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: Nifty 9086 Sensex Nifty PE 23.2 Sensex PE Stock Data Sector Textile & Realty BSE Code NSE Code BOMDYEING FV 2.0 Market Cap (INR cr) 1233 Market Cap (US$ mn) 185 Equity Share Cap Stock Performance (%) 52-week high/low Rs / M 6M 12M Absolute (%) Shareholding Pattern (%) Promoters FII DII Others Sensex & Stock Movement SENSEX Bombay Dyeing Bombay Dyeing (BDML), the flagship company of the Wadia Group incorporated in 1879, is engaged in the business of Textile business, Polyester & Real Estate development and has a topline of over Rs.1,800 Crs for the year ended 31 st March BDML has drawn up a major strategy to revive its textile retail business and is looking for a turnaround in FY First step towards reinvention was that the company recently sold its textiles processing unit for a cash consideration of Rs. 230 Crs, which enabled the company to reduce its debt considerably. The company plans to invest more than Rs.100 Crs in the brand, double its multibrand outlets to 10,000, more than double its franchise stores to 500 and introduce 3-4 new products every year. This would treble the segment s revenue to around Rs.1,000 Crs by FY2020. BDML has strategically withdrawn from the textile manufacturing business and will concentrate on the high value business of retail & distribution of its famous textile range of stylish linens,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. 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. 4,000-4,500 Crs (USD Mn). BDML has entered into a definitive agreement with L&T for completion of construction and to hand over the apartments by October December BDML reported growth of 14% YoY in its topline to Rs 383 Crs in Q3FY17 (Rs. 336 Crs), EBITDA increased by a whopping 1150% to Rs 55 Crs (Rs. 4 Crs). The financial results are nothing to talk about a lot as Polyster, Textile and even Real estate business didn t live up to the expectation. However, now we believe that Realty development at ICC would bring large returns to the company and the shareholders. BDML has an uninterrupted track record for paying dividend to its shareholders for a period of 125 years. Despite lower Revenue in FY16, BDML has rewarded its shareholders with a dividend of 25% for FY Apart from the realizations from the company s core business in the near future, BDML also holds stakes in group companies Bombay Burmah Trading Company(Mcap- Rs.5,307 Crs) and National Peroxide Ltd(Mcap- Rs.508 Crs) through its 96% subsidiary Archway Investments Co Ltd. Once the strategy outlined above is fully implemented, we believe that the Real Estate business will unlock large value over a period of next 2-10 years. The textile retail should also contribute positively and losses of manufacturing business shoul stop forthwith, making a win win situation for the company, management and its shareholders. BDML offers an excellent investment opportunity for long term investors with an investment horizon of months. Financials INR crs Q3FY17 Q2FY17 Q3FY16 YoY (%) 9MFY17 9MFY16 YoY (%) FY16 Total Income % 1,250 1,179 6% 1,845 Operating Profits % % 231 PAT (53) (71) (78) (170) (198) (85) EPS Share Capital Reserves Disclosure: We are holding shares of BDML for us and our clients. 14 th March, 2017

2 I. BDML Business Profile BDML is a flagship company of Wadia group, incorporated in The company is engaged in three business segments viz. Textiles, Polyester Staple Fiber and Real Estate. Stylish linens, towels, home furnishings, leisure clothing, kids wear and a whole blissful range of other products are sold across exclusive Bombay Dyeing Retail and Multi-brand retail outlets. The company has a huge land bank (around 55 acres) in Dadar and Worli, in the heart of Mumbai, India, which represents one of the most pricey real estate in the country, offering tremendous scope for real estate development and unlocking huge value in the times to come. II. Investment Rationale 1) Strong Brand Equity BDML has strong brand equity and well established business operations and has grown to be one of the most respected and trusted brands in the country and the flagship company of the Wadia group. BDML is one of the 4 manufacturers of Polyster stable fiber in the Indian textile industry. The company exports to advanced countries such as USA, Europe, Australia and New Zealand. 2) Healthy Land Bank & Appointing India s best contractor L&T BDML, 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), with large development potential, excellent pricing power and the opportunity for unlocking of value, making it win-win for the stakeholders and all concerned. BDML had acquired this land bank way back in late 1800s and early 1900s at approximately 4annas/gunthas ultimately making it free of cost at current market price. Further, the company has access to close to 10,000 acres of historically acquired land in India at rock bottom prices (of which ~700 acres is in Mumbai) owned by the group, providing long term development opportunity tpo Bombay Realty for many years to come. 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 almost zero costs and hence the profits margin are likely to be exceptionally rewarding. ICC, Dadar BDML has succesfully delivered its first flagship project at Springs, a 40 storey residential tower in Dadar East. With respect to ONE ICC and TWO ICC towers, the construction work is in full swing with slabs upto more than 15 storeys already completed and is working on three shift basis, expected to be delivered by October - December The company has entered into a definitive agreement with the India s largest and most competent contractor L&T Ltd for completion of the construction of ICC-1 and ICC-2 within the next 32 months. The company has also tied up with Hill International as a Project Management Consultant. Hill International is one of the premier firms in the world assisting clients manage their projects and programs more efficiently, so that they are finished on-time, within budget and with as few claims as possible. Having participated in more than 10,000 project assignments with a total construction value in excess of $500 billion, Hill has managed all phases of the construction process, from concept through completion.

3 Bombay Dyeing - ICC-1 and ICC-2 Towers Architectural Image (Source: Website) Bombay Dyeing - ICC-1 and ICC-2 Apartment (Source: Website) The Island City Center (ICC), spread across 29 acres of undisputed land in Dadar, Mumbai, is redefining luxury with spacious living. It is surrounded by almost 14 acres of greenery. ICC brings to Mumbai luxurious township with 3 & 4 BHK residences and high end amenities. The apartments are wholly air-conditioned with international modular kitchen, international sanitary fittings, international marble/ wooden flooring. All apartments are Wi-Fi enabled.

4 WIC, Worli The second flagship project of the company is Wadia International Center 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 2011, Bombay Realty completed and sold space to Axis Bank for its Head Office and also has Bombay Dyeing group's various corporate offices onsite. Some of the other structures on this property include Hard Rock Cafe and Shiro Restaurant. 3) Home & You- Home Textile business slated to grow to Rs.1,000 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 its 350+ exclusive BDML Retail and multi brand outlets. The company had been facing several headwinds due to slowdown in exports, over-supply 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. BDML has dawn up a major strategy to revive its textile retail business and is looking for a turnaround in FY First step towards reinvention was that the company recently sold its textiles processing unit for a cash consideration of Rs. 230 Crs, which enabled the company to reduce debt considerably. The company plans to invest more than Rs.100 Crs in the brand, double its multibrand outlets to 10,000, more than double its franchise stores to 500 and introduce 3-4 new products every year. This would treble the segment s revenue to around Rs.1,000 Crs by FY2020. We believe that the company now exiting the manufacturing business and shifting its focus to branded retail segment will be much profitable business considering the demand for retail branded prodcuts. 4) Global Environment Favorable To Turnaround Polyester Staple Fiber (PSF) Business (Rs. In Crs.) Polyster Segment 9MFY17 H1FY16 FY16 Revenue ,069 EBIT 71 (25) (23) Margin (%) 9 (3.1) (2.1) As seen in the table above, Polyester Staple Fiber business has shown strong signs of revival. The segment was more or less flat on the topline front but however posted an impressive EBIT in 9MFY17 of Rs.71 Crs as against Loss of Rs.25 Cr in 9MFY16. 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 better profits in the near term. 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.

5 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. 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 III. Valuation and Recommendation We believe Bombay Realty will create substantial wealth from the development of 2 large land parcels in the heart of Mumbai. One ICC and Two ICC which are slated for possession by last quarter of 2018 should reflect robust performance in FY18-19, followed by improved performance in FY This is just the beginning of large scale development of 55 acres of land bank available with BDML which makes it one of the exciting Real Estate Stories in India going forward. Investors must note here that at CMP of Rs 59.75/Share for a the Market Capitalization of Rs 1,220 Crs, whereas the Land Bank itself has rich value and the development potential would substantially enhance the sustainable profit generation capacity for quite a many years. Apart from the realizations from the company s core business in the near future, BDML also holds stakes in group companies Bombay Burmah Trading Company(Mcap- Rs.5,307 Crs) and National Peroxide Ltd(Mcap- Rs.508 Crs) through its 96% subsidiary Archway Investments Co Ltd. BBTC holds 50.73% in Britannia Industries and currently this controlling interest is valued at little less than Rs.20,000 Crs. 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 12 to 36 months. BDML offers excellent investment opportunity to long term investors.

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