BBTC is an asset play and has to be bought when it’s assets are priced lesser than thier value. BBTC holds about 50.65% of Britannia Industries Ltd & 15.28% of Bombay Dyeing & Manufacturing Company. The market cap of Brittania is INR 62,198 Cr & The market cap of Bombay Dyeing & Manufacturing Company Ltd is INR 1,487 Cr. Apart from these assets, it holds many other assets like coffee plantations, smaller companies and investments.
Normally the holding companies are traded at a 50-60% discount to the assets it hold. For arriving at a valuations for BBTC, let’s consider its 50.65% holding in Britannia Industries Ltd alone (since it is the single largest holding and other might cancel out considering those assets are sometimes making losses). The gap in market cap of Britannia Industries Ltd and BBTC has been 60% (like other holding companies). It makes sense to buy BBTC when this gap increases, since mean reversal is a norm when it comes to holding companies.
Currently there are 2 special situations,
- The market cap of Britannia Industries is INR 62,198 cr and the market cap of Bombay Burmah Trading Corporation Ltd is INR 5,639 cr. Value of 50.65% of Britannia Industries is INR 31503 cr. So BBTC is trading at a discount of 82% over its holding in Britannia Industries. 82% is not a sustainable gap.
- It’s going to get bonus debentures worth INR 365 cr from Britannia Industries ( https://www.businesstoday.in/current/corporate/nclt-approves-britannia-rs-720-crore-bonus-debenture-issue/story/371013.html ). These bonds fetch 8% interest every year and can be traded to get extra income. This bonus gives a 6.4% uplift to the value and also it is going to fetch interest every year. There is a risk of parent company not sharing the profits with holding company. These debentures mitigate the risk of getting income from parent company.
Considering these two developments and since the parent company by itself is at an attractive valuation, I think BBTC is a good buy at these levels around INR 800 per share. Please add your comments.