Investing in Holding Companies: Bajaj Holdings Case Study

A holding company is a type of corporation or business entity that primarily exists to own and control other companies, typically by acquiring a significant portion of their stock or ownership stakes. Rather than engaging in day-to-day operations and producing goods or services directly, a holding company’s primary purpose is to manage its subsidiary companies and oversee their strategic direction and financial activities.

A holding company can benefit significantly when its investments in other listed securities appreciate in market value for several reasons:

1. Asset Appreciation: Rising market values boost a holding company’s assets, bolstering its financial position and creditworthiness.

2. Diverse Portfolio: Holding companies diversify across industries and assets, mitigating losses in underperforming areas.

3. Capital Gains: Selling appreciated securities yields substantial capital gains, enhancing profitability.

4. Dividend Growth: Increased market values often lead to higher dividend income, ensuring a steady revenue stream.

5. Investor Attraction: Consistent gains and dividends attract investors, elevating stock prices and valuation.

6. Capital Access: An appreciating portfolio provides more capital-raising options, including loans and collateral.

7. Strategic Advantages: Stronger portfolios empower holding companies to pursue growth, like acquisitions.

8. Enhanced Net Worth: Rising investments elevate the company’s net worth, improving financial stability.

9. Shareholder Value: Appreciating investments benefit shareholders, potentially boosting stock prices and returns.

It’s important to note that while appreciating investments offers numerous advantages, they also come with risks, including the possibility of market downturns and fluctuations.

Having said this, the stock of Bajaj Holdings and Investments Ltd (BAJAJHLDNG) is a good case study.

In 2007, Bajaj Auto Ltd. restructured, transferring its manufacturing to the new Bajaj Auto Limited and its wind farm and financial services businesses to Bajaj Finserv Limited. Bajaj Holdings & Investment Ltd. is an RBI-registered Investment Company holding over 30% stakes in Bajaj Auto Ltd. and Bajaj Finserv Ltd. Additionally, it has investments in various group companies, including Bajaj Auto Holdings, Maharashtra Scooters, Bajaj Electricals, Mukand Ltd., Hercules Hoists, Mukand Engineers, etc., totaling ~Rs.146,000 Cr in market value as of FY22-end.

Bajaj Holdings (BAJAJHLDNG) possesses a 30% stake in both Bajaj Auto (BAJA-JAUTO) and Bajaj Finserv (BAJAJFINSV). On a year-to-date (YTD) basis, BAJAJHLDNG has yielded a return of 31.02%, which, while slightly lower than BAJAJAUTO’s 42.29%, outperforms BAJAJFINSV’s negative return of (-1.69%).

From a technical perspective, BAJAJHLDNG exhibits a promising setup with an attempt to break out from a symmetrical triangle pattern. This potential breakout could propel the stock to levels between 7700-7800 in the upcoming months. The Relative Strength Index (RSI), a leading indicator, has already signaled a bullish move by breaking out from a similar pattern ahead of the price breakout. BAJAJHLDNG, characterized by low-beta attributes, demonstrates increasing Relative Strength compared to the broader market, making it an attractive addition to a portfolio for stability, resilience, and potential alpha generation.

Milan Vaishnav, CMT, MSTA
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