Cadbury India – Not a Stock Idea!
Well, first a disclosure – I am really into chocolates since I first tasted one, and am just unable to refuse the temptation! So I have been a big customer of Cadbury since the time I can remember.
For the background, Cadbury India delisted in early 2003, offering Rs. 500 per share to shareholders. The company managed to buy over 90% of the shares, and delisted from the stock exchanges. Around 8,000 minority shareholders, holding 2.4% equity, rejected the price. At an Extra Ordinary General Meeting held in Nov 2009, the company passed a special resolution to reduce the Equity capital by extinguishing the share capital of only the minority shareholders, by paying them Rs. 1,340 per share. Court case is being fought between the company and minority shareholders over the final exit price.
I was studying various listed FMCG companies, and then thought it would be interesting to also analyze some unlisted ones, whose financials are available. So while the Court will take the final decision, it would be insightful to look at the leading chocolate maker in the country, especially since the consumption boom is the main story now days in the stock market.
(All Figures in Rs. Million, Dec Ending)
(RONW – Operational calculation after reducing estimated excess cash)
All the figures show an outstanding business managed well, with perhaps the exception of dividend policy. Given the nature of business, the company could have easily paid a very large part of the earning as dividend. But the dividend intention could have been governed by other considerations like tiring out the minority shareholders.
Looking at the valuations of FMCG currently, the company would be trading at substantial premium today. Various assumptions like trailing P/E between 25-45x, and P/S of 2-4x leads to fair valuation per share between Rs. 2400 – 4500.
The last price I read was Rs. 2,014, leading to a CAGR of 16.7% since delisting (dividend return would be meager). If the final price is Rs. 3,000 per share, it will work out to be CAGR of 22%.
1. It shows the advantage of investing money in great businesses for the long term.
2. 17-22% CAGR seems like an attractive return, but not perhaps in comparison to returns generated by other FMCG companies in the same period, especially with stock liquidity, absence of court battles and liberal re-investible dividends thrown in. Perhaps shows a marriage of reluctance may not be worth it. Choose your long term partner well!!
Share This Post
Subscribe to Mailing List
Subscribe To Our Blogs
Join our mailing list to receive the latest blogs and updates from our team.