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Bajaj Auto Buyback record date is 29-Feb-2024: should you buy the stock?

Posted on 16 Feb 2024
Author: Sayan Sircar

Tags: News ; Calculator

6 mins read
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With only a few days to go, is it possible to make money by buying the Bajaj Auto stock before the record date?

Bajaj Auto Buyback record date is 29-Feb-2024: should you buy the stock?

Disclaimer: Please do not trade in a share by reading an article like this. There are risks that require thorough analysis. It is not possible to get rich quickly by participating in share buybacks.

📚 Topics covered:

What does the record date mean?
Risks of buying into the stock today
- Risk 1: Low acceptance ratio
- Risk 2: Stock price fall
Does it mean that you cannot make money at all?

What does the record date mean?

The company will allow only those people who own shares of Bajaj Auto on the record date, i.e. 29-Feb-2024, to participate in the buyback.

Here is a recap of the terms of the buyback:

Metric	Value
Announcement Date	02-Jan-2024
Buyback size	₹ 4,000 crores
Buyback shares	4 lakh shares
Buyback price	₹ 10,000 per share
Announcement price	₹ 6,985 per share
Announcement Premium	43%
Record date	29-Feb-2024
Record date announced on	16-Feb-2024
Closing price on 16-Feb-2024	₹ 8,344 per share
Premium on 16-Feb-2024	20%

The incentive for retail investors, i.e. those who hold shares worth ₹2 lakhs or less as on 29-Feb-2024, is to tender a part of their holdings at ₹ 10,000 per share.

Risks of buying into the stock today

The plan of making a quick buck does not work when:

the company chooses a very low acceptance ratio. If you have 24 shares, which is the number of shares that tips you over ₹2 lakhs
the stock price falls after the record date while the buyback is going on

We will now discuss these risks one by one:

Risk 1: Low acceptance ratio

The word on the street, via news articles, is that the acceptance ratio will be in the low single digits. At the current price of ₹ 8,344 per share, holding just 24 shares will tip you past the retail category. To get even 1 share accepted at ₹ 10,000 per share, the acceptance ratio will have to be 5%. The remaining 23 shares will have to be sold if the investor has entered only to make money via buy-back.

Profit = Shares accepted * 10000 + Rest shares sold * Sale price - 24 * Buy Price

So the profit depends completely on the selling price for the shares not accepted in the buyback.

Risk 2: Stock price fall

The next wrinkle in the plan is what happens to the number of shares not accepted for buyback. They will be impacted by the stock moving both up or down as per the scenarios shown above.

To understand if you should at all participate in a share buyback:

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Also read
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Does it mean that you cannot make money at all?

Prediction is very difficult, especially if it’s about the future. - Niels Bohr (apparently)

The stock price of Bajaj Auto has moved up quite a bit post the buyback announcement due to the aggressive stance of the management in putting a buyback premium of 43% at the time of announcement:

Stock price movement of Bajaj Auto until 16-Feb-2024

However, to understand if the stock price will continue to move up requires complete understanding of the company’s potential for at least the next few months.

Profit and loss scenarios of Bajaj Auto buyback

We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

We have taken the case of an investor who has purchased shares so that the total position is below the ₹2 lakh limit for retail. The investor will sell the shares not accepted for buyback at the current market price.

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