Missed bets on Britannia? Dont miss action in its holding company instead which trades at 87 per cent discount!
Britannia's holding company is trading at 87 per cent discount, have you invested in it?
Britannia is among the most trusted food brands and manufactures India’s favorite brands like Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold which are household names. Britannia’s product portfolio includes biscuits, bread, cakes, rusk and dairy products including cheese, beverages, milk and yoghurt. Britannia is a brand which many generations of Indians have grown up with. Britannia products are available across the country in close to 5 million retail outlets and reach over 50 per cent of Indian homes.
The stock on Wednesday hit a fresh 52-week high on the bourses and the most interesting aspect about this stock is that it is up on majority of the time frame. In the last one-week the stock is up by 3.73 per cent, in last one month it has added 14 per cent, while in the last one-year and three-year period it has jumped 21.56 and 40.95 per cent, respectively. On YTD basis the stock is up by 19.52 per cent.
For the quarter ended September 30, 2022, the stock reported a YoY growth of 22 per cent in its revenue from operations and 30 per cent jump YoY in its operating profits. Moreover, the company continued to see an uptick in the biscuit market share. The market capitalisation of Britannia Industries is about 1.04 lakh crore i.e. 1,04,000 crore. Pay special attention to the market capitalisation of the company, because, this would be an important factor going forward.
Let us now shift from Britannia Industries to Bombay Burmah Trading Corporation (BBTC). The stock of BBTC is quoting around Rs 962 and it has a market capitalisation of nearly Rs 6,700 crore.
Now comes the most interesting part of this article, BBTC is the holding company of Britannia Industries. BBTC indirectly holds about 50.54 per cent in Biscuit major- Britannia Industries. So, if you consider the valuation of BBTC holding in Britannia Industries is worth about Rs 52,562 crore but the actual market capitalisation of company is about Rs 6,700 crore, that means the stock is trading at a discount of nearly 87.25 per cent.
As such, it’s not unusual for holding companies to trade at a discount to their underlying investment value. Reason being no one expects them to sell their stake and return the money to the shareholders so value as such, is notional or at least it’s considered to be.
However, what is unusual is the quantum of discount. Most holding companies over years settle at a particular discount level to the underlying investment value and become attractive to invest when that discount becomes too high.
Another way to put the same thing is – over longer periods, returns of both the holding company and the invested company tend to mirror each other. So, though the discount would still be there but the returns would not be drastically different.
Have a look at the following comparison of Britannia and BBTC stock price since January 2010
Two important key takeaways are:
- BBTC for periods is seen under-performing Britannia Industries. However, it catches up sharply.
- The stock performance of BBTC was outstanding between the year 2016-18 and during this period it outperformed Britannia Industries hands down and thereafter, a technical correction was seen in the stock and a period of underperformance that could be attributed to Covid related concerns related to the group’s aviation business (Go Air).
Do you think the holding discount would gradually reduce and the stock of BBTC would start to outperform? Let us know in the comment section.