consumer Care has a long history dating back to 1930. In 1953,
Kamalnayan Bajaj founded Bajaj Sevashram to promote and sell hair oils and other beauty
goods. Bajaj Consumer Care Ltd. ranks second in the entire hair oils market. Bajaj Almond
Hair Oil, its flagship brand, maintains a 52% market share in the light hair oil category.

SWOT Analysis

Company with no debt Degrowth in revenue and profit

Company with no promoter pledge Declining QoQ net profits
Increasing Bookvalue per share for last 2 years Major fall in TTM net profit
Declining net profit and operating
profits,YoY in the recent past.

Strengths Weakness

Opportunitues Threats
Poistive First Breakout Resistance Commodity price risks
Intense competition
Counterfeit goods market

Buyback of shares
A share repurchase, often known as a buyback, occurs when a corporation purchases its
existing shares to reduce the number of shares accessible on the open market. Companies
buy back shares for a variety of purposes, including increasing the value of remaining
accessible shares by lowering supply or preventing other shareholders from acquiring a
controlling interest.
A stock buyback allows businesses to reinvest in themselves. The fraction of shares owned
by investors grows when the number of shares outstanding on the market is reduced. A
corporation may believe its shares are undervalued and conduct a repurchase to offer a
return to investors. Because the corporation is confident in its existing operations, a
repurchase increases the proportion of earnings allotted to each share. The stock price will
rise if the same price-to-earnings (P/E) ratio is maintained.
Another rationale for repurchasing is to provide compensation. Companies frequently give
stock awards and stock options to their employees and management. Companies purchase
back shares and distribute them to employees and management to offer rewards and
options. This prevents current stockholders from being diluted.

Buyback Process
A stock buyback can generally be accomplished by open market operations, a set price
tender offer, a Dutch auction tender offer, or direct discussion with shareholders.
Open market stock buyback: A corporation buys back its own stock from the market. The
transactions are carried out through the company's brokers. Because a significant number of
shares must be purchased, share buybacks often take a lengthy time. At the same time,
unlike other techniques, open market stock buybacks place no legal responsibilities on a
corporation to execute the buyback program.
Fixed price tender offer: A corporation makes a tender offer to its shareholders to purchase
back their shares at a set price and date. The tender offer price usually nearly includes a
premium above the prevailing share price. The shareholders who want to sell their equities
then submit the number of shares they want to sell to the corporation.
Dutch auction tender offer: In a Dutch auction, a firm makes a tender offer to its
shareholders to buy back shares at a range of possible values, with the minimum price set
above the current market price. The shareholders then submit bids by declaring the number
of shares they want to sell and the minimum price they are ready to pay. To finish the
buyback program, a corporation evaluates the bids received from shareholders and
calculates the appropriate price within a previously set price range.
Direct negotiation: A corporation contacts one or more significant shareholders directly and
offers to purchase back the company's shares from them. In this case, the share purchase
price includes a premium.

Bajaj Consumer Care Buyback Details

+
Bajaj Consumer Care has announced an open market repurchase for Rs 80.89 crore at a
price of Rs 240 per share. The buyback decision took place during a meeting of the
company's board of directors in Mumbai.
According to the company's regulatory filing, the maximum number of equity shares
proposed to be purchased under the buyback at the maximum buyback size and maximum
buyback price would be 33,70,416 equity shares (representing approximately 2.28%, which
is less than 25% of the total number of equity shares in the company's paid-up equity capital
as of March 31, 2022).
Bajaj Consumer has declared that it will repurchase at least 16,85,208 shares or 50% of the
entire allowed buyback amount(Rs 40.44 crore). The most recent standalone and
consolidated financial statements suggest that the buyback offer size accounts for about
9.66% and 10% of the company’s fully paid-up equity capital and reserves.

Plausible Buyback Reasons

 Zero Debt
(In Rs Cr) Mar- Mar- Mar- Mar- Mar-
22 21 20 19 18
Long Term 0 0 0 0 0
Borrowing
s
Short Term 0 5 20 25 13.49
Borrowing
s

If we analyze the company's balance sheet, we see that Bajaj Consumer hasn't been
taking any debt financing over the years. This means the company has no reason to
pay off any debt with its existing cash reserves and can use it to buy back its shares.

 Lower Share Price

Company Name Price
Bajaj Consumer 166.7
HUL 2,561.05
Dabur India 561.45
Godrej Consumer 874.05
Marico 509.85

Analyzing the main competitors of Bajaj Consumer, we can see that the share price
of the firm is way below the share prices of rival companies. In such a situation, the
firm could buy back some of its existing shares to reduce the number of outstanding
shares, thereby boosting the earnings per share (EPS). If the firm’s EPS increases and
the price-to-earnings ratio remains the same across the sector, then the firm can
relatively value its shares at a higher price, signaling that the company’s shares are
 undervalued. This increases the equity value in the long run and makes the firm look
financially attractive to investors.

Financial Impact
Particulars Before After
Buyback Buyback
Equity Capital (Rs Cr) 822.66 741.77
No. of Shares 14.75 14.41
Outstanding (Cr)
EPS 11.83 12.11
P/E 14.09 14.09
Market Price (Rs) 166.70 170.63
DPS 8 8
Dividend Yield 4.8% 4.7%
Market Capitalization (in 24.54 24.58
billion INR)

The table above illustrates the impact of the buyback on the firm and the stock market. We
have assumed that the firm will be repurchasing the maximum number of the shares under
the buyback scheme, i.e. for a total number of 3,370,416 shares at a price of Rs 240 for a
total equity of Rs 80.89 crore.
The impact on each of the above-mentioned particulars has been discussed below:
 Equity Capital
The firm currently has an equity capital of Rs 822.66 crores. The proposed buyback will be
for a total equity of Rs 80.89 crore. Thus after the buyback is complete, the total value of the
equity drops to Rs (822.66-80.89) crores or Rs 741.77 crores. This loss in equity is
permanent.
 No of Shares Outstanding
The firm has a total share capital of Rs 14.75 crore, and the face value of each share is Re 1.
This gives us the total number of outstanding shares to be 14.75 crores. After the buyback is
complete, the total number of shares drops down to (14.75-0.34) crores or 14.41 crores.
 Earnings per share (EPS)
The current earnings per share of the firm are Rs 11.83; since the firm's total number of
outstanding shares decreases, the EPS will, in turn, increase. To find out the value of EPS
after the buyback, we multiply the current EPS value with the inverse of the ratio of the
total number of shares post-buyback to the number of shares before. Thus the value of EPS
becomes Rs 11.83*(14.75/14.41) or Rs 12.11.
 Price to Earnings (P/E)
The current market price of the firm's shares is Rs 166.70, and the current EPS is Rs 11.83.
The P/E ratio, which basically is the ratio of the market price of the share and the EPS,
comes out to be 14.09. We have assumed that after the buyback, the P/E ratio will remain
unaffected.

 Market Price
At present, the market price of the share is Rs 166.70; going forward, with the assumption
that the P/E ratio remains unaffected after the buyback, we multiply the P/E ratio by the EPS
value after the buyback. This value comes out to be Rs 170.63, signifying the increased share
price after the repurchasing of shares.
 Dividends
The dividend per share currently is Rs 8/share which remains the same after the buyback. As
the market price of the shares increases to Rs 170.63, the dividend yield, i.e. the ratio of
dividend per share(DPS) to the market price of the share, drops from 4.8% to 4.7%.
 Market Capitalization
For a total number of outstanding shares of 14.75 crores and a market price of Rs 166.70,
the current market capitalization for Bajaj Consumer stands at Rs 24.54 billion. After the
buyback is complete, the share price rises to Rs 170.63, and the number of shares drops to
14.41 crores, thereby giving a total market capitalization of Rs 24.58 billion.

Beta for Bajaj Consumer Care stocks

The beta (β) of a stock is the measure of the systematic risk associated with the stock,i.e.
the part of the total risk which cannot be eliminated via diversification and depends on the
performance of the market and economy as a whole.
The stock's beta is calculated as the division of covariance of the stock's returns and the
market returns by the variance of the market returns over a given period.

Below is the formula to calculate the beta of a stock.

Covariance ( Rm , Rs)
β=
Variance( Rm)

Here,

 Rs refers to the returns of the stock

 Rm refers to the market returns or any underlying benchmark used for comparison
 Covariance (Rs, Rm) refers to the covariance of the stock and market
 Variance (Rm) refers to the variance of the market

Types of Betas (β):

 0<β <1
 The value of beta less than one implies that the stock is theoretically less volatile
than the market and including this stock in our portfolio will make it less risky than
without the stock. Utility stocks often have low betas as they move slower than
market averages.

 β=1

The value of beta is equal to one, which implies that the stock and the market are
strongly correlated and have the same level of volatility.

 β >1

A value of beta greater than one implies that the stock is theoretically more volatile
than the market and including such stock in our portfolio will increase the risk.
Technology stocks and small-cap stocks usually have higher betas than the market
benchmark.

For the calculation of the stock beta, we have taken the data for the adjusted daily closing
prices of the stock for the last five years from March 1, 2015, to February 28, 2020. For the
calculation of the market returns, we have chosen the S&P BSE 500 as the appropriate
market and the corresponding daily market indices.

The calculation of the stock beta has been attached in the given excel file.

The beta of the stock comes out to be 0.52, i.e., the stock of the company is less volatile
than the market. Including this stock in an investor's portfolio will make it less risky as
compared to the same portfolio without the stock.

CAPM

The Capital Asset Pricing Model or CAPM demonstrates the link between a security's
projected return and risk. It demonstrates that the expected return on a particular security
is equal to the risk-free return plus a risk premium depending on the asset's beta. The CAPM
principle is illustrated below.

CAPM is calculated according to the following formula:

Ra = Rrf + β×(Rm-Rrf)
Ra = Expected return on a security

Rrf = Risk-free rate

β = beta of the security

Rm = Expected return of the market

For Bajaj Consumer Care, we have already evaluated the value of beta to be 0.52, the
average daily return from the market is 0.023%, and the corresponding yearly returns come
out to be 8%.

The risk-free rate in India is between 5.45% and 7.45% as of October 2022. We have taken
the average value of the risk-free rate as 6.48%.

Plugging in all the values, we get the value of the expected returns for the stock as 7.66%,
implying if an investor were to buy shares of Bajaj Consumer Care, he would be expecting a
return of 7.66%.

References:

1. BSE (formerly Bombay Stock Exchange) | Live Stock Market updates for S&P BSE
SENSEX, Stock Price, Company News & Results (bseindia.com)
2. Business News LIVE Today: Latest Business News, Share Market News, Economy &
Finance News | Moneycontrol
3. Bajaj Consumer Care Buyback Buyback Detail (chittorgarh.com)
4. Home | Bajaj Consumer Care Ltd | India’s leading FMCG Brand
5. Corporate Finance Institute | FMVA® | CBCA™ | CMSA® | BIDA™
6. https://www.investopedia.com