The Bombay Dyeing & A ; Manufacturing Company Limited presently operates in three sections: fabric, polyester and existent estate. The Companys merchandises include bed linen, towels, trappingss, cloths for suits, shirts, frocks and saree in cotton and polyester blends. It besides has a scope of industrial cloths that include microdot interlining, and cloths for shoe uppers, adhesives, abradants, leather fabric, and filters. Recently, the company has ventured into Real Estate with White Horse Real Estate Private Ltd. as a entirely owned subordinate of the Company, after switching some of its fabric Millss from Mumbai to Ranjangaon and Patalganga and therefore capitalising on the freed land which is largely in premier existent estate locations in Mumbai.
Qualitative Analysis: Economic Variables
Gross Domestic Product
The Indian economic system is expected to turn at 8.5 per cent in the fiscal twelvemonth 2010/11. Growth in Agriculture and other allied sectors will be significant. Agribusiness sector is expected to turn at 4.5 % on the bank of a good monsoon season. The industry and services sector is besides expected to take advantage of the impulse in the primary sector and is expected to turn at a rate somewhat higher than the old twelvemonth and is expected to be strong in the following fiscal twelvemonth excessively. Harmonizing to the economic mentality study, July 2010 given by the Economic Advisory Council of India, the Indian Economy is expected to turn at 9 % in the twelvemonth 2010-11.
Edelweiss Capital in its March 2010 study India 2020: Sing Beyond, has forecasted the Indian economic system to multiply by four times in the following 10 old ages and go an over US $ 4 Trillion economic system by 2020. The growing rate is besides expected to be sustained because of a recovery in the Global economic system. The Growth in Indian Economy will chiefly be in the fabrication, substructure and the Services sector, with the positive sentiment reassigning to the other sectors excessively. Strong growing is besides expected to hike ingestion and the nest eggs rate.
The domestic nest eggs rate which fell in 2008-09 is expected to pick up well, and is estimated to be 34.3 % for the twelvemonth 2020-11. The investing rate is besides expected to be 37 % for 2010-11. The economic experts have forecasted a growing rate of 9 % for the twelvemonth 2010-11 on the footing of these rates.
The WPI rising prices had been in dual figures since last five months and the consumer monetary value rising prices even longer than that. Hence, Inflation has been a major cause of concern for the Indian economic system. Though because of the monsoon inflationary force per unit areas have reduced and it ‘s reflected in the nutrient monetary values which have begun to soften. Inflation is expected to fall to 6.5 % by March 2011. Inflation is a cause of concern for the pecuniary governments since at high degrees of rising prices they have to run with a prejudice towards fastening to prolong growing.
The Central Bank RBI decided to boost the rates by 25 bits per seconds in front of its first one-fourth policy reappraisal which was scheduled to take topographic point on July 27, 2010. Earlier besides RBI increased on July 02, the Repo and Reverse Repo rates by 25 bits per second. RBI increased the involvement rates to harness in rising prices and to suck out extra hard currency that fans inflationary outlooks.
The budget shortage of Indian Government at 6.8 % was higher than estimated because of its release plan for husbandmans, NREGS, and stimulus plan over and above the usual subsidies on fuel and fertilisers. Government has expressed its committedness to cut down the financial stimulation over the following old ages through disinvestment in the PSU ‘s.
Harmonizing to the latest Nielsen Global Consumer Confidence Survey, Indian consumers remain the most cheerful in the universe despite high inflationary force per unit areas. The positive sentiment is on the dorsum of robust GDP growing in the state and growing in the capital goods sector.
The macroeconomic environment of high rising prices and high growing is expected to prevail over the following 2-3 quarters. Such an environment is really contributing for aspirational merchandise companies as against the necessities merchandise companies for sustained profitable growing. Besides the Rural India is considered to be the following growing driver for the Indian economic system.
Qualitative Analysis: Industry
Bombay dyeing has diversified into the Real Estate Sector, nevertheless Textile remains a nucleus focused country for Bombay Dyeing and it besides plans to reconstitute the loss devising polyester fibre ( PSF ) concern. Industry mentality for these sectors is as follows.
Fabric: The fabric sector is confronting lag because of cut down in export volumes because of the lag in US and pricing force per unit area because of glut in the market. Besides India is losing its market in foreign markets to the fabric exports from China. This sector was the worst hit during the recession, with the most figure of occupation losingss. The recession had a terrible impact on the profitableness of many fabric companies with many non being able to retrieve their costs and running into losingss during the recession. However, the fabric companies are cut downing their costs and banking upon the recovery in the Global markets and strong domestic demand. Many companies are now besides concentrating on certain profitable sections merely.
Polyester concern: This sector is characterized by high supply and low demand. The demand for PSF in India is approximately 65,000mt/month as compared to the possible supply of 100,000mt/month. Companies are doing losingss because of important lag in demand, coupled with really high input costs. The rough oil monetary values have besides affected the input costs, as the natural stuffs for this sector are petrochemicals.
Real Estate: The Real Estate Industry was one of the worst hit during the crisis because of mounting stock list and weak demand in the corporate and residential section with many participants fall backing to monetary value cuts and the authorities cut downing involvement rates to excite demand.
However with the Indian economic system expected to turn at 8-9 % over the following two old ages, and with major investings in the substructure sections, the demand is expected to resuscitate. Besides with the planetary markets on the recovery way, the corporate demand is besides expected to lift. The high consumer assurance is besides fuelling the growing in the Indian Retail Segment. The future mentality is bright for this section.
Degree of Operating Leverage
Operating purchase involves utilizing a big proportion of fixed costs to variable costs in the operations of the house. The higher the grade of operating purchase, the more volatile theA EBIT figure will be comparative to a given alteration in gross revenues, all other thingsA staying the same.
Quantitative Analysis: Company
ROE= 9.71 % Rf = 6.29 % Rm= 10 % ( avg of last 18 old ages, RBI )
Beta= 1.1258 BSE SENSEX EPS=4.77 No of shares=4,30,95,311 ( BSE )
Net incomes keeping ratio=.4759 g = RoE*b = 0.0462
Reported Div per share=2.50
K= Rf+Beta* ( Rm-Rf ) = 10.4667 %
Using Changeless Growth Dividend Model
Intrinsic Value = Div* ( 1+g ) /k-g=43.23 per portion
The intrinsic value is significantly lower than the market value of the portion entirely on the footing of the bad public presentation during the current old ages. This means that the portion is extremely overvalued. But since, the polyester concern continues to do losingss. The company now is non antipathetic to its restructuring. Textiles concern is looking up with strength in domestic demand. 90 % of its NAV accrues from the undeveloped premier land in Mumbai. The stock trades at 70 % price reduction to NAV and hence offers deep value. Turnaround of the fabric concern in 2HFY10 will be a near-term trigger.
It can be seen from the graph that the P/E ration has decreased significantly during the recessive times. This indicates that the stock is extremely overvalued than its book value. But since the company ‘s chief concerns of fabric and PSF experienced high losingss during the recession times, the high monetary value to gaining ratio is justified.
NAV of the Real Estate Business
Bombay Dyeing is presently working on two existent estate undertakings located in Central Mumbai. Assuming Residential merchandising monetary values for the two belongingss to be Rs17k-18k/sf presently and Lease leases to be at Rs125-150/sf. Using price reduction rate of 15 % and cap rate of 11 % , NAV is calculated. Thus Bombay dyeing is expected to demo high growing in the hereafter and hence should Buy/ keep the stock.