Bombay Dyeing (BD) in its attempt to prune operational costs has shifted its Home Textile operations from Mumbai to Rajangaon and Patalganga.
Post this shifting, the company proposes to capitalize on its prime land thus available. We believe its foray into the real estate business will drive its future revenues.
The company has also forward integrated into polyester staple fibre (PSF) by setting up a plant of 1,65,000 tonnes capacity. In CY2008, the company’s business was adversely affected by rising crude prices and its inability to pass on the same.
We believe that now with crude correcting, its PSF plant fully operational and decent performance by its real estate division, BD is a very good bet at current valuations.
It is against this backdrop that we believe BD is advantageously placed and is set to capitalize on its land bank located at prime locations.
We value the textile business at 3x FY2010E EV/EBITDA (6x previously) contributing Rs34 to our target price. We have conservatively valued its Real Estate business at Rs183/share on a NAV basis factoring in10-20% dip in realizations / sq ft and at 40% discount to the NAV of its Real Estate business in line with its peers.
We have also assumed that the company’s real estate projects would be completed over the next six-seven years as against management’s estimate of two-three years Thus, we maintain a BUY on the stock, with a revised target price of Rs217 (Rs900).