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Bajaj demerger a win-win deal

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Shobhana Subramanian Mumbai
Shareholders of the world's fourth largest two-wheeler manufacturer, Bajaj Auto, have long hoped that some of the cash on the company's balance sheet would be returned to them in some form.
 
Or that the investment portfolio ""- estimated between Rs 6,000 crore and Rs 7,000 crore, would be spun off into a separate entity so that its value could be unlocked.
 
So far they've been disappointed.
 
But now, sibling rivalry in the family, together with the anxiety that relatives with significant shareholdings might create problems in the future, has prompted Chairman Rahul Bajaj to take the carving knife to Bajaj Auto, which posted standalone revenues of Rs 7, 629 crore in 2005-06.
 
The two-wheeler major's board is finally meeting on May 17 to formally announce the demerger.
 
In the aftermath of the unseemly fight between the Ambani brothers, Bajaj senior perhaps feels it's wiser to let sons Rajiv and Sanjiv have their own little empires to run. Also, it's a great time to unlock value for the insurance ventures as also build up the finance business.
 
Thus, the two-wheeler business is expected to be housed in one entity with the insurance ventures and the investments located in another company.
 
It's possible that the insurance ventures may be kept separate from the investment portfolio. That's because the Bajajs may want to grow the finance business by roping in a partner at some stage. It's unlikely though that any changes in the shareholding pattern would be made now or even in the near future.
 
Elder son Rajiv, who makes no secret of his love for motorcycles and technology and has worked hard to build the business, should by logic be in total control of it. Younger brother Sanjiv, who has been more of a numbers man, will then inherit the finance portfolio together with the insurance ventures that Bajaj Auto has set up in partnership with Allianz.
 
And to ensure fair play, it's believed that Sanjiv's companies will be compensated in the event that the final valuation of the finance portfolio and insurance ventures is less than that of the manufacturing business. As of now, analysts ascribe a value of Rs 1,400-Rs 1,500 a share to the automobile business and around Rs 1,300 a share for the investments and insurance ventures.
 
Sibling rivalry in India is not new and has more often than not been good for minority shareholders. This time too, things should not be very different; the sum of the parts of Bajaj Auto should definitely be greater than the whole.
 
There is tremendous potential for growing the finance business with a number of local and foreign players having picked up licences for starting NBFCs. The general and the life insurance ventures are faring well and much like ICICI Bank, the Bajajs may want to unlock their value.
 
The motorcycle business may be an established one but Rajiv will have his work cut out;operating margins for the December 2006 quarter came in at 14.2 per cent, the lowest in five years. For both brothers, it'll be the inheritance of challenge.

 

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First Published: May 16 2007 | 12:00 AM IST

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