Bajaj Holdings

At P/E Multiple Of 10, Shares Of Bajaj Holdings Are Trading At A Significant Discount

 

SINCE the start of the current rally on March 9, 2009, shares of Bajaj Holdings & Investment have almost tripled, while the benchmark Nifty has doubled. Spun-off from Bajaj Auto around two years, the company is basically the investment and treasury division of the two-wheeler major.

   A bulk of its equity investment is represented by its holding in Bajaj Auto, Bajaj Finserv and ICICI Bank. However, there have been some fundamental changes in the company's functioning, after its demerger. Unlike in the past, the company now actively manages its investment portfolio which means regular buying and selling of securities to take advantage of market fluctuations. In that sense, the buying the stock is akin to investment in a close-ended fund. While equity investments constitute two-thirds of the total investment book, debt, mutual funds form the remaining part.

   The company has posted impressive numbers in the first half of the current fiscal. Its profit grew by 254% year-onyear in the six months ended September 2009. Such high growth in profit was due to current rally, as the company's fortunes are directly linked with the asset markets. The company earned Rs 435-crore profit from sale of investments in the first half of the current fiscal compared with a mere Rs 3 crore in the corresponding period last year. Huge trading gains also show the company's efficient portfolio management. Institutional investors like LIC, ICIC Prudential Life Insurance and Birla Sun Life Insurance have stakes in the company. In fact, institutional investors have increased their stake in the company in the past one year. For instance, ICICI Prudential Life Insurance had a 2.7% stake in September 2008, which it has increased to 4.7% in September 2009. Similarly, Birla Sun Life Insurance didn't have a stake last year, while it owned 1.2% of the company at the end of September 2009. This shows that institutional investors are showing more confidence in the company now.

   The per share value of investments made by the company turns out to be Rs 1,422. However, the stock is trading at just Rs 609 per share. This shows that the stock is trading at significant discount to the value of investments. Its shares are trading at a price-to-earning multiple (P/E) of around 10, while Tata Investment Corp, which is in similar business, is trading at 15 P/E. The stock is not only trading at a discount to its value of investments, but also with regards to its peers, and hence, there is scope for further price appreciation.