FIN542

Financial Management

Submitted by: Submitted to:

Prem Kumar (B33) Mr. Rohit Bansal
Sumit Sharma (B34)
Harshit Chandna (B36)
Shivani Sharma (B37)
Naureen Shabnam (B39)

Section- Q1943
Course Code: FIN542 Course Title:
Financial Management

Course Instructor: Dr. Rohit Bansal

Academic Task No.: 01 Academic Task Title: Bombay Burmah Trading

Corporation Ltd.

Date of Allotment: 27/11/2020 Date of

Submission:27/01/2020

Students` Roll no: RQ1943B33 Student’s

Reg. no: 11913451
RQ1943B34
11912960
RQ1943B36
11911510
RQ1943B37
11907554
RQ1943B39
11907578

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.

Prem Kumar (B33)

Sumit Sharma (B34

Harshit Chandna (B36)

Shivani Sharma (B37)

Naureen Shabnam (B39)

Evaluator’s comments (For Instructor’s use only)

General Observations Suggestions for Best part of assignment

Improvement
Evaluator’s Signature and Date:

Marks Obtained: _______________ Max. Marks: ______________

Peer Rating

Roll Name Marks Marks Total marks Signature

Numbe allocated by allocated by
r students Teacher

B33 Prem Kumar 10

B34 Sumit Sharma 10

B36 Harshit Chandna 00

B37 Shivani Sharma 10

B39 Naureen Shabnam 10

BOMBAY BURMAH TRADING CORPORATION LIMITED

Bombay Burmah Trading Corporation limited also called as Bombay Bumrah Corporation. This
company was formed by Wallance Brothers in 1863. This company was formed by as a public
company to engage in the tea business by taking over the assets in Burma of William Wallance.
The six brothers first arrived in Mumbai in the 1840s after that a Bombay partnership was
formed in 1848 as “Wallace Bros & Co”. In the 1850s the Wallaces set up a business in Rangoon
which ships tea to Bombay. In 1863 the business was floated as “The Bombay Burmah Trading
Corporation”. Its equity was held by Indian merchants, as well as the Wallace Brothers who had
the controlling interests. By the 1870s it was a leading producer of teak in Myanmar.

BBTCL is mainly famous in there two businesses:

 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.

Mission and vision

The company belives in providing the best quality natural products to its customers and it also
wants to take India to the Global platform.
BOARD OF DIRECTORS
Chairman/ Non-Executive/ Promoter
Mr. Nusli N. Wadia Director

Mr. Jehangir N. Wadia Non-Executive/ Promoter Director

 Non-Executive/ Non-Independent
Dr.(Mrs.) Minnie Bodhanwala Director

Mr. Rajesh Batra Independent Director

Dr. Y.S.P Thorat Independent Director

Mr. Vinesh Kumar Jairath Independent Director

Mrs. Gauri Kirloskar Independent Director

Mr. Ness N. Wadia Managing Director/ Promoter Director

Corporate Social Responsibility (CSR) Policy-

BACKGROUND
Corporate Social Responsibility (CSR) embodies the various initiatives and programs of the
Wadia Group in the communities and environment in which Group Companies operate as
also rural development activities including social obligations under the Plantation laws
applicable to the BBTCL’s Plantation activities. It represents the continuing commitment and
actions of the Group to contribute towards economic and social development and growth.
OBJECTIVE
The CSR Policy of The Bombay Burmah Trading Corporation, Limited (the Corporation) is
being formulated and adopted in terms of Section 135 of the Companies Act, 2013 and the
Rules made thereunder. The Corporation will undertake CSR activities specified in Schedule
VII to the Companies Act, 2013 read with Corporate Social Responsibility Rules, 2014.
CONSTITUTION OF CSR COMMITTEE
The Board of Directors of the Corporation has constituted a CSR Committee of Directors
comprising of three directors out of which two are Independent Directors.
ROLE OF CSR COMMITTEE
The CSR Committee will play the following role in fulfilling the Corporation’s CSR
objectives:
 Recommendation of the Project / Program to be undertaken within the long term vision
and strategy of Wadia Group in respect of CSR activities, amount of expenditure to be
incurred, type of activities, roles and responsibilities of various stakeholders, etc.
 Recommendation of rural development activities/ projects undertaken or to be undertaken
by the Corporation in rural areas in which the Plantations division of the Corporation
operates;
  Formulation of a monitoring mechanism for ensuring implementation of the Project /
Program undertaken or the end use of the amount spent by it towards CSR activities.

SWOT Analysis

Strengths

1. Strong back end integration, it plants as well as process the tea

2. The company operates through seven segments, Plantation Products, Building Products,
Dental Products, Auto Ancillary Products, Weighing Products, Investments, and Real
Estate.
3. Company Provide with real taste of coffee
4. Have a diversified portfolio of investments in various industries

Weakness

1.The Industry is highly labour intensive.

2.The wages of workers are determined according to periodic wage settlement agreements and
company ends up paying higher labour cost
3.The Industry doesn’t add any colour in coffee beans which look old

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

Equity share capital 13.39 13.39 13.39 13.39 13.39

Reserves and surplus 243.06 276.90 313.18 197.94 239.65

Long term borrowings 155.27 166.65 60.52 84.88 98.85

Short term borrowings 246.83 181.76 244.01 216.87 192.73

Equity Share Capital

16

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

Long term borrowings

180

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

Equity share capital–

(Amount in lakhs)
In 2019 company has 69771900 number of equity share at the rate 1395.44 each share the
amount of shares forfeited during the year is 0.83 and equity shares at the end of the year are
69771900 at the rate 1396.27.
Kaveri seeds
 Equity Share Capital
 Reserves and Surplus
 Secured Loans
(Amount in crores)

Particulars March 2019 March 2018 March 2017 March 2016 March 2015

Equity share capital 12.63 13.22 13.81 13.81 13.78

Reserves and surplus 1000.33 1008.01 1010.20 901.81 744.96

Secured loans 1.87 1.88 1.64 1.64 1.40

 Equity share capital
14
13.8
13.6
13.4
13.2
13
12.8
12.6
12.4
12.2
12
2015 2016 2017 2018 2019

Column3

Reserves and Surplus

1200

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

BUYBACK OF EQUITY SHARES

In line with the practice of returning free cash flow to the shareholders, during the year the
Company has completed its second buy-back of 29,63,000 Equity Shares at a price of H 675/-
per Equity Share for an aggregate consideration of H 20000.25 Lakhs. The offer size of the
Buyback was 20.24% of the aggregate paid up equity share capital and free reserves of the
Company and represented 4.48% of the total issued and paid up equity share capital of the
Company. The buyback process was completed and the shares were extinguished on 21st
September 2018. The Company’s first buy-back was completed in Financial Year 2017-18.
TRANSFER OF AMOUNT TO RESERVE
The Company has transferred 10.00 Crores to the general reserve for the financial year ended
31st March 2019 under the provisions of Companies Act, 2013 and Rules there under.

Weighted average cost of capital of last five years

Graphical Representation of WACC of Both the companies-

Weighted Average Cost of Bombay Burmah Trading Kaveri Seeds

Capital Corporation Ltd

2019 0.0 0.0

2018 0.2167 0.1877

2017 0.2212 0.1931

 2016 0.2048 0.1799

2015 0.1974 0.1674

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.

WACC of Bombay Burmah Trading Corporation Ltd

0.25

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

Comparison of Cost of Equity-

Cost of Equity Bombay Burmah Trading Kaveri Seeds

Corporation Ltd

2019 0.237 0

2018 0.219 0.187

2017 0.227 0.193

2016 0.2128 0.179

2015 0.2068 0.167

 Comparison Of Cost of Equity

2019 0
0.24

2018 0.19
0.22

2017 0.19
0.23

2016 0.18
0.21

2015 2.4
0.21

0 0.5 1 1.5 2 2.5 3

Bombay Burmah Trading Corporation Ltd Column1

Capital Structure of Bombay Burmah Trading Corporation Ltd-

Traditional approach of capital structure says that there is right combination of equity and debt in
the capital structure at which the market value of the firm will be maximum. As per this
approach debt should be exist in the capital structure only up to a specific point, beyond which
any increase in leverage would result in the reduction in value of the firm. Its means there exists
a value of debt and equity ratio at which the WACC is the lowest and the market value of the
firm is highest.

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/