After the ugly drama that preceeded the Ambani family split in 2005, India Inc is bracing itself for another one on Thursday, which, however, may not turn out to be as acrimonious as the earlier one.
The Rahul Bajaj-led Bajaj Auto, at its Board meeting on May 17, will be taking up the matter of demerging its two-wheeler and finance businesses.
While the two-wheeler business is expected to be spearheaded by Chairman Rahul Bajaj’s eldest son Rajiv Bajaj, the finance business under the aegis of Bajaj Auto Finance is likely to be headed by younger son Sanjiv Bajaj.

Fingers crossed
Currently, Bajaj Auto is run by Rajiv as the managing director, while Sanjiv is executive director responsible for the financial and overseas operations. Bajaj Auto is presently the country’s second-largest two-wheeler manufacturer.
While the demerger is considered in corporate circles as more or less a fait accompli, investors are keeping their fingers crossed. While shareholders benefited after the Reliance group split, the question uppermost on their minds now is whether a similar bonanza could be in the offing for them now.

Shareholder value
Chairman Rahul Bajaj has claimed that the reason for the demerger is to “enhance shareholders value.” According to him, the plan to demerge the company’s financial and investments business into a separate entity was based on the intention of unlocking shareholder value by utilising surplus cash and not because of the reported “rift between the brothers.”

Better returns
Bajaj has indicated that the extra funds the company has, could be put to more productive use to fetch better returns than from earnings on equity and investments. Bajaj Auto has accumulated liquid reserves of around 8,000-crore to fund investment in new models and facilities after the demerger. Its present market capitalisation is around Rs 25,950 crore. A part of the large cash reserves of Bajaj Auto is expected to be transferred to the new finance company to be headed by Sanjiv Bajaj, for investment in the finance and insurance businesses.
This may leave the presently cash-surplus Bajaj Auto with only a small portion of the resources to sustain its R&D and marketing initiatives.
How much of the company's cash surplus would be transferred to the new entity will be a key matter that the Board will have to address on Thursday.