The Pitch Report - Call Update: Bombay Burmah Trading Corporation - BUY - TP Rs.2025

The stock price of Bombay Burmah Trading Corporation Limited (BBTC) in yesterday's trade breached our revised target price of Rs.1,613 to hit a high of Rs.1,672 and closed at Rs.1,649. Though stock has moved up by 90% from our initiation price of Rs.878 in a short span of time, we still recommend ACCUMULATE (buy on decline) on the stock (with another 6 to 12 months investment perspective) with a revised target price of Rs.2,025/-.

In the last one month, Britannia stock price has also moved up by 8% from its bottom, improving the valuation of BBTC further.

Even after this impressive run-up, the valuation discount to its investment in Britannia at present still stands at much higher rate of 59% as compared to the average of holding companies (HCs) discount of around 50%.

Why be believe BBTC deserves less discount?

- 95% of BBTC's total investment value comes from Britannia. For most HCs, they come from several companies - theoretically speaking, unlocking possibility from a single investment is relatively higher;

- Most HCs hold shares of firms engaged in diversified and cyclical businesses. However, Britannia is engaged in consistently growing FMCG business, which enjoys much higher premium in markets;

- While many HCs do not have any assets on their own, BBTC has rich assets like huge plantations, and also reportedly significant land parcels;

Outlook and Valuation

- Assuming 50% discount (which is at par to the industry average of around 50%), to the market value of investments it holds in Britannia and Bombay Dyeing, we arrive at a revised target price of around Rs.2,025 in the next 6 to 12 months for BBTC.

Risk to our View:

- Only possible risk to our view is if there is any possible governance issue in terms of divestment of holdings in Britannia in favour of any promoters or other Group entities. However, considering the track record of promoters and also the India's regulatory environment, we firmly believe that such risk is too low.

Shares of BOMBAY BURMAH TRADING CORP.LTD. was last trading in BSE at Rs.1726.35 as compared to the previous close of Rs. 1648.05. The total number of shares traded during the day was 167299 in over 8215 trades.

The stock hit an intraday high of Rs. 1735.35 and intraday low of 1645. The net turnover during the day was Rs. 286271778.

Source : Equity Bulls

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