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Financial Management
Section- Q1943
Course Code: FIN542 Course Title:
Financial Management
Learning Outcomes:
We have learned about the company’s financial position its WACC and capital budgeting
decision of the company.
Declaration:
I declare that this Assignment is our group work. I have not copied it from any other student’s
work or from any other source except where due acknowledgement is made explicitly in the text,
nor has any part been written for me by any other person.
Peer Rating
Tea Plantations.
Coffee Plantations.
The company is a leading concern of the Wadia Group, a reputed Indian business house with
interests in plantations, foods, textiles, chemicals, electronics and light engineering, health care
and real estate.Bombay Burmah, Bombay Dyeing and Britannia are the mastheads of the Wadia
Group. It is the second oldest publicly quoted company. The BBTCL Group has an annual
consolidated turnover of 1.2 billion dollars. The Company has diversified its interests into tea,
coffee, other plantation products, biscuit and dairy products, auto electric and white goods parts,
weighing products, horticulture and landscaping services, healthcare product dental, orthopaedic
and opthalmic products.
BBTCL is one of the most experienced and highly respected business houses in the country.
Operating for the last 150 years, they hold the distinction of being amongst the most eminent and
reputed manufacturers and exporters of naturally grown “Organic Tea “. The premier taste of tea
at BBTCL has not changed a bit over more than a century, neither the confidence of customers in
it, though it has taken to modern machineries, processes and growing procedures. The company
believes in providing the best natural quality products and taking India to the global platform. To
achieve this, it completely relies on product quality and trade competency. Of course, the present
world recognizes the worth of Indian goods and services, and the country’s capacity to meet the
global standards.
They had a Group of eight estates are situated in the district of ‘Kodagu’ (Coorg) in Karnataka
State, South India. Coorg is a hilly plateau bounded on the west and south by the Western Ghats.
It is situated between latitude North 11.55′ and 12.50′ and longitude east 75.25′ and 76.14′
covering an area of approximately 4,105 sq.kms. (1585 sq.miles). Coffee has been grown in
Coorg for well over 100 years. Coffee was first planted in the Nalknad area by Moplahs, but it
was not until 1854 that the first plantation was opened in the Madikeri area. The Coffee’s have
won numerous “Flavour of India” awards and has been described as“A definite palate glider with
smooth and creamy yet chocolate tones creating the foam and crema for your expresso cup”
Other than the business of Tea Plantation and Coffee Plantations they operates in some other
businesses also such as Electronic Components, Horticulture, and Weighing Products.
History
By 1926, company established “The Mudis Group of estates”, this group comprises of five states
and four factories which are having 1,863 hectares for tea plantation. BBTCL is the leading
concern of the Wadia group. Company entered in the plantation business in 1913, and now its
plantation area in the hilly areas of south India covering about 2,822 hecters under tea. These
plantations are producing over 8 million Kegs of tea annually. Company is providing a great
taste. Company is preserving the taste and flavour of Indian tea. Wadia group deals in many
other business like foods, Textiles, chemicals, light engineering, health care and real estate.
Bombay dyeing, Bombay Bumrah and Britannia are the famous business of Wadia group.
Bombay Burmah Trading Corporation is the highly respected and most experienced business
house in the country. Company has revenue of Rs. 247.25 crore in 2018. Net income of the
company is according to financial year 2018 is Rs 25.83 crore. The company served throughout
the country. It was not until 1913 that the Company turned its attention to tea plantations and
invested in suitable areas in South India.
Philosophy
The premier taste of tea at BBTCL has not changed as bit over more than a century, neither the
confidence of customers in it, though it has taken to modern machineries, processes and growing
procedures. The company believes in providing the best natural quality products and taking India
to the global platform. To achieve this, it completely relies on product quality and trade
competency. Of course, the present world recognizes the worth of Indian goods and services, and
the country’s capacity to meet the global standards.
Core Values
Personal lives are enriched by values, the same holds true for organizations. To be “the one” one
has to operate in fair, humble and good faith. Likewise we nurture our lofty aspirations honestly
by integrity and solidarity. Our value system encourages us to foster the talent of internal public
and satisfy the external public by good quality products. The Company firmly believes in
transparency in its dealings and lays emphasis on integrity and regulatory compliance. The
Wadia Group considers good corporate governance a prerequisite for meeting the needs and
aspirations of its Shareholders.
SWOT Analysis
Strengths
Weakness
Threats:
1.Increasing wage costs and seasonal shortage of labour continues to be a constraint for higher
replanting of aged tea plants in Mudis.
2. Changing weather patterns resulting from global warming pose a major threat.
Opportunities:
1.The Corporation has enhanced manufacturing capacity of Orthodox teas, with a view to
improve price realisation per kg of tea.
2.Demand for better made teas seen in the first half of the year after floods in South India.
3.The area under organic cultivation is being increased to drive growth in the export market.
4.Domestic market has demand for good liquoring tea and speciality tea.
5.The Corporation should invest in the improvement of manufacturing facilities to tap growing
demand for better quality tea.
Sources of finance of last five years
Bombay Burmah Trading Corporation Ltd
Equity share holders
Reserves and surplus
Long term borrowings
Short term borrowings
(Amount in crores)
Particulars March 2019 March 2018 March 2017 March 2016 March 2015
14
13.39 13.39 13.39 13.39
12
10
0 0
2015 2016 2017 2018 2019
Column2
Reserves and Surplus
350
313.18
300
276.9
250 243.06
239.65
200 197.94
150
100
50
0
2015 2016 2017 2018 2018
Column1
160
140
120
100
80
60
40
20
0
2015 2016 2017 2018 2019
Column2
Short term borrowing
300
250
200
150
100
50
0
2015 2016 2017 2018 2019
Column2
Particulars March 2019 March 2018 March 2017 March 2016 March 2015
Column3
1000
800
600
400
200
0
2015 2016 2017 2018 2019
Column2
Secured Loans
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2015 2016 2017 2018 2019
Column2
Interpretation-
WACC of Bombay Burmah Trading Corporation Ltd in year 2019 is 0 and Kaveri seeds also has
0. In 2018, BBTCL has 0.2167 and Kaveri seeds has 0.1877. In 2017, BBTCL has 0.2212 and
Kaveri Seeds has 0.1931. In 2016, BBTCL has 0.2048 and Kaveri seeds has 0.1799. In 2015,
BBTCL 0.1974 and Kaveri seeds has 0.1674. From the above data we can see that Kaveri Seeds
is in better position then BBTCL. Kaveri seeds has less WACC then BBTCL which means that
firm’s value will be increased as WACC is low.
0.2
0.15
0.1
0.05
0
2015 2016 2017 2018 2019
Column2
WACC of Kaveri Seeds (Compititor)
0.25
0.2
0.15
0.1
0.05
0
2015 2016 2017 2018 2019
Column1
2019 0.237 0
2019 0
0.24
2018 0.19
0.22
2017 0.19
0.23
2016 0.18
0.21
2015 2.4
0.21
Here the diagram represents three stages where in stage first level of debt can decrease cost of
capital and therefore value of firm will go up. In second stage the amount of debt is increased
further the share holder of the company will perceive higher risk and therefore cost of equity will
go up, the advantage of cheaper cost of debt will be offset by the increase in the cost of equity
and the value of firm will remain same. In third stage the company have further taken excessive
amount of debt so cost of equity will go up sharply and WACC will also go up sharply and the
value of firm will decline.
With the help of traditional approach we can see that Bombay Burmah Trading Corporation Ltd
fall in third stage the has more of debt capital and therefore the cost of equity will sharply go up
and the value of firm will go down.
Suggestion-
After analyzing the company’s situation we can see that the company has opted for debt capital
rather than going for equity capital. This could overpower any returns generated by the company
and may be too much to sustain.
According to the above data it can be clearly stated that company must consider taking amount
from preference share with debt. It is also recommended to reduce debt which may affect the
value of firm in the long run.
Capital Budgeting decision-
Capital budgeting is a long term investments, is the planning process used to determine whether
the organizations long term investments such as new machinery, new plants, replacement of
machinery, new products and research and development projects are worth the funding of cash
through the firm’s capitalization.
BBTCL spring division was formed consequent to the merger of erstwhile Bombay Company
with the corporation. In 1995-1996 the corporations formica and springs divisions accredited
with ISO 9002 by international agency.
During the year ended 31 march 2016 New Project Development of BBTCL Electromags
division were adversely impacted due to longer validation period.
The company’s dental products division launched dental x-ray film during the latter part of 2015
and performed well in this category.
BBTCL’s existing holding of 29639375 shares representing 14.35% together with the further
acquisition of additional equity shares by the company and its subsidiary now constitute 38.18%
of the paid-up share capital BDMC.
The company’s dental products division launched dental implants in FY 2017-18 during the year
under review N W Exports limited and Sunflower Investments and Textile Limited merged with
Nowrosjee Wadia and Sons Ltd.
Recent News about the company
BBTCL came back and recover 439% in last 3years the stock has risen nearly 200% in last one
year, 1300 in last 5 years trades at 4.76 times its book value and last 2 years company suffers
significant losses but still the stock price of BBTCL moved up four fold since April 2015.
References
https://www.topstockresearch.com/INDIAN_STOCKS/MISCELLANEOUS/RiskPriceAndValua
tionOfKaveri_Seed_Company_Ltd.html
https://www.topstockresearch.com/INDIAN_STOCKS/TEA_AND_COFFEE/RiskPriceAndValu
ationOfBombay_Burmah_Trading_Corporation_Ltd.html
https://www.capitaline.com/