by G.Chokkalingam, Founder, Equinomics Research & Advisory Pvt Ltd
Equinomics Research
& Advisory Pvt Ltd suggest re-entering Bombay Burmah Trading Corporation
(BBTC) for the long-term investors
Equinomics Research
& Advisory Pvt Ltd suggested booking profits in on BBTC on 31st July 2014
at the market price of around Rs.206/. Subsequently, the stock moved up as high
as Rs.228/ and yesterday corrected back to again to Rs.206 level, a fall of 10%
from its peak price. However, Britannia Ltd, a subsidiary of BBTC (50.75%
stake) which was trading at Rs.1144 on July 31, 2014, has moved up by 12% since
then and closed at Rs.1281 yesterday.
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G.Chokkalingam, Founder, Equinomics Research |
While the marketcap of
BBTC remains same at Rs.1432 crore since July 31, 2014, the value of its
investment in Britannia (for its 50.75% holding) has gone up from
Rs.6,964 crore on July 31 to Rs.7,791 crore yesterday – i.e. an incremental
rise of Rs.827 crore. This incremental jump in its investment value of
Britannia holding is about 57% of BBTC’s current marketcap which remains at
constant level at Rs.1,432 crore. We believe that gradually the market will adjust
for this valuation gap and hence, we suggest the long term investors to
accumulate the stock once again.
BBTC has reported 57%
yoy increase in consolidated net profit in FY2014 over FY2013 and a
consolidated EPS of Rs.29.68 for FY2014. On standalone, it is engaged in the
business of plantations and auto electric components.
Britannia is trading at
41 x, while ITC trades at 32x FY2014 EPS. Such premium valuation of Britannia
gives us a remote possibility of Britannia being acquired by any MNC. Further we
believe that the steep fall (over 40%) in rupee exchange rate in the last 7
years would induce many MNCs to opt for acquisition of Indian FMCG companies
like Britannia going forward. BBTC’s current Enterprise Value is about 81%
discount to the value of its investment in Britannia alone. Considering the
remote possibility of consolidation in the FMCG pace and steep discount to its
investment holdings, Equinomics Researchsuggest our long term investors to
re-enter BBTC at the current market price of Rs.206/ with our revised long term
target price of Rs.290.
Disclosure: I,
G.Chokkalingam do not hold shares of Bombay Burmah directly or indirectly
through friends, relatives or any proxies. I haven’t entered into any trading
activities in this stock during the period since July 31, 2014 either directly
or indirectly through any friends, relatives or proxies;
G.Chokkalingam
Founder &
Managing Director
Equinomics Research
& Advisory Pvt Ltd
18- 3/A, Ekta CHS,
Shiv Dham Complex
(Opp to Oberoi Mall)
Filmcity Road, Malad
(East)
Mumbai - 400 097
Ph: +91 22 2849 2942,
Email: chokka.g@equinomics.in
Equinomics Research
& Advisory Private limited (Equinomics) is a SEBI registered Investment
Advisor.
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