Stock Review: Bombay Burmah

This 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.