Pick of the Week: Bombay Dyeing

FOR SHORT TO MEDIUM TERM
BUY: BOMBAY DYEING

Equity: 38.61Cr, BSE Code: 500020, CMP: 552.10

BUY BOMBAY DYEING @ 552/553 Target: 590 to 595

Bombay Dyeing was incorporated in 1879 to set up the countrys first indigenous yarn dyeing facility to cater to the power-looms, which till then were totally dependent on yarn dyed abroad. The company started with grey yarns in 1895, and soon after had surplus production, which it exported to China. Currently, Bombay Dyeing is one of the largest manufacturers in the composite sector of the Indian Textile industry. As a part of its restructuring plan for its Textile Division and consolidation of its Manufacturing facilities at one location, the company has disposed off the old equipment at Spring Mills and right sized its workforce. The company�s Textile Division is also setting up a Processing and Stitching facility at an alternate location in Maharashtra. Further, the company�s DMT Business is going head with its downstream project for the manufacture of polyester staple fibre (PSF), with a capacity of 1, 65,000tpa at its existing DMT plant.

During 2004-05, the company�s new Real Estate Division set up and took initial steps to shape up. During 2005-06, the Division commenced development of the two properties viz., Spring Mills in Dadar and Textile Mills at Worli. First Phase of the Spring Mills Project commenced, which included Town/Shopping Centre development catering to the Central Mumbai residents. Meanwhile, development of Textile Mills, Worli has commenced in phases. These developments in real estate business will drive its future revenues. For this, the company proposes to utilise and capitalise on its historical land bank in Mumbai.

Apart from this, Bombay Dyeing has also chalked out long-term plans to turn-around its traditional Textile business, curb costs and improve Margins. It has forward-integrated to a PSF plant of 1, 65,000 tones capacity and has shifted its Home Textile operations from Mumbai to Rajangaon to control operational costs.

Bombay Dyeing has a huge land bank at prime locations at Worli (20 acres) and Dadar (40 acres) in Mumbai, which is under development. Considering the dearth of prime locations in Mumbai, we believe this land would attract buyers even at premium valuations. We have valued the company's existing Real Estate business at Rs1, 083/share on NAV basis. We have assumed that the projects would be completed in the next four years as against management's estimates of 2-3 years.

We believe that Bombay Dyeing is a safe bet on Mumbai's Real Estate Sector as it has land at prime locations, clear title on property and property is fetching high prices in Mumbai.

Bombay Dyeing has started shifting its two textile mills out of Mumbai to Ranjangaon and PatalGanga, to restructure and consolidate its manufacturing facilities. This would reduce its operational costs also. The company proposes to exploit the land that would be available at prime locations in Mumbai post the shifting of the textile mills.

Sales and NP for year ended 07-08 were 933.7Cr & 8.5Cr. Sales for latest Quarter were 347.7Cr. Dividend during year ended 07-08 was 35%