The scrip plunged over 15% soon after trading began and closed 8.54 per cent down at Rs 2,286.80. It had fallen by seven per cent at Rs 2500.30 on Thursday.
MUMBAI: Shares of India's largest two-wheeler maker Bajaj Auto fell for a second day, reacting negatively to the demerger of the non-auto business from the group's flagship company, whose new structure analysts termed as "convoluted".
The scrip plunged over 15 per cent soon after trading began this morning and closed 8.54 per cent down at Rs 2,286.80. It had fallen by seven per cent at Rs 2500.30 on Thursday.
Making things even worse, a number of brokerage houses downgraded their investment rating and target price for the stock, saying that the scrip could take a further hit if investors decide to sell-off in large numbers.
"We believe that this convoluted structure could create an overhang on Bajaj Auto's stock price over the near term," analysts at Citigroup said in a market note released today.
The stock fell by nearly 15 per cent to Rs 2,179 in intra-day trading on the Bombay Stock Exchange and 17 per cent on the National Stock Exchange as the scrip witnessed across the board selling.
As per the proposal, Bajaj group's auto business will be demerged into a new subsidiary Bajaj Holdings and Investment Ltd (BHIL) and other strategic businesses such as wind energy, insurance and financial services would be hived off into another new entity Bajaj Finserv Ltd (BFL).
On the insurance JV with Allianz, BJAT management has stated that Allianz has a call option on both the life and general insurance subsidiaries, which permits the latter to increase its stake to 74 per cent and 50 per cent respectively in the ventures, for a fairly nominal consideration.
"We could expect further immediate downside on the stock due to these and attendant concerns on the demerger," Citigroup added.
Currently BAL holds 74 per cent and Allianz is holding 26 per cent in Bajaj Allianz Life Insurance Co Ltd. Allianz can exercise call option to increase its stake to 74 per cent from the existing 26 per cent (up to July 1, 2016) at a price per share of Rs 5.42 plus compounded interest at 16 per cent from 2001, according to a company release.
Domestic brokerages like Enam have said that since clarity on the call-option emerged after trading hours, the immediate crack-up in the stock may even result in a decent entry-point.
According to Kotak Securities, if this option is exercised post July 30, 2016 Bajaj Auto will likely benefit and get a higher price i.e. market price in case the company is listed or fair value as determined by mutually accepted accounting firm.
"We believe that the government is in favour of increasing the FDI limit to 49 per cent but the possibility of this going to 74 per cent appears very unlikely at this stage," Kotak Institutional Equities Research said in its daily note.
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