Rs.419
Target Price: Rs.600
Potential Upside: 43%
Absolute Rating: BUY
Diversified
Bombay Burmah Trading Corp Ltd.
14th May 2015
|
The Bombay Burmah Trading Corporation Limited (BBTC), a 150 year old company, is engaged in business of
plantations, autoelectricals and health care. However, the major valuation for the company comes from its equity
investments in its subsidiary (50.5% stake), Britannia Ltd.
Inclusion in MSCI India Small Cap Index - a big positive
As per the media sources, BBTC is to be added in the MSCI India Small Cap Index for which changes will take
place on May 29, 2015. We believe that the inclusion is likely to lead to fresh buying of the stock by passive funds,
which follow the global benchmark indices . The foreign holding of this stock would rise consequently;
BBTC: Unique Holding Company, available at attractive Discount
In the last 3 months, while BBTC stock price has fallen 18%, the price of its subsidiary Britannia has fallen only by
2%. Consequent to this divergent trend in the stock prices, the valuation discount has expanded to 78% vs. a
70% discount earlier. While the Enterprise Value of BBTC stands at Rs.3,142 crore (marketcap of Rs.2,937 crore +
net debt of Rs.205 crore), the market value of its investments in Britannia is at whopping level of Rs.13,954 crore
(i.e. 50.5% of Britannia’s marketcap of Rs.27,631 crore). This results in BBTC’s Enterprise Value being at about
78% discount to its investment value in Britannia! Many holding companies enjoy discount to enterprise value as
low as 45% to 50%. We firmly believe that BBTC deserves much lower discount to its investment value for the
following reasons:
The predominant portion (almost 95%) of BBTC’s total investment value comes from a single company
i.e. Britannia. For many other holding companies, generally they come from several group companies –
theoretically speaking, unlocking possibility from a single investment is more than what one would think of from
several group companies;
While many holding companies are shell companies on standalone basis, BBTC has diverse businesses on its
own like plantations and automobile components. Further, being a 150-year old company it holds a lot of
surplus land bank;
Most holding companies hold shares of group companies engaged in diverse businesses ranging from
commodities to financial activities. BBTC’s subsidiary Britannia is engaged in FMCG business, which enjoys
much higher premium over commodity businesses and hence, ideally speaking, the discount
for BBTC should be less than what other holding companies enjoy;
1
Equinomics Research & Advisory Private Limited - Investment Adviser
For private circulation only
Stock Data
Market cap
: Rs 2,938cr
52 week high/low
: Rs 550/ 103
Avg. daily vol. (3mth)
: 1,24,290
NSE code
: BBTC
BSE code
: BBTC
Shareholding (%)
Mar-15
Dec-14
Promoters
:
65.91
65.91
FIIs
:
0.04
0.13
DIIs
:
5.00
4.06
Others
:
29.05
29.90
Founder & Managing Director
Mr. G. Chokkalingam
[email protected]
Investment Rationale Cont…
While most holdings companies’ investee companies’ businesses are cyclical in nature, BBTC’s subsidiary is engaged in FMCG business, which is
expected to post consistent growth in profits over the years. So even if the discount percentage doesn’t get narrowed down, BBTC’s
investment valuation, in absolute term, will go up over the years;
Other businesses to increase earnings in future
On standalone basis, it is engaged in the business of plantations and auto electric components. We believe, with economic revival, these businesses would be
able to increase their earnings in future. Also BBTC’s expertise in producing organic teas for over two decades will help BBTC to consolidate its position in the
major organic markets around the globe. Healthcare division to be another revenue driver for the company. Recently, BBTC proposed to market ‘Alginate’, one
of its products, under the Brand “Chromatex” as a leading Chromatic alginate brand in India and to increase the export sales two fold.
Consolidated results of March 2015 quarter could be possibly another short-term trigger for the stock
BBTC publishes consolidated results (incorporating the profits of Britannia) only along with the March quarterly results. In FY2014, BBTC posted 56% yoy
increase in its consolidated net profits. During the first 9 months of FY2015, Britannia has already posted over 80% yoy growth in it net profits. Since Britannia
profit accounts for over 90% of consolidated profits of BBTC, we expect very impressive growth in consolidated net profit of BBTC for the whole of FY2015.
We expect BBTC stock to get some significant trigger on the eve of publication of consolidated results (which are published only once in a year along with
March quarter results).
Outlook & Valuations
If we assume that Britannia grows its profits annually by 15% (most conservative estimate as its current profit growth is over 30%) and hence, its
marketcap grows by 15% per annum, then value of BBTC’s investments in Britannia would have moved up by 75% in the next 4 years to Rs.24,405
crore from the current value of Rs.13,954 crore. Even if we assume the same 70% discount to the value of investments held by BBTC in Britannia
even after 4 years, the fair price works out to about Rs.1,000 per share. Moreover, BBTC, on consolidated earnings, trade at mere 7.4x FY2017E
EPS of Rs.56/. Hence, we suggest our investors to accumulate the stock with a revised target price of Rs.616 which is 11x FY2017E EPS. This revised target
price is highly conservative in our view as at this target price also, BBTC offers a discount of 68% to its investment value of Britannia holding. We continue to
maintain the long term (within 3 to 5 years) target price of Rs.900/ for BBTC.
Financial Summary (Consolidated)
Net Sales
(Rs Cr)
Change
(%)
PAT
(Rs Cr)
Change
(%)
EPS
(Rs)
Change
(%)
P/E
(x)
FY2013
6,519
10.0
133.00
-42.4
19.0
-42.4
22
FY2014
7,271
11.5
207.00
56.3
29.7
56.3
14.1
FY2015E
8,010
10.2
300.00
45.0
43.0
45.0
9.7
FY2016E
8,999
12.3
390.00
30.0
55.9
30.0
7.4
Y/E Mar (Rs Cr)
Source: Company, Equinomics Research & Advisory Private Ltd
2
Equinomics Research & Advisory Private Limited - Investment Adviser
Disclaimer Cont…
Stock Disclosure: Whether Stock Held By:
Bombay Burmah Trading Corp.
G.Chokkalingam & Family
Equinomics
NO
NO
Equinomics Research & Advisory Private Ltd - Investment Adviser (SEBI REG. NO. INA000001712)
G. Chokkalingam - Founder & Managing Director
Head Office – Mumbai . 18 - A/3, Ekta CHS, Shivdham Complex, Opposite Fire Brigade, Near Oberoi Mall, Malad (East), Mumbai - 400097
Ph: +91 22 28492940 | Email: [email protected]
Equinomics Research & Advisory Private limited (Equinomics) is a SEBI registered Investment Advisor. This document has been prepared by Equinomics Research & Advisory Private Ltd– Advisory Client Group.
Besides,
Equinomics is also Authorized person of Tata Securities Limited (TSL). TSL or Equinomics Research & Advisory Private Ltd focused-broking division may have issued other reports that are inconsistent with and
reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and
target price of the Affiliates research report.
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any
other person or to the media or reproduced in any form, without prior written consent.
This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The
securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and
needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document
(including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all
investors. Certain transactions -including those involving futures, options and other derivatives as well as non investment grade securities - involve substantial risk and are not suitable for all investors.
Equinomics has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the
information and opinions contained in this document.
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This
information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior
approval.
Equinomics Research & Advisory Private Ltd, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the
securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this
report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document.
This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of Equinomics. The views expressed are those of the analyst and the
Company may or may not subscribe to all the views expressed therein.
This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for
any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S. Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or
distributed or redistributed in Japan or to any resident thereof.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject Equinomics Research & Advisory Private Ltd to any registration or licensing requirement within such jurisdiction. The
securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform them of and to
observe such restriction.
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that
may arise from or in connection with the use of the information
Copyright of this document vests exclusively with Equinomics Research & Advisory Private Ltd.
3
Equinomics Research & Advisory Private Limited - Investment Adviser