Wadia Group is expected to sell up to a 5 percent stake in Indias largest biscuit maker, Britannia Industries, to raise Rs 4,000 crores. This is done to take advantage of a spike in share prices since March when Indian markets had slumped to a record low.
The organization is likely to sell shares through secondary block deals in open markets, several sources with knowledge of the matter have revealed. Wadia group is expected to infuse these funds into its aviation firm GoAir and textile and real estate company Bombay Dyeing.
Wadias own Britannia through a complex structure. Wadia Group and Frances Danone held equal stakes in Britannia Industries through joint ownership of Associated Biscuits International. Danone and Wadia Group each own half of Associated Biscuits, which holds 50.96 percent of Britannia, giving each partner control of 25.48 percent of the biscuit maker. In 2009, Wadia Group had bought out Danone from the biscuit joint venture.
Goldman Sachs bank has been engaged to run a process, but two other banks are also expected to join as book runners.
Marketing roadshows are planned. We have been seeing very good interest in strong domestic business, which can play a key role in Indias domestic consumption story, revealed one of the sources mentioned above. We have seen a sharp surge in share prices, and this can also be capitalized for the growth of other businesses as well, he said further.
Varun Berry, managing director of Britannia, has said that he was not aware of any such move.
Shares of Britannia have risen 48 percent since the beginning of the lockdown, which is highest in comparison to that of any other FMCG company. The company had recently announced its March quarter financials, reporting 1.5 percent sales growth and a 26 percent earnings growth. Analysts expecting the Britannia to be one of the biggest beneficiaries of the lockdown from higher biscuit consumption as people stay at home.
Wadias are joining the league of Kotak Mahindra Bank, which was able to raise as much as $2 billion through two separate secondary issuances that had received strong foreign institutional interest from sovereign funds to pension money managers and bulge bracket long-only investors from North America to Europe, Middle East, and Southeast Asia.
The company has exposure to aviation and real estate through companies Go Air and Bombay Dyeing, both of which are in heavy debt and are undergoing challenging times due to the current economic environment.
We estimate group debt to be around Rs 7,000 crore (based on FY19 annual reports) with Britannias exposure limited to inter-company deposits (IC) of Rs 450 crore (no promoter pledge). While this has been a key investor concern, we note the management has maintained that ICDs to the group will not increase. It has reduced from Rs 680 crore to Rs 450 crore and the recent step-up in dividend will likely aid promoters to address liquidity issues, Emkay Global Financial Services had mentioned in a report.
Britannia has paid Rs 360 crore dividend in FY20 and another Rs 840 crore in April 2020. In FY20, the company did sales of Rs 11,444 crore and posted a profit of Rs 1,394 crore.
