Bajaj Auto defers share buyback proposal; stock dips 7%

Shares of Bajaj Auto declined 7 percent to Rs 3,603.75 on the BSE in Tuesday’s intra-day trade after the board deferred a decision on the share buyback proposal.

The stock of the two-three-wheeler slipped 10 percent from its high of Rs 4,000 touched in the intra-day trade. At 03:08 PM, Bajaj Auto was down 6 percent at Rs 3,654, as compared to a 0.35 percent decline in the S&P BSE Sensex.

“The board of directors of the Company at its meeting held today i.e. 14 June 2022, has decided that further deliberations are required in order to make a decision on the proposal of buyback, and accordingly deferred the matter,” Bajaj Auto said in an exchange filing.

Over the past four days, the stock of Bajaj Auto gained 5.5 percent after the company, on June 9, 2022, said that its board will consider a buyback proposal on June 14, 2022.

The primary objective of a share buyback program is to arrest the fall in the value of a stock by reducing the supply of the stock, which essentially pushes up the share price through a better price to earnings (P/E) multiple.

The reasons for buyback are to improve earnings per share; to improve return on capital, return on net worth and enhance the long-term shareholder value; to provide an additional exit route to shareholders when shares are undervalued or are thinly traded; to enhance consolidation of stake in the company; to prevent unwelcome takeover bids; to return surplus cash to shareholders; to achieve optimum capital structure; to support share price during periods of sluggish market conditions and to service the equity more efficiently.

Earlier, on September 1, 2000, the company had made an offer to buy back about 18 million shares at a price of Rs 400 per share.

In the past year, Bajaj Auto has underperformed the market by falling 12 percent, as compared to a 0.28 percent rise in the S&P BSE Sensex.