Bombay Rayon Fashions-Improvement in EBITDA margin:: ICICI Sec

Visit http://indiaer.blogspot.com/ for complete details �� ��

Bombay Rayon Fashions



Improvement in EBITDA margin…
BRFL reported better-than-expected profitability for Q2FY11 on the
back of a higher EBITDA margin of 28.3% as against our expectation of
25.5%. Revenues were in line with our estimates and grew by 35% at |
523.2 crore. On a QoQ basis, fabric volumes have grown by 4% while
realisation has been higher by 2%. Garment volumes too have shown a
QoQ growth of 2% while realisation has marginally improved by 0.5%.


􀂃 Strong operating performance…
Bombay Rayon Fashions (BRFL) reported a 35% YoY growth and
4% QoQ growth in revenues to register its highest ever quarterly
turnover of | 523.2 crore. EBITDA registered a YoY growth of 61%
to | 148 crore, driven by a 450 bps improvement in EBITDA margin.
Lower raw material cost to sales ratio (down from 51.2% to 50.4%)
and decline in other expenses to sales ratio (down from 11.8% to
8.6%) has resulted in the EBITDA margin improvement.

􀂃 ….but higher interest and depreciation subdues profitability
The impressive operating performance has been subdued by higher
interest and depreciation charges. Interest and depreciation have
gone up YoY by 59% and 120%, respectively. This has mitigated the
profitability at the net profit level. We have built in a better-thanexpected
operating performance and factored the higher interest
and depreciation cost and revised our estimates. We have revised
upwards the FY11E EPS from | 21 to | 21.3 and FY12E EPS
downward from | 27.7 to | 25.3.

Valuation
BRFL is trading at 8.6x FY12E earnings. With robust revenue growth
driven by new capacities and strong EBITDA margin in excess of 26%, we
expect BRFL’s net profit to register a CAGR of 27% over FY10-FY12E. We
have valued the stock at 10x FY12E earnings of | 25.3, with a revised
target price of | 253. We have a BUY rating on the stock.