Britannia: Buyback prop

Britannia's regular buybacks have put a floor on the stock price in the past 2 years

Britannia Industries has announced the latest in its series of buybacks. This time around it has allocated Rs 78 crore and set an upper limit of Rs 650 a share for its buyback, which, as usual, will be done through the Bombay Stock Exchange and the National Stock Exchange.

Going by the current market price of around Rs 600 a share, the company could garner around 13 lakh shares or 5.2 per cent of the paid-up capital.

Importantly, the promoters' stake is most likely to touch 51 per cent (from the 49.5 per cent level currently) after the buyback. Just two years ago, their stake stood at 45 per cent and increased because of a buyback of shares from minority shareholders.

The regular buybacks have also put a floor on the stock price in the past two years, which have been testing for the company. Not only has there been an increase in competition in the organised segment of the biscuits industry, sentiment for the stock also suffered because of Sunil Alagh's exit and the way it was handled by the company.

Besides, the hive-off of the dairy business in 2002 led to a belief that growth would be sedate. A number of analysts have now stopped tracking the company and this has resulted in low liquidity for the stock.

Interestingly though, Britannia has been doing rather well in terms of financial performance. The results for the whole of FY04 are not out yet, but in the nine months till December 2003, the company reported a 10 per cent increase in net sales and a 37 per cent increase in profit before exceptionals and taxes.

The halving of excise on biscuits in last year's budget would have obviously helped. In addition, the company's VRS helped cut staff costs by 10 per cent in absolute terms and 130 basis points as a percentage of sales. Profitability is expected to improve further from next year when production takes off at its plant in Uttaranchal.

Another factor that works in favour of Britannia is that biscuit sales have beaten the sluggish trend in other FMCG categories in the past few years.

Britannia has been the main beneficiary and although it has lost a few market share points to ITC, its growth has continued unabated. Keeping this in mind, the 13-odd times discounting seems cheap. But there seem to be few takers currently.

Crompton Greaves

Crompton Greaves' profits before tax and exceptionals jumped 82 per cent in the quarter ended March 2004. The jump in profit, however, was largely helped by a 48 per cent decline in interest cost.

In fact, operating profit grew only 0.7 per cent to Rs 45.39 crore and operating profit margin dropped 81 basis points to 7.79 per cent.

While the power system, consumer products and industrial systems division improved their performance, the company's digital division has been a drag. Revenues of the digital division declined 67 per cent to Rs 16.29 crore last quarter and posted a loss of Rs 4.98 crore.

According to reports, the company has suspended operations of the informatics, industrial electronics and capacitor business in this division, and is also actively looking for a buyer for the digital group.

The power division, which consists of transformers and switchgears, has benefited from private players ramping up their electricity distribution network across the country. Segment revenue grew 21 per cent and profit grew 30 per cent.

In the industrial systems division, which consists of electric motors and alternators, demand has been strong from the engineering and industrial sector, who have been buying new motors in order to ramp up their production facilities.

Analysts point out that in the case of LT Motors, the company had recently hiked prices and it helped the division to post better results. Segment revenue was up 23 per cent and segment profit rose 49.8 per cent thanks to a 206 basis points jump in profit margin.

In the company's consumer products division, a boom in the construction sector helped boost demand for fans, luminaries and light sources. Segment revenues rose 17.2 per cent and segment profits rose 24.85 per cent.

Going forward, the power systems division is expected to do well""its order book position was at approximately Rs 670 crore as on April 1, 2004, a year-on-year growth of around 19.6 per cent.

Even the industrial systems division is expected to do well, on the back of increased industrial activity in the country. But analysts point out that an aggressive and rapid disinvestment of the digital division would help the company further improve its overall performance.

With contributions from Mobis Philipose and Amriteshwar Mathur