Investors hammer Britannia Industries stock on loans to group firms

The share price of food major Britannia Industries was down nearly 4 per cent on Thursday following concerns over loans to group companies. The stock remained volatile through the day after a disclosure by Britannia that it had inter-corporate deposits (ICDs) in associate companies, which was under 25 per cent of its total investments.

The disclosure was made during an analysts call on Thursday, when the company was asked to explain its investment policy. While Britannia’s FY19 total investments stand at Rs 2,700 crore, according to its latest financial statements, 25 per cent of this works out to around Rs 675 crore. This is nearly double the amount of ICDs in associate companies in the previous two years, when Britannia lent Rs 350 crore to Bombay Dyeing (see chart).

In the analysts call, Britannia's Chief Financial Officer N Venkataraman said investments by the company were made after evaluating all risks. “The yields on our investments are to the tune of 9 per cent and we are doing it on the basis of our investment policy,” he said.

However, analysts remain unconvinced saying that Britannia’s group exposure was an overhang. “While Britannia has been historically giving loans to group companies, it is still a factor to watch out for,” Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss, said. On Wednesday, Britannia reported a nearly 12 per cent increase in net profit to Rs 294 crore for the quarter ended March 31 versus Rs 263 crore a year ago. Net sales increased 10 per cent to Rs 2,764 crore in the quarter under review versus nearly Rs 2,510 crore a year ago.

graph “There is certainly some concern here because this money could have been given as dividend to shareholders rather than lending the same to associate companies,” said an analyst requesting anonymity. “But the Rs 350-crore investment (in Bombay Dyeing) has also been constant in FY17 and FY18 even as ICDs to Bajaj Finance and PNB Housing Finance by Britannia have grown in the same period,” he said.

In FY18, ICDs to Bajaj Finance nearly doubled to Rs 201.8 crore from Rs 102.75 crore the previous year. In PNB Housing Finance's case, the growth was even sharper in FY18, at five times the amount in FY17, which stood at Rs 25 crore. The break-up of ICDs in other companies by Britannia for FY19 has not been disclosed. It is important to note that rating agency CARE has put the long-term debt facilities and deposits of PNB Housing Finance on watch in its latest report dated April 29 over concerns mainly in relation to weakness in the real estate sector as well as the latter’s exposure to corporate loans.

CARE also said in its April 29 report that it would monitor developments at PNB Housing Finance when reviewing its rating in the future.

At close of trade, Britannia’s stock price stood at Rs 2785.50 per share, down 3.72 per cent on the BSE. It touched an intra-day high of Rs 2952.20 per share and a low of Rs 2785.30 per share.