The agreement between Groupe Danone SA and the Wadia group is a positive for Britannia Industries Ltd’s minority shareholders. The Indian partner has agreed to purchase the French company’s stake in Britannia for an undisclosed amount.
The company’s daily operations won’t be affected in any way, since the Wadia group was firmly in the saddle as far as daily operations go. But the Wadia group’s enhanced stake of 51% will ensure that the going will be much smoother in terms of strategic initiatives, especially where a special resolution may be required.
Thus far, Britannia has had among the lowest dividend payout ratios in the consumer goods industry. Some analysts feel dividend payout may rise with the change in ownership structure. But a veteran industry observer says the Wadia group can be expected to keep payout ratios low and plough back funds into operations or utilize them for acquisitions.
As far as Danone is concerned, it can now enter the Indian markets on its own, but this would be restricted to the dairy and water segments, since the company has already exited the bakery business globally.
While Britannia is also present in the dairy segment, the threat from Danone is limited since the majority of its revenues and profit come from the biscuits business.
The company’s Indian management has done a decent job of holding market share and recording double-digit earnings growth in the past few years.
A few years ago, when ITC Ltd entered the biscuits market under the Sunfeast brand, the fear was that Britannia’s growth would be affected. But not only has the company maintained strong growth, it is also expected to post double-digit growth in the next two-three years.
Much of this is reflected in the Britannia stock’s price-earnings multiple of about 17.5 times trailing earnings. This leaves little room for a major rerating of the stock.
Also, as pointed out earlier, the Wadia group already had considerable freedom in running Britannia and things won’t change dramatically because of the agreement with Danone.
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