Bombay Dyeing & Manufacturing Co. Ltd.

Transcription

1 Company Update Textile & Real Estate India Research NVS Wealth Managers "Investment Advisors" Bombay Dyeing & Manufacturing Co. Ltd. CMP: 72 Medium Risk RECO: BUY Nifty 8485 Sensex Nifty PE 23.5 Sensex PE 22.7 Stock Data Sector Textile & Realty BSE Code NSE Code BOMDYEING FV 2.0 Market Cap (INR cr) 1487 Market Cap (US$ mn) 235 Equity Share Cap Stock Performance (%) 52-week high/low Rs. 87.5/58.6 1M 6M 12M Absolute (%) Shareholding Pattern (%) Promoters FII DII Others Sensex & Stock Movement Bombay Dyeing (BDML), the flagship company of the Wadia Group incorporated in 1879, is engaged in the business of Real Estate development, Textile business and Polyester business with topline of around Rs. 2,400 crs for the year ended 31 st March BDML owns huge land banks at its Dadar (Island City Centre, "ICC") and Worli (Wadia International Centre, "WIC") mills, located at the heart of Mumbai and there is a development potential for 55 acres of land, offering huge opportunity for mix-use development of Residential Towers, Commercial Towers, Shopping Malls, Premium Retail Space, Luxury Hotels and other support services. Currently, the company is developing 2 multi storey residential towers, ONE ICC & TWO ICC and we believe that the combined estimated sales value of these two towers could be around Rs. 6,000 crs (USD 1 bn). The development potential will be substantially higher for the real estae business offering huge upside spread over next 7 10 years. BDML has recently sold its textiles processing unit for a cash consideration of Rs. 230 crs. which should enable the company to reduce debt considerably. We believe, the polyester business (which has been loss making since many quarters) may also be up for sale at an appropriate time when the desired valuation is received by the company. We believe, BDML may strategically withdraw from the manufacturing business and may concentrate on the high value business of distribution of its famous textile range of stylish linens, bed, bath towels, home furnishings, leisure clothing, kids wear and a whole blissful range of other products through their chain of exclusive 350+ Bombay Dyeing Retail and Multi-Brand stores and concentrate on fast development of huge money spinner business of Real estate going forward. BDML reported de-growth of 10% YoY in its topline to Rs 2,378 crs in FY (Rs. 2,656 crs) and PAT increased by 4% to Rs 25 crs (Rs. 24 crs). However, EBITDA margins have increased to 11% against 9% and PAT margins have increased to 1.1% against 0.9%. BDML on a consolidated basis reported a topline of Rs. 2,386 crs and PAT of Rs. 20 crs. BDML has rewarded its shareholders for an uniterrupted period of 125 years with a dividend of 40% for FY Once the strategy outlined above is fully implemented, we believe that the Real Estate business will unlock large value over a period of 3-5 years. The textile distribution should also contribute positively and losses of manufacturing business will be completely nulled, making a win win situation for the company, management and its shareholders. We recommend a buy with an investment horizon of months SENSEX Bombay Dyeing Financials Standalone Consol INR crs Q4FY15 Q3FY15 Q4FY14 YoY YoY QoQ(%) FY15 FY14 (%) (%) FY15 Revenue ,139-33% 47% 2,378 2,656-10% 2,386 EBITDA 234 (1) % 23500% % 253 PAT 179 (66) % 371% % 20 EPS Share Cap 41.3 Reserves 429

2 BDML The Changing Business Profile BDML is engaged in three business segments viz. Textiles, Polyester Staple Fiber and Real Estate. Investment Rationale Sale of Textile Processing Unit for Rs. 230 Crs The Textile business has a wide range of products such as stylish linen, towels, home furnishing, leisure clothing, kids wear and many more range of products which are available across it 350+ exclusive BDML Retail and multi brand outlets. The revenue of the company has grown at a CAGR of 14% over past 5 years from Rs.294 crs in FY10 to Rs. 570 crs in FY15, due to significant marketing efforts which led to an increase in customer base and introduction of Chief Value Cotton (CVC). However, the company had been facing several headwinds due to slowdown in exports, oversupply situation and fluctuating raw material costs which chiefly constitute crude oil. Additionally growing imports from China, Taiwan and Bangladesh and unorganized sector has made the restructured business of textiles unviable. Thus, the company has sold the textile processing unit in Ranjangaon on slump sale basis for a cash consideration of Rs. 230 crs. The company would use the net proceeds to repay existing loans and reduce the interest burden and enhance the working capital. We believe that the company is now coming out of the manufacturing business and shifting its focus to branded retail segment which will be much profitable business considering the demand for retail branded prodcuts. Global Environment Favorable To Turnaround Polyester Staple Fiber (PSF) Business Polyester accounts for 65% of per capita fiber consumption globally as compared to only 45% in India. BDML is one of the 4 producers of PSF in India with a market share of 16% and its capacity utilization is around 85.6% as compared to 70% of the industry average. With a capacity of 182,000 MT per annum, the plant is built to exemplary environment and energy conservation standards. It is ISO 9001:2000, 14001:2004, OHSAS 18001:2007 and Oeko-Tex Standard 100 certified. PSF consumption is expected to grow at 4-4.5% over next 3 years due to factors like favorable demographics, increasing workforce, and rise in number of middle income families, limited growth in cotton production and improvement in GDP growth of the country. BDML s focus on cost competitiveness, specialty fiber, and innovative product mix should aid company in achieving higher margins in this segment. As a strategy to reduce cost, the company has taken measures by converting fuel from RLNG to coal. Peer companies such as Indo Rama Synthetics has started making profits in its Polyester Staple Fiber business and have shown signs of revival. We expect that once the demand and growth for 100% non-cotton (man-made fibre) yarns improves along with easy availability of principal raw material PTA, BDML would start posting profits in the near term.

3 Segmental Revenues Bombay Dyeing IndoRama Synthethics FY15 FY14 FY15 FY14 Total Income 1,367 1,322 2,761 2,637 EBITDA (10) (110) 5 (126) EBITDA margins -0.71% -8.32% 0.18% -4.78% With PSF business on the verge of turnaround, we expect that the company might look at exiting this business (which it had already tried in the past) as and when the desired valuation is acheived. This would be a part of its strategy to cease the manufacturing activities bringing down its overheads substantially and zeroising the losses arising from manufacturing business and focus on branded retail business. Realty Land Bank (Rs. In Crs.) Land Banks owned by BDML Bombay Dyeing, the owner of Bombay Realty (100% subsidiary) together along with promoter group companies/trusts, is one of the largest land owners in Mumbai. It directly owns close to 55 acres of land in the posh and expensive South Bombay area of Mumbai ( Dadar & Worli). Further, the company has access to close to 10,000 acres of historically acquired land in India at rock bottem prices (of which ~700 acres is in Mumbai), thus providing land visibility far beyond the 5 years required to develop the South Mumbai parcels. BDML had acquired these land banks way back in 1800s and 1900s at approx. 4annas/gunthas ultimately making it free of cost at current market price. In Real Estate business, generally the real estate prices comprise of nearly 70% cost of land and the rest is cost of development of land and profits to the developer. However in case of Bombay Realty, land carries zero costs so the profits margin are exorbitantly higher at around 60-70%. ICC, Dadar BDML has already delivered and given possession for its first flagship project at Springs Mill in Wadala which has been completely sold out. ONE ICC and TWO ICC towers excavation has started and are expected to be delivered in WIC, Worli The second flagship project of the company is WIC in Worli, Mumbai spread across 25 acres. It will be a luxury mixed-use project consisting of residences, offices, a luxury hotel, mall, High street and a state-of-the-art hospital. In 2010, Bombay Realty completed and sold space to Axis Bank for its Head Office and also has the Bombay Dyeing group's various corporate offices onsite. Some of the other structures on this property include Hard Rock Cafe and Shiro Restaurant. The retail space would be completed and possession would be handed over in the next four to six months. Lease of Commercial Space Few years back, BDML had strategised to lease out its commercial towers instead of selling out, to ensure regular cash inflows to the company. This would be an excellent opprtunity in the times to come with reforms by government in respect of ease of doing business in India and thereby leading to leasing out of huge commercial spaces by exsisting and upcoming business houses.

4 Recent Development - Government Policy Update The Municipal Corporation in Mumbai has proposed to increase floor space index (FSI) up to 8 in the Development Control Rules. Currently, the FSI is 1.33 for island city and 1 for suburbs. The permissible FSI will eventually increase for locations with better infrastructure connectivity, accessibility, area s future potential, its proximity to transit stations (such as metros, monorails, local railways and other transport junctions) and the existing levels of FSI consumed. BDML's current projects in Mumbai should benefit from such reforms as their properties are in close proximity to various railway stations. This would enable substantial increase in buiding of multistorey towers by the company and increase in value of these land parcels. One must wait and watch for the final policy of the government. BDML - Financial Performance BDML had reported de-growth of 10% YoY in topline (standalone) to Rs 2,378 crs for FY (Rs 2,656 crs) and profitability of Rs 25 crs (Rs 24 crs) on a tiny equity capital of Rs. 41crs yeilding an EPS of Rs On a consolidated basis BDML had reported a topline of Rs 2,386 crs and profitability of Rs 20 crs giving an EPS of Rs.1. BDML reported de-growth of 33% YoY in its topline to Rs 758 crs in Q4 FY (1139 crs) and PAT of Rs 179 crs (Rs 207 crs). However, EBITDA margins have increased to 31% against 24% and PAT margins have increased to 24% against 18%. Despite lower booking of revenue in the real estate business in the current year, BDML has rewarded its shareholders a dividend of 40% for FY One must understand that real estate development does not generate revenue on a YoY basis, but it is a process of at least 3-5 years as it involves seeking approvals from various statutory authorities, development of the project, marketing, etc.

5 Valuation and Recommendation We believe realty development at ICC would result in a huge unlocking of value for Bombay Dyeing s Shareholders. Substantial profits would occur in next 3-5 years. This is just the beginning of large scale development of 55 acres of land bank available with BDML which makes it one of the Top Real Estate Stories in India going forward. Investors must note here that at CMP of Rs 72/Share for a the Market Capitalization of Rs 1,487 crs, the asset value of Land Bank owned by BDML would be Rs 19,700 crs. We believe that in next 7-10 years, the finished project will command higher valuation, strong sales revenue and profits. BDML has disproportionate debt of Rs 1,445 crs against a nominal net worth of Rs 1,552 crs. Management expects to gradually reduce it s debt from the sales proceeds (~Rs 6,000 crs) of upcoming two tower projects at ICC and make the Company completely debt free to change the entire fortune of the Company in the next 3-4 years. Bombay Dyeing, based on the upcoming projects could turn out to be a multi bagger once the cycle of profitability on Q-o-Q basis begins. We foresee huge value unlocking and strong profitability in time horizon of next 3 to 4 years. In FY , Promoters of Bombay Dyeing, had been allotted 3,957,000 Warrants at Rs 105.4/Share (adjusted for split from FV of Rs. 10 to Rs. 2). This confirmed high confidence level of the management and established a view that exciting future lies ahead. We believe that going forward the Long term story of BDML remains intact and Shareholders can earn huge returns in times to come. We believe BDML could generate strong cash flows from its current projects with strong profitability and could result in huge unlocking of value for its Investors.

6 Standalone Financials (Rs. in crs) Y/E March Revenue Total Raw materials COGS Personnel Cost SG&A Cost EBITDA Depreciation Interest Other Income EBT Tax RPAT Extraordinaries adj APAT Y/E March Equity Share Capital Reserves Net worth Secured loans Unsecured loans Total loans Deferred tax liab Capital Employed Net block CWIP Investments Current assets Current liabilities Net C. Assets Other Assets Capital Deployed Y/E March PAT Depriciation & Amortization Incr/(Decr) in Def Tax Liab (Incr)/Decr in W Capital (Incr)/Decr in Mis. Exp not w/o Cash Flow from Operating (Incr)/ Decr in Gross PP&E (Incr)/Decr In Work in Progress (Incr)/Decr In Investments (Incr)/Decr in Other N. C. Assets Cash Flow from Investing (Decr)/Incr in Debt (Decr)/Incr in Share Capital (Decr)/Incr in Warrants app Money (Decr)/Incr in Reserves Dividend Cash Flow from Financing Other Reserve Incr/(Decr) in Balance Sheet Cash Cash at start of year Cash at end of year Y/E March Growth (%) Total Sales EBITDA APAT Profitability (%) EBITDA Margin APAT Margin ROIC ROE Per Sh. Data (Rs.) AEPS Reported CEPS BVPS Valuations (x) PER (x) PEG (x) P/BV (x) EV/EBITDA (x) EV/Net Sales (x) Dividend Yield (%) Turnover days Debtor Days Payable Days Gearing Ratio D/E (x)

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