During my Research and study for investment purposes, I came across two stocks with similar story and decided to put it down here for a good read. This is not an investment thesis or suggestion but plainly for sharing.
Recently, Balmer Lawrie was in the news because the government wants Disinvestment in the company to proceed at a valuation of 1600crs. (surprisingly, the current market cap is 1956crs) while the management insists that the valuation should be put at 8000crs.
This can be due to the excess land parcels held by the company at historical valuations. Balmer Lawrie: Cash & excess land bank could unlock huge value
So, what is interesting here? The resemblance of this company to ITC. Let’s start.
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Both are 100 year old companies. Balmer Lawrie was founded in 1967 while ITC ltd was founded a little later in 1910. Both companies have had an interesting history in India. Both companies have survived better than other companies of the time like Andrew Yule (It had a turnover of 23cr in 1947) and Parry’s.
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Both have European parentage. Balmer Lawrie was founded by two Scotsmen, Stephen George Balmer and Alexander Lawrie. ITC was incorporated as Imperial Tobacco Company by the British Cigarette behemoth.
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Both Started out as agri commodities players. Imperial Tobacco was king of tobacco trading while Balmer Lawrie did a good business in tea. Balmer Lawrie shut its tea business in 2013. While Tobacco has lent near monopoly to ITC, tea is a very tough business to be in with regular loss making quarters with the added government redtape.
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Both have stuttered numerous businesses over the years to reach where they are. Balmer Lawrie was into Banking, Blecco roof, Tea, Indo Burmah Petroleum etc. ITC has exited Lifestyle retail, cooking oil, Finance and a few other ventures.
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Both are based in Kolkata. Kolkata was a very important city in British times. Kolkata made sense for the East India Company as it also had a hold on Myanmar. Hence, many of the historical companies are based out of Kolkata.
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Both businesses are a group of businesses being run together. ITC operates in cigarettes, FMCG, Agri, Hotels, Paperboard, IT and then some more. Balmer Lawrie operates in logistics, logistics infra, chemicals, grease and lubricants, holidays and refinery and oil field services.
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Both have zero promoter holding. This one is dicey in a way that ITC doesn’t have promoters as Promoter company is declassified as FII. Balmer Lawrie on the other hand went to the government entirely. Both companies have a sizeable chunk of govt. shareholding and this means the govt holds a lot of sway in how both companies function.
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Huge dividend Payouts: This is what happens when the govt. holds shares in your company. You have to pay good dividends. 3 years avearage dividend payout for ITC is 91.7% and 81.8% for Balmer Lawrie.
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Both companies are staring at an uncertain future, Balmer Lawrie more so. ITC is regularly in the news for demerger talks. Balmer Lawrie is regularly in the news for Disinvestment.
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Both are cash rich companies. ITC has cash equivalents of 4800cr as per screener as of sep 22. Balmer Lawries has cash equivalents of 243cr as of sept 22 as per screener.
The similarities end here and there are a lot more dissimilarities but I decided to put it up here for reading. Balmer Lawrie has a huge chunk of revenue coming in from many fields but its lacks a torchbearer, Similar to what Tobacco is to other ITC businesses. Additionally, none of the sectors of Balmer Lawrie seem to be lucrative and high margin businesses. Neither is there any cohesion of the various business segments.
I do see hope for Balmer Lawrie if govt decides to take a back seat, let it be run professionally and allow the company to grow. I do see good potential in logistics infrastructure business with the government’s gati shakti scheme if opportunity is exploited in the field of Container freight stations (CFS), Inland Container depots (ICD) and Cold storage. Gateway Distriparks seems to be making the right noises.
It would be sad if the government just decides to sell history for scrapes.
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