Investment Focus - Bajaj Holdings and Investment: Buy ::Business Line

Bajaj Holdings takes 3% in MCX

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Rahul Bajaj-promoted Bajaj Holdings and Investment Ltd has picked a 3.06 per cent stake in the listing-bound Multi Commodity Exchange (MCX). In a notice to investors, MCX indicated Bajaj purchased 1.56 million MCX shares from Passport Capital LLC. The deal would lead to a change in the list of top 10 shareholders in the prospectus, the company added. Passport Capital, which operates as a hedge fund, was the fourth largest shareholder in the company with 2.5 million shares or 4.9 per cent stake as on February 10, when the company filed a draft red herring prospectus. After this deal, Bajaj Holdings will take a joint ninth slot in the top shareholders list, holding an identical number of shares as Nabard. Passport Capital, with less than one million shares, will drop out of that list. According to sources, transfer agreement between Passport and Bajaj Holdings was struck at Rs 800 per share, a fews days before the MCX offering opened for subscription. The source added the Forward Markets Commission (FMC) is set to clear the share transfer. Passport Capital had acquired these MCX shares in two tranches in the past, at Rs 860 and Rs 1,155 per share. Thereafter, MCX had issued bonus shares in the ratio of 1:4 to shareholders. After adjusting for the bonus issue, the cost of each share acquisition for Passport comes to Rs 900 plus, said sources. HT Media, another shareholder with 0.2 per cent stake, also exited the company in the run up to the IPO, according to the above notice. MCX shareholders have raised Rs 663 crore in an offer for sale, pricing each share at Rs 1,032. The issue is getting listed in early March. In June 2011, Passport had sold 1.6 per cent stake for Rs 62 crore in Financial Technologies (India) Ltd, one of the promoters of MCX. Passport had been cutting its stake in MCX since 2009, when it held 10 per cent in the company. Passport Capital had started building up stakes in Financial Technologies during January 2007, when its share was trading at around Rs 1,700. The hedge fund continued to build up stake in the firm as its stock price reached over Rs 3,000 per share and was trading between Rs 2,400 and Rs 2,700 during late 2007, thus, increasing its stake to 4.23 per cent by March 2008. The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10 per cent in March 2009. San Francisco-based Passport Capital LLC, founded by John H Burbank III in 2000, manages approximately $4.7 billion in assets. It has invested in other Indian companies like VA Tech Wabag and Koutons Retail. Other shareholders of MCX include Euronext, Merrill Lynch, IFCI, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, among others. --

QUERY CORNER - Bajaj Holdings, Archies, Sonata , Dhoot Industrial, NHPC, Karuturi , JSW Energy, Sundaram Brake :: Business Line

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I bought Sundaram Brake Linings at Rs 255 and Bajaj Holdings at Rs 820. Can I average them now? Let me know the medium- and long-term view on these stocks. Can I ever exit these stocks with profit?

Vedavyas L. Pai

Sundaram Brake Linings (Rs 169.5): Sundaram Brake Linings is one of the stocks that has not given up too much ground in 2011. It spent the whole of last year vacillating between Rs 140 and Rs 200.

The zone between Rs 140 and Rs 170 is quite significant from a long-term perspective. As long as the stock trades above this range, there remains the chance of move higher to Rs 200, Rs 230 or Rs 285 in the months ahead.

You can consider averaging at current level with stop at Rs 130. That said, it will be best to divest your holding on a decline below Rs 125, since next target is Rs 88.

Long-term trend will turn positive only once the stock moves above Rs 280. Else the stock can remain shackled within Rs 100-300 range. Long-term target on a break-out are Rs 340 and Rs 395.

Investment focus - Bajaj Holdings and Investments: Buy :: Business Line

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Investors looking for defensive bets in a volatile market such as the current one can consider the stock of Bajaj Holdings and Investments (Bajaj Holdings).

The discount between the net asset value of its investment book and current price of the stock has widened to record levels, which while protecting the downside offers scope for decent returns.

Bajaj Holdings holds equity stakes in Bajaj Auto (31.5 per cent), Bajaj Finserv (38.7 per cent) and other Bajaj group companies such as Maharashtra Scooters, Bajaj Electricals and Bajaj Hindustan. Apart from these investments, Bajaj Holdings has exposure to companies such as ICICI Bank, Force Motors and has smaller sums invested in large-cap stocks.

At the current price of Rs 739, the stock trades at a 66 per cent discount to its estimated net asset value at today's prices. Even after accounting for a holding company discount of 30 per cent, the stock is undervalued. The stock has a dividend yield of 4.7 per cent.

The steep discount does not appear justified as the prospects of underlying stocks are bright too. This means there is a possibility of catch-up by Bajaj Holding stock after a lag. The investment book is dominated by Bajaj Auto which accounts for close to two-thirds of the net asset value. This is followed by Bajaj Finserv which, apart from being a holding company of Bajaj Finance, is also into insurance (life and general) and plans to enter distribution business.

Bajaj Holdings actively churns its non-group investments. Last fiscal, it pared its holdings in banking and finance while investing in large-cap stocks such as Reliance Industries, Coal India, BHEL and L&T. The company which saw decent profits from sale of investments managed to invest most of these proceeds, thereby having low cash holdings.

Subdued markets would mean lower earning from sale of investments for some time. Yet, it may maintain its dividend per share as it managed to vary the payout to maintain steady flow of dividend.

For the half year ended September 2011, the net profit of Bajaj Holdings fell by 33 per cent. Despite its dividend income almost doubling, the company realised only Rs 36 crore of profit on sale of investment as against Rs 462 crore a year ago. As equity markets revive profits may flow in from sale of investments as well. Interest income grew by 25 per cent year-on-year for the half year ended September 2011.

Bajaj Holdings : ‘Diwali Special’ Idea: Edelweiss

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Bajaj Holdings & Investments Ltd (BAJHOL) ‘Diwali Special’ Idea



• Bajaj Holdings & Investments Ltd (BAJHOL) a primary investment holding company was demerged
from Bajaj Auto Ltd (BAJAUT) in 2008. All the businesses and all properties, assets, investments and
liabilities of Bajaj Auto & Bajaj Finserve (BAJFIN), other than the manufacturing undertaking and the
strategic business undertaking, now remain with BAJHOL. Post‐demerger, BAJHOL holds more than
30% shares each in Bajaj Auto and Bajaj Finserve.

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%.

Business Line on Bajaj Holdings and Investment: Buy

Fresh investments with a long-term perspective can be considered in the stock of Bajaj Holdings and Investments.

The stock continues to trade at a significant discount to its investment book at today's market value. It holds stock in the Bajaj Group companies and a chunk of the ICICI Bank stock.

The stock appears a value buy in an expensive market, as at the current price of Rs 849.5 the stock is trading at a 53 per cent discount to the June 30 net asset value.

Even if one assumes that the Bajaj Holdings stock needs to trade at a 30 per cent discount to its intrinsic value (holding company discount), the stock's current price amounts to just 54 per cent of its intrinsic value.

The adjusted beta of the stock over the last two-and-a-half year period is around 0.7, which indicates that the stock is less risky than the market index.

In addition, high discount to its intrinsic value would protect investors from downside even as underlying stock prices fall steeply.

The net asset value of the company's investments as of June 30, 2010 stood at Rs 1,778. Recent appreciation in stock prices would have increased this by at least Rs 350, thanks to more than 27 per cent appreciation in key stocks held. The investment book value may vary slightly if the company has exited a part of its non-core holdings.

The current dividend yield is 3.5 per cent; however given the nature of the company, dividends may fluctuate from year to year.

Apart from the core investment book of Bajaj group companies, the company is also using its ploughed back profits for upping the stake in its associates and investing in other companies that offer good returns. Even during the crisis it did not hold cash and instead chose to stay invested whose benefits it is currently reaping.

The company's investment book features Bajaj Auto as its largest holding with 31.49 per cent stake now worth more than Rs 14,000 crore at current market prices. This is followed by Bajaj Finserv in which the company holds 36 per cent.

It has a 1.69 per cent stake in ICICI Bank and 5.78 per cent stake in Bajaj Finance.

The current portfolio is overweight in the auto and financial sectors, which have been outperformers in the recent rally and may continue to rise at a decent pace going forward.

Currently, most of Bajaj Holdings' standalone earnings come from sale of investments followed by dividend income from companies. As companies increase their dividend payout, Bajaj Holdings may be in a position to hike dividends.