Hold Bombay Rayon Fashions; Target :Rs 244 ::ICICI Securities (PDF link)

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F a b r i c   s e g m e n t   c o n t i n u e s   t o   g r o w …
Bombay Rayon Fashions’ (BRFL) Q3FY12 results were broadly in line with
our estimates. The company reported a topline of | 700.9 crore, up 28.8%
YoY as against our estimate of | 646.5 crore. The EBITDA margin at
26.5% was in line with our estimates. Despite a good operational
performance, PAT remained flat at | 53.7 crore (I-direct estimate: | 55.1
crore) mainly due to higher fixed costs. During the quarter under review
and nine months ended December 2011, the topline growth was led by
strong growth in the fabric segment, which came in on the back of
capacity expansion (from 220 million metre to 235 million metre). We
have revised our FY12E estimates downwards due to higher fixed costs.

52-Week Blockbuster: Bombay Rayon Fashions :: Business Line

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A textile company may be an unlikely candidate to beat market returns, but the stock of Bombay Rayon Fashions has had a comparatively better run.

The company manufactures fabric and garments for the domestic and export markets, allowing it to make the most of opportunities in the global and burgeoning domestic markets.

Further, even while concerns over slowing developed economies loomed large, Bombay Rayon had used its large manufacturing capacities to its advantage during the previous slowdown.

Retailers and manufacturers overseas had looked to consolidate suppliers to lower costs.

Another factor aiding the stock was an open offer at Rs 300 for 2.84 crore (20 per cent) of the company's shares.

The open offer price was at a premium of 7.5 per cent to the market price at the time of announcement.

The open offer was initially meant to close by June 18 this year. It, however, faced delays, with offer eventually closing on November 23.

Revenues have been steadily growing over the past two years. The company has kept up revenue growth in the current fiscal too, growing 21 per cent in the first six months.

However, rising interest costs emerged a damper on profits spiralling 45 per cent for the half-year ending September. Net profits, as a result, declined by three per cent.

Sell Bombay Rayon Fashions; Target : Rs 238 ::ICICI Securities

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M a i n t a i n   v i e w :   S e l l   a t  c u r r e n t   m a r k e t   p r i c e …
In April 2011, AAA United BV (AAA United), along with Aktieselskabet and
Ashwell Holding Co Pvt Ltd, had made an open offer to the shareholders
of Bombay Rayon Fashions Ltd (BRFL) to acquire up to 2.84 crore shares
amounting to 20% of the emerging voting capital of the company at a
price of | 300/share. The offer was meant to open on May 30, 2011.
However, the same was deferred. The company has now announced
revised dates for the same (refer Exhibit 1). Further, Sebi has directed that
interest at the rate of 10% per annum be paid on the offer price for the
delay period from the scheduled date of payment to the shareholders of
BRFL. Accordingly, the offer price stands revised from | 300 to | 302.06
per equity share. Based on the offer price, the size of the open offer works
out to | 857.8 crore. The offer is not conditional upon any minimum
acceptance ratio.
Exhibit 1: Offer details
Original Schedule Revised Schedule
Offer opening date 30-May-11 4-Nov-11
Offer closing date 18-Jun-11 23-Nov-11
Source: Company, ICICIdirect.com Research


V i e w
We continue to maintain our view that the existing investors should sell
the shares at the CMP. Considering a higher tax rate (to be paid in case of
tendering shares in the open offer, as in an off-market transaction short
term capital gain from shares is taxed at normal slab rates) and a waiting
period (as the open offer closes on November 23, 2011), we believe an
investor should sell the shares at  the CMP as the returns for a longer
waiting period are not substantially higher.
Note: * - EPS for FY12E and FY13E and the target price has marginally
reduced due to increase in equity due to conversion of warrants.

Bombay Rayon Fashions: Book profits:: Business Line,

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Investors can book profits in the Bombay Rayon stock, owing to higher valuations on a run up in the stock's price.

Bombay Rayon manufactures fabric and garments for the domestic and export markets. Falling margins on higher costs of raw materials, depreciation and interest, and renewed worries in its key export economies could mute performance in the coming quarters.

At Rs 274, the stock trades at 16 times the trailing 12-month earnings, at a stiff premium to peers such as Alok Industries. Valuations are close to a peak of 19 times for a three-year period. Investors who took exposure in the stock on our buy recommendation in January '10 would have made an absolute return of 45 per cent.

RISING COSTS

Input costs such as cotton and polyester had been on an upsurge from the second half of 2010. The company was unable to completely pass on the price rises in both garments and fabric with the result that operating margins slipped to 20 per cent in FY-11 against the 22 per cent in FY-10. As a proportion of sales, input costs spiralled to 55 per cent in FY-11 from 51 per cent the year before.

While prices of cotton and polyester have tamed in the past few months, they still rule at high levels. Cotton output and related export allowances are debated, which could have a bearing on prices going forward. The company has faced difficulties previously in sourcing yarn and grey fabric. Input costs in the June '11 quarter has remained at 54 per cent of sales.

Revenues in the quarter ended June '11 grew a fairly healthy 20 per cent. Net profits, however, managed just a 9 per cent growth. In the March ‘11 quarter too, profits grew 4 per cent against a 44 per cent expansion in revenues. Interest outgo shot up 56 per cent in FY-11, accounting for a hefty 6 per cent of revenues. This figure has inched up to 7.3 per cent in the June '11 quarter.

Total debt expanded 26 per cent in FY-11, though equity expansion by way of warrant and GDR conversion kept debt-equity in check at 1.2 times (end-March '11) Still, bankrolling fresh capacity expansion, or widening its overseas retail network, could call for further increases in debt.

Capacity expansions in garmenting and yarns undertaken led to depreciation more than doubling in FY-11, eating away a good 6 per cent of sales. The high costs have persisted in the June '11 quarter as well, with depreciation increasing 35 per cent compared to the year-ago period.

The combined onslaught of interest and depreciation led to net margins slipping to 7 per cent in FY-11 from 9 per cent the year before. The June '11 quarter net margins stood at 9 per cent, down from the 10 per cent in the same quarter in 2010.

DEMAND SQUEEZE

Garments are entirely exported, with the US, the UK and Europe the key markets for Bombay Rayon. Exports make up almost half the revenues, at 46 per cent in FY-11. While this share has declined over the years (62 per cent in FY-09), the company is still vulnerable to consumer purchasing patterns, overseas. The optimism over consumer buying in the US and Europe has long since faded, with growth in these regions still sluggish. Bombay Rayon also does not have a leaning towards premium garments, the segment where demand still holds.

Fabric is slated for captive consumption and sale in domestic markets. While a focus on domestic markets helped offset export pressures in the past, the India consumption story too is beginning to wear thin. Excise duty resulting in higher prices, inflation and high interest rates have already exerted pressure on domestic apparel spends; these factors are unlikely to let up in the near future. Retailers have already resorted to early and prolonged discounts.

Sell Bombay Rayon Fashions ; Target : Rs 243 ::ICICI Securities,

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F a b r i c   s e g m e n t   a i d s   t o p l i n e   g r o w t h …
Bombay Rayon Fashions’ (BRFL) Q1FY12 sales increased 20.1% YoY to
| 603.8 crore as against our estimate of | 493.1 crore. This growth was
driven by a 40% growth in the fabric segment (26% volume growth and
14% value growth). On the other hand, the garment segment de-grew by
4% on the back of a 6% dip in realisation. The company was unable to
pass on the impact of the imposition of excise duty and hence margins
shrank by 67 bps YoY to 24.8%, marginally higher than our estimate of
24.2%. Absolute EBITDA increased 17% YoY to | 149.7 crore. However,
due to higher interest and depreciation costs PAT growth was a tepid
8.9% YoY to | 56.8 crore (I-direct estimate: | 52.5 crore).
ƒ Segmental performance
Fabric:  BRFL’s fabric segment aided  the strong topline growth;
fabric sales increased from 20.8 mn meters in Q1FY11 to 26.2 mn
meters in Q1FY12. Realisations also increased from | 112/meter to
| 128/meter. Going forward we expect the same to increase to | 135
in FY12E and marginally dip to | 133 in FY13E.
Garments: Volumes increased from 9.9 mn pieces in Q1FY11 to 10.1
mn pieces in Q1FY12. However,  realisation slipped from | 273 per
piece to | 256 per piece. Going forward we expect the same to
increase to | 260 per piece in FY12E and | 270 per piece in FY13E.
V a l u a t i o n
BRFL is trading at 13.5x FY12E and 10.4x FY13E EPS of | 22.7 and | 27.0
respectively. We expect BRFL’s revenues and net profit to register a
CAGR of 24.6% and 25.3%, respectively, over FY11-FY13E. The stock has
appreciated significantly on the news of the open offer which has been
deferred. We continue to reiterate our view that investors holding the
stock should book profits. We have valued the stock at 9x FY13E earnings
of | 27.0 and arrived at a target  price of | 243. We reiterate our  SELL
rating on the stock.

Sell Bombay Rayon Fashions; Sell at current market price…Target : | 253 :: ICICI Sec

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Sell at current market price…
AAA United BV (AAA United), along with Aktieselskabet and Ashwell
Holding Co Pvt Ltd, has made an open offer to the shareholders of
Bombay Rayon Fashions Ltd (BRFL) to acquire up to 2.84 crore shares
amounting to 20% of the emerging voting capital of the company at a
price of | 300 per share. Based on the offer price, the size of the open
offer works out to | 853 crore. The offer is not conditional upon any
minimum acceptance ratio.

Add Bombay Rayon Fashions - Evident input cost pressures; Target :Rs 253: ICICI Securities

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Bombay Rayon Fashions - Evident input cost pressures…
Bombay Rayon Fashions (BRFL) reported its Q3FY11 numbers that were
marginally lower than our estimates. On a sequential basis, revenues
improved marginally (up 4% QoQ). While revenues from the garments
division remained flat, the fabric segment grew 7% QoQ led by 6%
volume growth to 23.07 million metre. Despite 3.3% increase in
garments’ volumes, lower realisation dampened growth. EBITDA
margin improved YoY (up 143 bps) but came in lower than our
estimates (27%) at 25.7% as BRFL was unable to pass on input price
hikes to customers. Higher interest and depreciation outgo further
weighed on the bottomline leading to a mere 12.6% YoY PAT growth.

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

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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%.