Bombay BurmahThis is a stock which is not just a value play as far the core business is concerned but also provides margin of safety in terms of investments which it holds. There is also a possibility of unlocking in some of these investments. This company is a part of the Nusli Wadia group.
It is a 150-year old company and it is probably one of the oldest listed companies on the bourses. It is a diversified company. I would call it the jack of all and master of none who is into tea, coffee, auto ancillary, dental products and laminated products.
As far as their tea and coffee business is concerned, the tea plantations are spread about 2,800 hectares, mostly in the state of Tamil Nadu which comprises of nine estates and seven tea factories which together produce about 10 million kg of tea every year. They also have estates in Tanzania.
The coffee plantation is mainly in the Coorg district of Karnataka. The company has rubber plantations in Indonesia and is also developing property in Kanjurmarg in Mumbai and Coimbatore.
Britannia Industries Limited is a 51% subsidiary of Bombay Burmah. Last year, Bombay Burmah utilized its cash to buy over the stake of Groupe Danone when the exited Britannia Industries and by virtue of which today it holds about 51% through subsidiaries and subsidiaries of subsidiaries which translates into a value of close to Rs 2,500 crore because Britannia has a marketcap of close to Rs 4,800 crore. They also hold about 15% of Bombay Dyeing which is valued at close to Rs 300 crore.
So they have a complex structure of subsidiaries and various subsidiaries of that subsidiary. For FY10 this company recorded an EPS of close to Rs 26. Since it’s more than a 100-year old company, all the assets which are there in the books of the company are valued at historical basis. The value today maybe much more than what is getting reflected in the books of accounts.
Tomorrow, if Mr Wadia decides to give Ness and Jeh their separate spaces, there could be major restructuring and untangling of the complex structure which is currently there in Bombay Burmah which may lead to value unlocking. They also hold a small stake in GoAir whether there is a possibility of value unlocking. Whether these things happen or not, is anybody’s guess. In spite of this, given the price of Rs 380-385 the stock is a great value buy.
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Tata Global BeveragesThis is a company which has evolved from an Indian tea farming company to a global beverages company, having a number of brands and focused towards marketing of those brands. The brands which are owned by the company and the group include Tata Tea which is a super brand in India. Besides this, they have Tetley which is present in almost 70 countries and has a market leadership in UK and Canada.
Good Earth is a leader in herbal tea and specialty teas in the US. The other brands of the group are Tata Coffee, Eight O'Clock Coffee which is one for the best selling whole bean coffee in the US. They also have Himalaya Water which is under Mount Everest Mineral water.
Over a period of time, since the Tata Group has changed the name from Tata Tea to Tata Global Beverages, Mr Ratan Tata has indicated that all the beverage business of the group maybe consolidated into Tata Global Beverages, which means that in future you may see a merger of Tata Coffee and Mount Everest Mineral Water into Tata Global Beverages.
The balance Sheet of the company became healthy in 2007 after it sold Glaceau stake to Coca Cola for about USD 1.2 billion and made a profit of close to USD 525 million which translates into a profit of about Rs 2,300-2,400 crore. This infused a lot of cash into the company and the company’s balance sheet became much healthier. Today, the company has cash of close to Rs 2,000 crore. It has got a debt of close to Rs 1,700 crore but the cash in the balance sheet will provide the armour for future expansion of the company.
Mr Ratan Tata’s vision is to make this company into a reckoning player in the global beverage business. In the future we may see the Tata Group introducing a number of healthy drinks like lassi, nimbu pani, cold coffee, iced tea etc into the folder of Tata Global Beverages. Besides this the water business has immense potential.
With regards to valuation, this company has a marketcap of less than Rs 7,000 crore. The sale of the company is almost about Rs 6,500-7,000 crore which means it is available at one time of sales. If you look at other FMCG companies including HLL, Nestle, ITC etc these companies are trading at between 4-7 times of their sales.
Here the perception is that it is a commodity company but over the years it has successfully transformed from a commodity to a marketing and FMCG company. Over a period of time this stock will witness a re-rating and it may be valued at almost the same level as the peer group. Besides that, the company has aggressive plans over the next five-years which may see the turnover becoming 2-3 times from these levels.
Tetley, itself may have a valuation of more than Rs 7,000 crore. This is one of those stocks for an institutional investor or for an investor who doesn’t want to take a risk with small and midcaps. In the largecap space, you have this company which is a value play and it trades at much lower than the peer group. This is a company where you can witness growth to come in the future.
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Sankhya Infotech This is one stock for very high risk kinds of investors because these are companies where you can loose the entire capital. Investors should keep that in mind. This company may become a dark horse. There are a few interesting developments which have taken place in the company in the last few months.
In the month of April, HPL Power System bought a 10% stake in this company through market purchases at a price of close to Rs 39. One of the promoters of HPL is Kavita Prasad, who is the daughter of the main promoter of HPL Power Systems. She has joined in as a Director of Sankhya Infotech.
The promoters have also recently allotted about 15 lakh warrants to themselves at a Sebi determined price, which I believe in their case will be close to Rs 30. Against the buying price of Rs 40 HPL Power and Rs 30 at which the promoters are increasing their stake in the company, the stock is currently available at Rs 21-22 which is close to its 52-week low.
Looking at the business of Sankhya Infotech, this is a company which is into a number of domains like e-learning development. They make simulators for the defence segment. The company also caters to the aviation segment and has a number of leaders in aviation like Kingfisher, Emirates, Air France and Boeing as its customers.
As per the latest balance sheet, this company has got an order book which is close to Rs 100 crore. They got listed in 2000 and since then it has been making profits at net level. In FY07 this company made a profit of Rs 7 crore, FY08 Rs 9 crore, FY09 Rs 4.5 crore and in FY10 it made a profit of Rs 2.5 crore. The profit got impacted because of demand from the income tax authorities of about Rs 7 crore which the company appealed against won.
In future you may see the company focusing more on defence and defence related projects, since HPL has a strong position in the defence segment. Against the book value of Rs 60, the stock is available at about Rs 22 and it is available at close to its 52-week low. They have been making profits at net level since the beginning. So this is a stock for high risk investors but at the current price it may be worth the risk.
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The government is likely to come out with a more representative data on industrial production from January next year that would include about 100 new items, while excluding the obsolete ones.
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