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The stock of Bombay Burmah Trading Corporation has gained 31 per cent in the last one month and more than doubled in the last one year. Buying interest in the stock comes as Britannia Industries’ valuation has soared to 43 times FY19 estimated earnings and looks a little stretched amid dull overall market sentiments (which will continue for a while). While Britannia Industries’ stock price hit a new lifetime high on October 13, the stock of Bombay Burmah achieved the same milestone again on Tuesday.
The gap in the two companies’ market capitalisation has narrowed down to 4.8 times, compared to 9.5 times as on January 2 (mainly due to spike in the stock price of Bombay Burmah). Though the company also holds investments in other companies, such as Bombay Dyeing and Manufacturing Company and unlisted GoAir, the market value of its stake in Britannia is the largest currently.
Bombay Burmah is the ultimate holding company and its various subsidiaries held 50.7 per cent stake in Britannia as on quarter ended June. Given today’s market capitalisation of Britannia at ₹55,485 crore on the BSE, valuation of the stake stands at ₹27,742.5 crore, compared to Bombay Burmah’s market capitalisation of ₹11,498.76 crore, which is less than half. Hence, a further upside potential in the latter.
Largest beneficiaryAnalysts continue to be positive on Britannia Industries’ business but the stock has crossed the average target price estimates of ₹4,475. So investors are accumulating Bombay Burmah as it will be one of the largest beneficiaries of a further rise in Britannia’s stock price since the robust financial performance is expected to continue.
While the company is already gaining overall market share, premiumisation, cost savings, implementation of the Goods and Services Tax and rising rural presence in revenues will aid margins. The company’s plan to expand non-biscuits (cakes, dairy) and international business (7 per cent of consolidated revenues) will help in better growth.
Britannia is Prabhudas Lilladher’s top pick in the processed food segment due to some of the above factors.
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