Prabhudas Lilladher: Bajaj Holdings & Investment Steep discount to SOTP value

Bajaj Holdings & Investment: Steep discount to SOTP value
 Primary Investment Company: Bajaj Holdings & Investment (BHIL) was
born out of the demerger of Bajaj Auto as a primary investment company
in FY08.
 BHIL’s stake in group companies: BHIL holds 31.49% stake in Bajaj Auto
whereas it holds 36.23% stake in Bajaj Finserv. In addition it has a 1.69
per cent stake in ICICI Bank and 5.78 per cent stake in Bajaj Finance.
 Financial performance: BHIL standalone profits mainly comprise of
Investment Income whereas the consolidated profit is inclusive of the
share of profits from associates. BHIL reported a consolidated PAT of
Rs13.5bn in FY10 compared to Rs3bn in FY09. As of Q1FY11, the
consolidated PAT stood at Rs3.4bn translating into an EPS of Rs31.2 for
the quarter.
 BHIL trades at a steep 85% discount since past 6-8 quarters: At the
current Market capitalization of Rs92bn, the stock continues to trade at
a significant discount to its investment book at today's market value. We
have analysed data for last 8 quarters and the discount excluding cash is
80-85% to its Sum-of-parts valuation on a consistent basis. If one includes
cash, then the average discount over the past six quarters is ~60%.
 Our view: We believe this steep discount of ~85% is unwarranted in
comparison to an average 30-50% holding company discount for other
listed entities. However, the lower dividend payouts of portfolio
companies could have negative bias on the stock out-performance with
respect to the associate companies. Assuming BHIL stock trades at a 75%
discount to its intrinsic value, the stock's current market price would
offer a potential upside of 18.7%.