The Hindu Business Line : Bombay Burmah shines on re-rating hopes

Wadia group outfit Bombay Burmah Trading Corporation has shot up 22.55 per cent in the last one week and it almost touched its 52-week high of Rs 455.05 today as it scaled a Rs 445.90 level on the BSE. It, however, climbed down a bit at close to finish at Rs 440, with an overnight gain of 4 per cent.

According to analysts, the stock is witnessing a re-rating by a section of investors in view of several recent developments. “All these add up to possibilities of value unlocking in multiples”, said a fund manager.

According to market strategists, apart from organic and inorganic growth routes the company has been taking in the recent months, the factoring in of the current valuations of its investments give a figure, which is much above the stock’s market price.

Its present standalone balance-sheet valuation of investments in a string of subsidiaries and associates stand at Rs 93 crore. But on the consolidated basis, the spiralling investment valuation is Rs 544 crore.

Among the notable investments are, according to market players, around 24.5 per cent in Britannia and, around 40 per cent in GoAir. Investments in GoAir, an unlisted entity, which is reportedly in negotiations with a number of private equity funds for about 26 per cent stake sale, is understood to be poised to unlock a value higher than the book value.

Since, the investments are held through a maze of subsidiaries and associates, both directly and indirectly, the balance sheet of the company does not truly reflect its worth.

For example, Leela Land (Mauritius), a 100 per cent subsidiary, holds equal stake in Associated Biscuits International, which, in turn, holds 45.13 per cent in Britannia, trading at Rs 1,690.

On the other hand, it directly holds around 15 per cent in Bombay Dyeing, which is currently trading at Rs 593.

The consolidated EPS of the company at the end of 2006-07 is Rs 33.5 against Rs 8.47 on standalone basis. It has a paid-up capital of Rs 13.95 crore, while the reserves stand at Rs 62.54 crore.

Non-promoter holding of around 36 per cent makes the company secures against any predatory move, the analysts point out.

Lament division

The laminate division, located in Pune has launched a VRS plan to cut cost, while it has set up a new unit at Rudrapur, Uttaranchal with a view to improve its cost competitiveness, as Pune has higher cost structure.

Recently its subsidiary, Island Horti-Tech Holdings Pte Ltd, Singapore, acquired majority stake in Innovative Organics Inc, a US company and Innovative Organics Inc has acquired controlling interest of Granum, Inc, also a US company engaged in speciality organic tea business.

AFCO Industrial & Chemicals Ltd, another wholly owned subsidiary, acquired Electromags Automotive Products Pvt Ltd with effect from December 1, 2006.