Bajaj Auto to split into two separate companies

Bajaj Auto chairman Rahul Bajaj on Wednesday said they are planning to split the company — India’s second largest two-wheeler make...

Bajaj Auto chairman Rahul Bajaj on Wednesday said they are planning to split the company — India’s second largest two-wheeler maker — into two separate companies. ‘‘The plan is to create a separate investment company by taking out about Rs 1,000 crore from the cost surplus of Rs 3,000 crore of Bajaj Auto,’’ he said.

‘‘We are planning to do it to improve the P/E (price-earning) ratio of Bajaj Auto by creating a separate company for treasury operations. While Bajaj Auto will remain the manufacturing company, the new investment company will be the holding company,’’ he said on the sidelines of an industry conference in New Delhi.

The road ahead

• The plan is to create a separate investment company by taking out about Rs 1,000 crore from the cost surplus of Rs 3,000 crore of Bajaj Auto

Story continues below this ad

• Plans to do it to improve the price-earning ratio of the company by creating a separate company for treasury operations.

• Post-demerger, the shareholding pattern of both the companies will remain the same.

He, however, said the plan is yet to be taken up by the board of Bajaj Auto. Post-demerger, the shareholding pattern of both the companies will remain the same. The Bajaj family members now have about 51 per cent shareholding in Bajaj Auto. He declined to give any time-frame for the split saying ‘‘it might take four months to two years’’.

Bajaj said the plan is subject to conformity with the corporate governance regulations and relatively high stamp duty in the state of Maharashtra. The value of the new company would be anywhere between Rs 700 crore to Rs 1,500 crore, Bajaj said in reply to a query.

Story continues below this ad

He said financial institutions (FIs) and shareholders were asking the company to return the amount from surplus funds either in the form of higher dividend payout or through any other mode. ‘‘They were saying that this has affected the PE ratio of the company which in turn had reduced the Bajaj Auto’s share price in stock exchanges,’’ the chairman said. The market price and PE ratio of the two companies’ shares will increase subsequent to the formation of the new company.

Recently, the Bajaj family members finalised a plan which will see Rahul Bajaj’s younger brother Shishir Bajaj selling his 5 per cent stake to other family members. Shishir is expected to get about Rs 400 crore from selling his shares. Shishir is currently looking after Bajaj Hindustan and Bajaj Sugar. Bajaj Auto’s shares closed 0.67 per cent down at Rs 728.65 on Wednesday as compared to Rs 733.60 recorded on Tuesday in a bearish stock market.

The company is under severe pressure to perform with its motorcycle sales posting a modest two per cent growth in sales during August at 98,175 units as against 96,317 units in the same month last year.