Britannia Industries LTD--a case study in financial innovation, distribution of profits and issuance of bonus debentures.

Author:Bhagwat, Yatin


Dividends and share repurchases have been two primary ways for firms to transfer cash to shareholders. The case discusses the motives of this method of profit distribution, its impact on capital structure and the signaling aspect of such a declaration. The primary use of the case would mostly likely be a corporate finance class. However, other potential uses could be in international finance, due to a focus on emerging markets.

Keywords: Shareholder distributions, bonus debentures, financial innovation


    Dividends and share repurchases have been two main ways for firms to transfer cash to shareholders. Recently, Britannia Industries, a familyowned business listed on the Mumbai Stock exchange and managed by the Wadia family issued bonus debentures to its shareholders. The Wadia family holds more than 50% of the shares in the company through various holding companies and individuals in the family. The case discusses the motives of this method of profit distribution, its impact on capital structure and the signaling aspect of such a declaration. Stickiness of dividends, sustainability of earnings growth, and future investment plans of the company play a role in this decision. The case also provides an opportunity in the foray of alignment of minority shareholders' interests with those of the majority interests.

    This case is a classic example to demonstrate the innovation that is taking place in contemporary corporate finance. It deals with dual subject categories of capital structure and dividend policy. The case could be used in International Finance classes, as the corporate culture encompasses the emerging markets. The classroom discussion may extend well over two hours. Students are expected to take about four hours to answer all questions in a pertinent manner. The objective of this case is to make students realize the implications of various methods of shareholder rewards available to a corporation. The corporation has to weigh the consequences of each alternative in the context of expected sustainability of future earnings and their growth. The case discussion may center on corporate finance issues, agency issues, and ownership issues.


    The company web site provides a glimpse into the path of the company from its humble beginnings. In 1892, a biscuit company was started in a Calcutta (now Kolkata) with an initial investment of Rs. 295. (US$60). The data provided in the case is obtained from the annual reports of the company. All information provided is from public documents. By 1910, with the advent of electricity, Britannia mechanized its operations, and in 1921, it became the first company east of the Suez Canal to use imported gas ovens. Britannia's business was flourishing. However, more importantly, Britannia was acquiring a reputation for quality and value. As a result, during World War II, the Government reposed its trust in Britannia by contracting it to supply large quantities of "service biscuits" to the armed forces. As time moved on, the biscuit market continued to grow ... and Britannia grew along with it. In 1975, the Britannia Biscuit Company took over the distribution of biscuits from Parry's, who until then distributed Britannia biscuits in India. In the subsequent public issue of 1978, Indian shareholding crossed 60%, firmly establishing the home country's acceptance of the firm. The following year, Britannia Biscuit Company was re-christened Britannia Industries Limited (BIL). Four years later in 1983, it crossed the Rs. 100 crores revenue mark. On the operations front, the company was making equally dynamic strides. In 1992, it celebrated its Platinum Jubilee. In 1997, the company unveiled its new corporate identity--"Eat Healthy, Think Better"--and made its first foray into the dairy products market. In 1999, the "Britannia Khao, World Cup Jao" (Eat Britannia Biscuits and attend World Cup) promotion further fortified the affinity consumers had with 'Brand Britannia'.

    Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food brand of the country. It was equally recognized for its innovative approach to products and marketing: the Lagaan Match was voted India's most successful promotional activity of the year 2001, while the delicious Britannia 50-50 Maska-Chaska became India's most successful product launch. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born. In recognition of its vision and accelerating graph, Forbes Global rated Britannia 'One amongst the Top 200 Small Companies of the World', and The Economic Times pegged Britannia India's 2nd Most Trusted Brand.

    Today, more than a century after those tentative first steps, Britannia's fairy tale is not only going strong but blazing new standards, and that miniscule initial investment has grown by leaps and bounds to millions of rupees in wealth for Britannia's shareholders. The company's offerings are spread across the spectrum with products ranging from the healthy and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded in garnering the trust...

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