Bajaj Holdings and Investments

Fresh investments with a long-term perspective can be considered in the stock of Bajaj Holdings and Investments.

The stock continues to trade at a significant discount to its investment book at today's market value. It holds stock in the Bajaj Group companies and a chunk of the ICICI Bank stock.



The stock appears a value buy in an expensive market, as at the current price of Rs 849.5 the stock is trading at a 53 per cent discount to the June 30 net asset value.

Even if one assumes that the Bajaj Holdings stock needs to trade at a 30 per cent discount to its intrinsic value (holding company discount), the stock's current price amounts to just 54 per cent of its intrinsic value.

The adjusted beta of the stock over the last two-and-a-half year period is around 0.7, which indicates that the stock is less risky than the market index.

In addition, high discount to its intrinsic value would protect investors from downside even as underlying stock prices fall steeply.

The net asset value of the company's investments as of June 30, 2010 stood at Rs 1,778. Recent appreciation in stock prices would have increased this by at least Rs 350, thanks to more than 27 per cent appreciation in key stocks held. The investment book value may vary slightly if the company has exited a part of its non-core holdings.

The current dividend yield is 3.5 per cent; however given the nature of the company, dividends may fluctuate from year to year.

Apart from the core investment book of Bajaj group companies, the company is also using its ploughed back profits for upping the stake in its associates and investing in other companies that offer good returns. Even during the crisis it did not hold cash and instead chose to stay invested whose benefits it is currently reaping.

The company's investment book features Bajaj Auto as its largest holding with 31.49 per cent stake now worth more than Rs 14,000 crore at current market prices. This is followed by Bajaj Finserv in which the company holds 36 per cent.

It has a 1.69 per cent stake in ICICI Bank and 5.78 per cent stake in Bajaj Finance.

The current portfolio is overweight in the auto and financial sectors, which have been outperformers in the recent rally and may continue to rise at a decent pace going forward.

Currently, most of Bajaj Holdings' standalone earnings come from sale of investments followed by dividend income from companies. As companies increase their dividend payout, Bajaj Holdings may be in a position to hike dividends.