Visit http://indiaer.blogspot.com/ for complete details We believe that Bombay Dyeing monetising its legacy land bank in a timely
manner will be a key trigger for its stock performance. Moreover, recovery in its
manufacturing (textile and polyester units) business will be an additional catalyst
for the stock. We have valued the real estate business at `940/share and
manufacturing business at 0.5x of its asset value fetching `112/share. Hence, we
recommend a Buy on the stock with a Target Price of `894/share, which is at 15%
discount to our NAV.
Legacy land bank at prime location to unlock value: Bombay Dyeing has ~65
acres of historical mill land located in Central Mumbai. Both the properties have
~9mn sq ft of saleable area (1mn sq ft already developed), which the company
intends to develop (mixed) over the next 8-10 years. The company has already
entered into a contract with L&T to develop the properties. By end 2HFY2011,
company intends to launch 1mn sq ft for residential purposes at Spring Mills
(Dadar). In 1HFY2011, the company’s real estate segment reported EBIT of
`41.4cr.
Signs of improvement in manufacturing business: Bombay Dyeing has undertaken
measures to improve profitability of its manufacturing business by reducing
inventory, initiating cost reduction measures viz. switching over from liquid fuel to
natural gas, shifting its manufacturing base and launching new products.
Consequently, EBIT loss was lower for Textile division at `14.4cr in 1HFY2011 v/s
`22.3cr in 1HFY2010 while the Polyester division reported a profit of `9.1cr in
1HFY2011 v/s a loss of `39.6cr in 1HFY2010. Further, the demand has been
reviving in the domestic segment, which has improved utilisation levels.
Trading at attractive valuations: We have conservatively assumed execution
period of ten years for the 8mn sq ft of saleable area. Further, the promoters
recently issued 4mn warrants at `527.83/share, which will increase their stake
from 47.1% to 52.1% post conversion. At the CMP, the stock is trading at 41%
discount to our NAV. Hence we recommend Buy.
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