Britannia Industries may opt for stock split, issue bonus debentures

The firm would decide on the stock split at the next board meeting, said Chairman Nusli Wadia during the company's annual general meeting (AGM).

By BusinessToday.In  
Monday, August 6, 2018

FMCG firm Britannia Industries has announced it may opt for stock split and issue bonus debentures to shareholders. The stock of the firm currently stands at 6,195 level on BSE. The firm would decide on the stock split at the next board meeting, said Chairman Nusli Wadia during the company's annual general meeting (AGM). Next meeting of the board of directors will be held on August 23, to consider the sub-division of equity shares of the company of face value of Rs 2 each.

The firm has also recommended and approved issuance of secured redeemable non-convertible debentures as bonus debentures of Rs 60 in the ratio of 1 bonus debenture for every 1 equity share held by shareholders of the company.

The company said it would issue 12,01,59,147 bonus debentures of Rs 720.95 crore.

"The company will utilise balance in retained earnings to the extent of Rs 869.11 crore including deemed dividend tax," it added.

The company would incur a total cost of Rs 1,000 crore to issue bonus debentures and pay dividend to the shareholders.

Stock-split is dividing of a share into stocks of lower face value. This leads to a fall in stock price of the company but the total market capitalisation of the stock post-split remains the same. This also means the total value of your shareholding on the day of split remains unchanged even as the number of shares in your account goes up.  This enables many new investors to buy the stock since it has become more affordable for shareholders after a stock split.

Announcing its earnings for the quarter ended June 2018, the firm said it reported a 19.41 per cent rise in consolidated net profit at Rs 258.08 crore for the quarter ended June 30, 2018, driven by double-digit volume growth.

The company had posted a net profit of Rs 216.12 crore in the April-June period a year ago.

Its total income stood at Rs 2,585.84 crore in the quarter under review. It was Rs 2,375.01 crore in the corresponding period of the previous fiscal, Britannia Industries said in a BSE filing.

The company said the reported revenue, part of total income, for the quarter ended June 30, 2018, is not comparable to the revenue reported in the previous period due to implementation of GST with effect from July 1, 2017.

"Excise duty has subsumed into GST, and hence revenue from sale of goods for the period commencing July 1, 2017 does not include excise duty," it added.

The large cap stock has expensive valuation with a price to earnings (PE) ratio of 77.31 higher above its peers such as Godrej Consumer (54.4), Dabur India (54.06), Marico (54.25), Colgate Palmolive (42.92) and Glaxosmithkline Consumer (40.67).

PE ratio is calculated by dividing a company's stock price by its earnings per share.

A higher PE ratio indicates that investors expect higher earnings in a stock.  If you invest in stocks with higher PE ratio or expensive stocks, there are chances that it may fall if earnings expectations are not met.

Meanwhile, the stock is just 4.31% away from 52-week high of 6,628 level.

The stock has clocked 62.19% rise during the last one year and has gained 34.59% since the beginning of this year.

Motilal Oswal on July 24, 2018 retained its 'buy' call on Britannia Industries with a target price of 7,300 in one year.  The current market price on that day stood at 6434.

Britannia Industries' distribution expansion has resulted in a reach of 5.2m outlets across the country, with direct reach of 1.84m outlets. This should fuel strong growth. The Rs 32,000 crore biscuit market in India is projected to grow at a compounded annual growth rate (CAGR) of 11.3% in value terms during 2018-2022. Britannia reaches 180 million households in India. 70% of Indian households (80% in urban India and 90% in the metros) consume Britannia's products. The potential for premiumization is huge.

Continuing premiumization, significant incremental cost savings, and favorable commodity cost outlook mean further EBITDA margin expansion prospects are bright, as well. We retain Buy with a target price of Rs 7,300 (51 times June 2020E earnings per share; 20% premium to three-year average due to improving visibility on both volume recovery and margin growth), the brokerage said.

23 of 32 brokerages rate the stock "buy" or 'outperform', seven "hold" and two "underperform", according to Reuters.

Britannia Industries is a food company, which is engaged in the manufacture of biscuits, cakes and rusks. The Company operates through the Foods segment, which comprises bakery and dairy products. The products of the company are exported across the world, which include Gulf Cooperation Council Countries (GCC), African Countries and American Countries. Its subsidiaries include Manna Foods Private Limited and International Bakery Products Limited.

Written and edited by Aseem Thapliyal

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