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Tuesday, 5 October 2010

Bajaj Holdings-TREASURE TROVE

While the stock markets are soaring and the investors are wondering at the pricey valuations of leading companies, one will be surprised to know that there is a treasure trove in the backyard and fortunately the same is trading substantially below its fair value. Here, an ‘argumentative Indian’ may intervene saying “but valuation of a company is so subjective…” Well, not in case of the Company in point , I would say. And you don’t even need to indulge into deep valuation models, profitability analysis or scenario building for finding its real worth. The investment made by the company being covered here in the shares of listed companies alone is many times more valuable than its current market capitalization.

Companies could be purely holding companies, purely investment companies or combination of both. Bajaj Holdings and Investment (BHIL) is a case in point. This is what the company says about itself: "The Company is essentially a holding and investment company focusing on earning income through dividend, interest and gain on investments held." Bajaj Holdings and Investment acts as a holding company for Bajaj Auto and Bajaj Finserv.

In fact, Bajaj Holdings and Investment is known for its mouth-watering treasure of equity shares. BHIL holds shares in the below companies:
Maharashtra Scooters, Bajaj Auto, Bajaj Finserv, Allahabad Bank, Associated Cement Company, Bajaj Electricals, Bajaj Hindustan, Bharat Heavy Electricals, Bharti Airtel, Bharat Forge, Bongaingaon Refinery & Petrochem, Chennai Petroleum Corporation, Crompton Greaves, Electrosteel Castings, Force Motors, Grasim Industries, Gujarat Alkalies, Gujarat Heavy Chemicals, Hindalco Industries, Hindustan Zinc, ICICI Bank, Industrial Finance Corporation of India, Larsen & Toubro, Mahindra & Mahindra, Maruti Suzuki India, Mukand, Mysore Cements, Neyveli Lignite, Patni Computers, Raymond, Reliance Communication, Reliance Industries, Reliance Infrastructure, Shree Cements, Siemens, State Bank of India, Sail, Suzlon Energy, Tata Motors, Tata Steel

In 2007-08, Bajaj Holdings & Investment Limited [(BHIL)] –erstwhile Bajaj Auto Limited [(BAL)] was demerged, whereby its manufacturing undertaking had been transferred to the new Bajaj Auto Limited and its strategic business undertaking consisting of wind farm and financial services business had been vested with Bajaj Finserv Limited.Bajaj Holdings & Investment Limited (‘BHIL’ or ‘the company’)is now essentially an investment company. The company holds 31.49% in Bajaj Auto Limited & 35.64% in Bajaj Finserv Limited, the results of which are consolidated with BHIL.

BHIL is the cream company of the group and is cash rich like Tata Sons or Pilani Investments or the Birla Group having huge investments in its group companies at par values, which have now multiplied several folds by way of rights and bonus issues or convertible debentures, etc. This is quite evident with the number of shares it holds in BAL, Maharashtra Scooters, Bajaj Electricals, Bajaj Hindustan bought at nominal values.

Strong Management: The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two‐wheelers and three‐wheelers),home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company,Bajaj Auto, is ranked as the world's fourth largest two‐ and three‐ wheeler manufacturer and the Bajaj brand is well‐known across several countries in Latin America, Africa, Middle East, South and South East Asia.

1. 9.11 cr bajaj auto shares= 14500 cr
2. 5.22 cr bajaj fins shares= 2800 cr
3. 2 cr icici = 2400 cr
4. 1.65 cr bajaj electric = 500 cr
5. 20% force motors = 300 cr
6. BSE ST EXCHANGE SHARES = 220 cr
7. ICRA = 80 CR
8. FIXED ASSET SEC = 2200 CR
9. OTHER EQ SHARES = 2500 CR
10. MISC LIKE BAJAJ HIND, MAH SCOOTERS, INT, DIV ETC = 1000 CR

Market price 05 October 2010 Rs 852
Market Capitalization Rs 9000 crores
Market value of Assets per share Rs.2650/-
EPS (2009- 10) Rs 76
Dividend per share-2010 Rs 30
Discount of Price to Market value of Investments 60%

Ownership
Category %
Promoter 34.55
FII 9.74
DII 16.77
Others 38.94
Total 100.00
Total Shares (Lakh) 1,060.43

Public" and holding more than 1%

Shareholder No. of Shares Shares as % of
1 LIC 7,560,851 -- 7.13
2 Jaya Hind Investments 5,805,256 -- 5.47
3 ICICI Prudential 5,176,241 -- 4.88
4 Maharashtra Scooters 3,387,036 -- 3.19
5 Sikkim Jansewa 1,829,958 -- 1.73
6 ACACIA Partners 1,403,998 -- 1.32
7 Reliance Capital 1,173,599 -- 1.11

Total- 26,336,939 -- 24.84



A handful of holding and investment companies own blue-chip stocks in bulk. The schedules on investments of Bajaj Holdings and Investment provide details of equity holdings published in the annual report and runs into many pages.

The performance of the company is directly related to the performance of its investments. During the year, income from investments earned by the company was Rs. 8,135 million as against Rs. 2,364 million during the previous year. The equity markets rose during the year under review. Riding upon the opportunities available, the company booked profits on some of its investments.

The profit on sale of investments increased from Rs. 104 million in previous year to Rs. 5,901 million for current year. Standalone results of Profit after tax 7,713 1,960

The company’s assets broadly consist of equity investments, including strategic equity investments and investments in liquid and secured instruments.

With each of the underlying group companies delivering very good results, the consolidated results of Bajaj Holdings &Investment Limited have also been outstanding.

The year 2009-10 has been an excellent year for the company and its associates.
l Stand alone income - Rs. 8,135 million v/s Rs. 2,364 million
2 Stand alone Profit After tax - Rs. 7,713 million v/s Rs. 1,960 million
3 Consolidated Profit After tax - Rs. 13,626 million v/s Rs. 3,030 million

The market value of all the securities it holds works out to approx Rs.27,000 cr. Thus there is hidden wealth way over its equity capital of Rs.101 cr., which is not reflected in the balance sheet. Investors are not aware of the huge wealth locked in this investment company because of which its share price is quoted at a fraction of its intrinsic value.

Against a market price of Rs 852 the market value of investments that this company holds currently works out to approximately Rs 2700 per share This means that an investor is getting these investments most of them blue chip stocks for 1/3rd cost.

Overview

• Market value of investments of Rs 2700 per share available for Rs 852 per share.
• Totally Debt free company with an attractive dividend yield at 3.56.
• Dividend yield captures the downside risk of the stock Also there is no need
to sell investments to pay off dividend since the dividend that it receives can
be distributed directly to the shareholders.

Concerns: Since the margin of safety is huge 2/3rd of its intrinsic value, there are no immediate concerns as such but being an Investment/holdings company with a significant portion of the investment in group companies the market would not give the stock a higher PE.

The above demonstrates that a lot of value remains locked in BHIL, which is not fully reflected in its share price right now. And, one cannot hope to unlock the entire value in such companies in a short while. A retail investor should, however, keep looking for chronically undervalued firms or arbitrage opportunities that can generate healthy returns in the long run

Recommendation: BHIL is an excellent play for the risk adverse investor who wishes to participate into the equity markets with minimum downside risk and stable dividend flow. At current price the stock can be bought for superlative returns over a long term gains

I expect the stock to outperform in the medium to long term achieving its ultimate target of Rs.1500/- in a 6 to 9 month time frame.

Happy Investing

Prashant

Disclaimer

I am NOT an investing professional, instead I am the mule carrying the salt. I will sometimes jump into something that appears to be good; it may or may not be. Even if it is good for me, it may not be good for you. Anything I write on this site is my opinion and should NOT be relied on or taken as investing advice. Material presented here is for informational purposes only. Before acting on anything you read on this site, you must do your own research and you must come to your own conclusion which you will ultimately be responsible for, including any loss you may incur.

Thank you for reading Eazeetrade. Hopefully, we can all learn something together and become better investors!

7 comments:

  1. Hi Prashant,

    this is a good analysis. i shall study the scrip further and decide.

    can u suggest some scrips within rs 100 range?

    tks

    ReplyDelete
  2. hi prasant .. very good analysis... will trak this stock...

    ReplyDelete
  3. Really Good Analysis.. hats off to u ...
    Will be Waiting for More such Analysis.
    Thanks!!

    ReplyDelete
  4. A brilliant analysis. But are the Bajajs locking up their moneys in safe? The stock does not perform in line with its strength!

    ReplyDelete
  5. discount of 60% for holding companies is not such a 'mouth watering' deal. there have been much more sweeter deals in last 5 years, and the wait frustratingly longer. examples are SRF Polymers, Consolidated Finvest etc etc.

    ReplyDelete
  6. Very good analysis but what's ut assumption for price before AGM?

    ReplyDelete
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