Bajaj Auto takes a U-turn

Bajaj Auto bounced back from a sharp slump and was up 1.91% to Rs 2,237. On
BSE, 70,802 shares changed hands in the counter. It was the top gainer.
Prior to this, Bajaj Auto was on a losing streak, declining a little under
19% in the previous four trading sessions after the surprise revelation that
Allianz — Bajaj's partner in its two insurance ventures — has a 'call
option' to buy up to 74% at a nominal price. This was the biggest
disappointment in the demerger plan.
The sporadic selling began after the company unleveled its demerger scheme,
during trading hours on 17 May 2007, along with its results, which triggered
a flurry of rating downgrades by brokerage houses. Disappointment about the
post-demerger structure and lack of clarity about future business plans were
cited as the main reasons for the downgrades.
Most analysts expected Bajaj Auto to remain the majority partner, while
allowing Allianz to raise its stake up to 49%. They see a high possibility
of the government raising foreign investment limit in insurance sector to
74% and Allianz exercising the option to hike the stake.
The insurance business of Bajaj Auto was valued at around Rs 800 per share.
But going by the new structure, the value has been trimmed to Rs 300 per
share. So the fall was more of a realignment to its fair value of Rs 2,250.
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