Bajaj to park Rs 6,000 cr in new investment firm

Board to meet in March or May to discuss demerger.

The board of Bajaj Auto, India's second-largest two-wheeler manufacturer, will meet in March or May to discuss a plan to demerge the company and create an investment and financial services company.

Merchant banking sources say the demerger will involve transferring Rs 6,000 crore of the Rs 8,000-crore surplus cash on Bajaj Auto's books to the new company as share capital to oversee its non-automobile business.

Under the plan, Bajaj Auto will also transfer equity investment in various joint ventures, such as the life and general insurance companies (in which Bajaj Auto has a 76 per cent equity stake, the rest being with Allianz) and Bajaj Auto Finance (in which the promoters have a 42 per cent equity stake), its successful financial services arm. 
 

TWO IS COMPANY
Bajaj Auto consolidated financial results (in Rs cr)
	Nine months ended		Year ended
	Dec 2005	Dec 2005	March 2006
Net Sales	7,529.17	5,806.22	8,103.74
Net Profits	849.09	737.45	1,070.44
Bajaj Auto standalone
Net Sales	7,206.86	5,502.04	7,667.90
Net Profits	929.68	779.84	1,101.63
(Share price in Rs)

The remaining surplus cash will be retained in Bajaj Auto in fixed income securities to finance its expansion plans. Bajaj Auto's investments in auto-component vendors will also be retained in its balance sheet.

The move follows suggestions from investment analysts that the demerger would unlock shareholder value in the company's successful non-auto businesses.

For instance, a Merrill Lynch report had valued the company's insurance business at $3.6 billion (Rs 16,200 crore).

In the nine months ended December 2006, the company earned a net profit of Rs 929.68 crore, of which Rs 397.94 crore came from other income.

Bajaj Auto's share price closed at Rs 3047.10 today, up 1.29 per cent over yesterday's close.

The company had investment of Rs 5,857 crore in its books of account on March 31, 2006, in listed and unlisted companies and debt instruments. The company has investment of Rs 832 crore in listed entities, which is currently valued at Rs 2,841 crore.

In terms of sharing of responsibility between the two sons of Chairman Rahul Bajaj, Sanjiv, the younger son, will continue to look after Bajaj Auto's export drive and finance functions as executive director. He may also be the managing director of the investment company.

Rajiv Bajaj will continue as managing director in charge of operations at Bajaj Auto, and may be inducted as a director of the new investment company.

Amid speculation that the demerger was being done to accommodate differences between his sons, Rahul Bajaj said, "All I can say is that there is no question of my sons not seeing eye to eye. We do have differences of opinion but are a close-knit family."