Irrational Investors- You & Me

The market correction has given the much needed opportunity for many people who either want to enter now or re-align the portfolio with better stocks. I was looking at the prices of some of the stocks and found how irrational investors are we and how the investor behavior forms the market sentiment. I will discuss this with one real time example.

Bajaj Holdings & Investments-:

Beta 0.6716 Dividend Yield (%) 3.68 Market Cap 90487.19 Total Shares Out. 111293510 Return on Equity 1112935100 Book Value 451.31

200 Days Price Avg 816.53 50 Days Price Avg 757.4 6 Month Change(Rs.) -10.4 P/E 8.76 EPS 92.85 Face Value 10

Whether it is grocery or stock we all want to buy at a price lesser than its real value. For example, if someone sells an article worth Rs. 2100 for price of just Rs. 750, will people buy? I would think so. But it does not happen at least in stock market. With my personal research I found out, Bajaj Holdings & Investments has 31.49% and 38.55% stake in Bajaj Auto Ltd. & Bajaj financial services ltd and also 24% in Maharashtra Scooter ltd. Apart from these, they have 100% subsidiary called Bajaj Auto holdings ltd and 1% stake in ICICI bank ltd plus other equity investments.

Let’s calculate per share worth of this company-

Value of Bajaj Auto & Bajaj Finserv stake= Rs. 16500 cr.

Other equity investments including ICICI Bank = 3100 cr.

Value of fixed income securities = Rs 2576 cr.

So total value of these investments is Rs. 22176 cr. Bajaj holdings have total O/S shares of about 11.12 crores. So if you divide the total investment value of Rs 22176/11.13 crores o/s shares, you get per share value of Rs 2000.But the current market price is just Rs 820 which 60% lesser than the actual investment value. Also the businesses they have invested in {Bajaj Auto & Bajaj Finserv} are doing extremely well and future is also bright. Even if we assume 25% holding company discount, the stock still has about 40% upside. I know many market analysts know this fact but I am not able to accept why stock price is hovering around Rs. 800. One more interesting thing, this stock did trade at RS3100 in December 2007-January 2008 during previous market peak. So can we say it as a big investment opportunity or irrational behavior of investors? Only time can answer.

Regards

Garvit Dave