Buy Bombay Dyeing and Hindustan Zinc: HDFC Securities - Technicals

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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

Bombay Dyeing Vintage gains -says Angel Broking,

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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.

Angel Broking: Bombay Dyeing – Quick take

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Bombay Dyeing – Quick take
We believe that Bombay Dyeing (BD) monetising its legacy land bank in a timely manner
will be a key trigger for its stock performance. Moreover, ongoing recovery in its
manufacturing (textile and polyester units) business will act as an additional catalyst for the
stock. BD intends to develop 9.0msf of saleable area (1.0msf already developed) on its
historical mill land located in Central Mumbai over the next 8–10 years. For the
manufacturing business, the company has undertaken cost-reduction measures and
launched new products to turn profitable. Consequently, EBIT loss was lower for the textile
division at `14.4cr in 1HFY2011 v/s `22.3cr in 1HFY2010, while the polyester division
reported profit of `9.1cr in 1HFY2011 v/s loss of `39.6cr in 1HFY2010. The promoters
recently issued 4mn warrants at `527.83/share, which will increase their stake from 47.8%
to 52.7% post conversion. We have valued the real estate business at `940/share and the
manufacturing business at 0.5x of its asset value fetching `112/share. Hence,
we recommend a Buy rating on the stock with a Target Price of `894/share (implying 43%
upside from the current level), which is at 15% discount to our NAV..

IIFL recommends buy Bombay Dyeing

Bombay Dyeing :Poised to unlock value
Bombay Dyeing owns two prime mill land properties in central Mumbai, one of which has received the
commencement certificate (CC) for launch. The first phase will be launched by December 2010, and
would likely generate revenues of over Rs20bn. With losses in its textiles business down c50% YoY in
FY10 and its PSF business expected to breakeven at the EBITDA level in 2QFY11, we expect the
company to register earnings CAGR of c80% over FY10-13ii. The company’s stock trades at a discount
to our NAV estimate of Rs827/share. We recommend BUY with 30% upside.
Launching 1m sq ft of prime residential in central Mumbai: Bombay Dyeing owns 9.5m sq ft in Worli
and Wadala in central Mumbai. Of this, it has received CC to launch 1 m sq ft residential development in
Wadala. The project is expected to be launched by December 2010, and we reckon it will generate over
Rs20bn in revenues over FY11-14ii. It has also received approval for incentive FSI to provide public parking
in Wadala.
Polyester business expected to break even in FY11; losses down in textile business: The Group’s
textile and polyester businesses have been making losses since FY06. Management expects the polyester
business to achieve EBITDA breakeven in 2QFY11 on improving utilisation, better realisations and lower
energy costs. Losses in the textile business have been cut c50% YoY in FY10. Hence, lower loss-funding
requirement from real-estate cashflows will aid faster monetisation of the land bank.
Strong earnings growth in FY10-13ii; BUY for 30% upside: The imminent launch of over Rs20bn
worth of real estate in Wadala will drive c80% earnings CAGR over FY10-13ii. Even after assigning negative
equity value to textiles and PSF businesses, our assessment of NAV is Rs827/share. We recommend BUY
with a 30% upside from current levels.