Angel Broking, Bombay Dyeing - Buy,

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Bombay Dyeing - Buy
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. The
promoters recently issued 4mn warrants at `527.83/share,
which will increase their stake from 47.1% to 52.1% post
conversion. 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 (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.
Valuation - Trading at significant discount to NAV
􀂄 We have assumed execution period of ten years for the
8mn sq ft of saleable area.
􀂄 Spring Mill valued at `954/share: We have assumed 5mn
sq ft as saleable area from the 40 acre Spring Mill project. The

selling price has been assumed at `20,000/sq ft for the
residential project and rental of `125/sq ft for the commercial
segment. From FY2012 onwards, we have factored in 5% price
escalation in the construction, capital and rental value of this
project. We have assumed that Bombay Dyeing will develop
the entire Spring Mill project by FY2021.
􀂄 Worli Mill valued at `720/share: We have assumed 3mn sq
ft as saleable area from its 20 acre Worli Mill project. The selling
price has been assumed at `25,000/ sq ft for the residential
project and rental of `150/sq ft for the commercial segment.
From FY2012 onwards, we have factored in 5% price escalation
in the construction, capital and rental value for this project. We
have assumed that Bombay Dyeing will develop the entire Worli
Mill project by FY2021.
􀂄 We have assigned 15% WACC and 10% capitalisation rate
􀂄 We have assumed `4,000/sq ft of construction cost currently
􀂄 We have assumed tax rate of 33% for its real estate business