What Factors Could Be Contributing to the Undervaluation of Bottlers Nepal's (BNL) Share Price?

Bottlers Nepal Valuation

Executive Summary:

This report looks at the true value of Bottlers Nepal Private Limited. Bottlers Nepal Group comprises of two companies; Bottlers Nepal Balaju (BNL) and Bottlers Nepal Terai (BNTL), both of which are listed on the Nepal Stock Exchange.

BNL owns a 90.88% stake in BNTL. Despite owning the majority of BNTL, BNL’s valuation is drastically lower than not only of BNTL, but also industry standards. As seen in the table below, the 90% owned subsidiary has a market capitalization of more than 4X of the parent company.

Source: NEPSE

This speaks to the credibility of BNL’s listed share price, which upon further analysis, does not reflect the true value of BNL.

The true market value of BNL has been calculated in this report using industry average (and BNTL) EBITDA multiples. The applicable multiple is 13.77x EBITDA, resulting in a per-share value of BNL of 10,084.2, the market capitalization of NPR 19,653,051,209, and Enterprise Value of NPR 22,786,590,286.

BNL’s Undervalued Listed Share Price

1) BNL is a closely held listed company, with limited (concentrated) Public Shareholding

BNL’s three major shareholders are 1) Coco-Cola South West Asia Holding Limited (76.16%), 2) Gorkha Brewery Private Limited (22%) and 3) Public Shareholding (1.84%). Only 1.84% of the BNL shares are held by the public, suggesting its closely held nature.

Typically, listed companies float at least ~10% of shareholding onto the share market. This is a global standard as well as a standard seen in NEPSE. We can see in the graph that BNTL and Nepal Unilever have ~10% and 15% public ownership respectively.

Source: Annual Report: BNL, BNTL, UNL

2) BNL has minimum trading activity compared to others in the industry

Low Number of Transactions

As BNL is so closely held, with only 1.84% being owned by the public, it has seen minimal trading activity. As seen in the table below, BNL shares have had only 8 transactions in the last 8 years. This is a very low number of transactions for a typical listed company on NEPSE. When we compare this to BNTL and UNL, it raises the question why BNL’s trading activity is minimum.

Source: NEPSE; BNL

Source: NEPSE; BNL, BNTL, UNL

Low Transaction Values

Furthermore, if we look specifically at the transaction turnover of BNL versus industry comparable, BNTL and UNL, it remains very low, further supporting the fact that BNL’s trading activity is minimum.  

Source: NEPSE: UNL, BNT, BNL

Small Trading Price Range

Source: NEPSE: UNL, BNT, BNL

3) BNL’s trading activity is likely related-party transactions

With the data available above, we have concluded that BNL’s low trading activity suggests most transactions, if not all, are related-party transactions. There are certain taxes and fees on share trading in Nepal, which are based on the traded price. The first is a Capital Gains Tax of 5% (held for more than 365 days) & 7.5% (held for 365 days or less) on individuals and the rate of 30% on corporates. The second is a 0.015% payable to the Securities Exchange Board of Nepal (SEBON) and lastly, a broker commission is also applicable based on the traded price.

Therefore, there are significant economic reasons as to why the traded price of BNL among a small group of shareholders is capped at a bare minimum.

This leaves us with the conclusion to not perceive BNL’s listed share price as their true value. Therefore, we have conducted our own valuation based on industry comparables.

True Value of Bottlers Nepal

The true value of BNL’s shares can be calculated by looking at how typical listed companies on NEPSE are valued. For this purpose, Bottlers Nepal Terai (BNTL) is perhaps the best example.

Source: BNTL Annual Report 20/21, NEPSE BNTL Price on 05/09/2022

As discussed above, BNTL has sufficient public ownership, significant trading activities and no, or minimal, related party transactions. Additionally, BNTL is the exact same business as that of BNL and can thus be used as a suitable comparable multiple while determining the true value of BNL. The 13.77x multiple is further justified after looking at UNL’s EBITDA multiple of 14.08x (based on UNL share price on 04/09/2022 and UNL 21/20 Annual Report), another active equity in the FMCG space.

Source: BNL Annual Report 20/21