Wadia group market cap falls $5.2 billion due to consumer slowdown

The 283-year-old Wadia group faces an unprecedented dip in its market valuation as its four listed companies together lost about Rs 37,000 crore (over $5.2 billion) in the last one year while benchmark index Sensex stayed flat. Group companies - Britannia Industries, Bombay Burmah Trading Corporation, Bombay Dyeing and Manufacturing Company and National Peroxide - quoted at a market capitalisation of Rs 69,058 crore on Tuesday, down 35 per cent compared to their aggregate peak value of Rs 1.06 lakh crore in August last year.

Slowdown in the consumer market is cited as the major reason for the fall of share prices. Wadia group companies enjoyed high Price-to-earnings (PE) multiples in the past because of the promising consumer market in India. That led to high market capitalisation. PE ratios suddenly crashed in line with the slowdown in consumption, say market experts.

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The flagship business Britannia has lost the most in value terms (about Rs 21,460 crore) in the last one year, but fall is proportionately lower in percentage terms (25.95 per cent). Interestingly, the company had come out with a better financial performance in the last financial year and it recorded a 15 per cent jump in its net profit to Rs 1,155.46 crore as against Rs 1,003.96 crore in the previous year. Total income from operations went up by 10.88 per cent to Rs 11,261.12 crore in FY19. While commenting on the outlook just after announcing the financial year results, Managing Director Varun Berry said the company has witnessed slowdown in the market in the recent months. However, he expected the slowdown to get neutralised on the back of a favourable monsoon forecast and stable leadership.

Rating agency Crisil said in its report in February that exposure to intense competition in the FMCG industry could weaken the ability of players to pass on any increase in raw material prices. Prices of key raw materials such as wheat, sugar and palm oil depend on geo-climatic conditions, international prices, and the domestic demand-supply situation. Crisil believes that Britannia's focus on cost efficiencies and continued price leadership will help mitigate the impact of volatility in raw material prices on its margins.

Britannia, in May, sought external legal opinion over the continuation of Ness Wadia as director at the insistence of independent members of the board, following his conviction in Japan for possession of cannabis, reported the media. The board is believed to have tapped retired Supreme Court chief justice TS Thakur for the opinion.

Bombay Dyeing-the textile business of the group - has lost three-fourth of its market value since its peak in May 2018. Market capitalisation fell to Rs 1,503 crore on Tuesday from Rs 6,482 crore on May 8, 2018. Bombay Dyeing reported consolidated net profit of Rs 27.65 crore in the June quarter of 2019, compared with a net loss of Rs 83.13 crore in the same period last year. The company had a robust performance in the last financial year, supported by the growth in its real estate subsidiary Bombay Realty and its polyester staple fibre and home furnishing business. In FY19, the consolidated topline went up by 63 per cent to Rs 4,470 crore, while EBITDA almost trebled to Rs 1,750 crore. The profit in FY19 jumped to Rs 1,230 crore from Rs 35 crore in FY18. The overall slowdown in the Uber Luxury Segment of real estate sector has primarily affected the market value of Bombay Dyeing.

The market value of Bombay Burmah Trading Corporation has fallen 60.47 per cent to Rs 5,502 crore in the last one year. The 150-year-old company has tea and coffee plantations in South India. The market capitalisation of chemicals manufacturer National Peroxide went down by 74.45 per cent to Rs 799 crore as on Tuesday as against the peak valuation of Rs 3,127 crore on August 31, 2018. According to market analysts, perception has become an issue for Wadia group companies. "Investors are still sceptical," an analyst said, adding Wadia companies have the potential to bounce back.

Also read: Britannia Industries says there's no question of Ness Wadia's disqualification from board position