ValuePickr Forum

Bombay Dyeing - Asset play, Worth a look?

Hi ,
Does anyone track / has considered Bombay Dyeing. Here is a quick synopsis -

Bombay Dyeing is a Wadia group company with broadly three business segments - PSF, textile and real estate.
Interest in the company is primarily on account of the real estate business, however just to touch upon the other segments, they are the countries 4th largest producers of polyester staple fiber (Polyester business), Textile business consists of Their “home and you” brand in retail distribution and a manufacturing plant in Pune which they are trying to sell off (the last deal for this sale did not go through). Recently they sold vacant land in this area too. Segment results are below -

Although he polyester business has been challenging for a while, steps to reduce energy costs and improve product mix may help with margins going forward. In the textile segment within the “home and you” there is an attempt to increase brand and distribution setup.

Coming to real estate, which is the reason for interest, according to various sources, they have 10000 acres land bank in India and around 500 acres in Mumbai (source reference research reports from HDFC, NVS links are http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3014582
http://www.nvsbrokerage.com/module/upload/ca55ab36ecdb54c095b24b00b36e2c03.pdf)

They are currently pursuing the development of the Island City Center (ICC) project in Dadar which has 29 acres of land (source company web site). This is a premium project which after a long delay, apparently now have regulatory approvals in place (from their balance sheet) and the contract is given to L&T to execute(at around 1200 Cr contracted cost). As long as the execution now happens, revenue should at least flow into the Income statement as they follow the percentage of completion method for reporting revenue. This should help re-rate how the numbers look going forward. Of course any further problems with execution delays the whole theme and results in being a value trap.

Attraction - Land Asset more than market cap (based on from every reasonable indication)

       -  Development of  real estate in progress after a long delay. (Ive not checked this on site though, taking the commentary in balance sheet on face value). This should lead to value unlocking 

       - the construction work itself should be high quality and prime location in Mumbai indicating supply side strength of "product", also execution contractors have good repute (L&T).  

       - other triggers include if they are able to get a sale for their Pune manufacturing plant. (have just sold some land there for 19 cr)

Threats - Their projects have been delayed many times in the past
- could be a value trap if execution is once again an issue
- their other businesses are more of a drag to performance

so in a nutshell, its an asset play that could very well get re rated with visible execution or worst case be a value trap, having said that, I think the price is not too bad and factors in some of the concerns with some margin of safety.

Would love to know / have comments throwing more knowledge on this stock if possible and contrary views are even more valuable. Also if anyone has booked a flat in this project, the insight for projected completion time will be great info.

Disclaimer :I have Invested for the long term at various prices but may sell partly or entirely either for cash flow requirements or change of perspective / further developments.

Regards,
Austin

3 Likes

Hi,
This pic shows construction is underway on the site … helps to know on ground things are moving.

Hi All,

Can anyone get construction updates of their under construction buildings, bookings till date and tentative possession date of the 2 ICC Towers?
Additionally, I was going through a ratings report dated Dec 2013 on the company by India Ratings and read that some 100 odd flats have been sold to SCAL Ltd (an associate company then, which got demerged later). Though the report says that the transaction has been at an arm’s length, my question is can we really trust the management on this?
Has been there been corporate governance issues with the Wadias in the past?
Snapshot of ratings report attached.

1 Like

Had written to the company last month. Hadn’t got any reply. Called them up later. They said they don’t share any details regarding real estate business. Said it is against company policy. I tried convincing them, but no success. I also requested them to put this on email, they said they can’t.

1 Like

I’ve extracted numbers from MahaRera site to know the inventory position of the on-going projects of the company. Around 300 Crs of inventory is still unsold. Bombay Realty.pdf (9.8 KB)

1 Like

Here is a recent article from the Hindu talking about unlocking potential …

Interesting take from MahaRERA… When 13 flat purchasers for Bombay realty’s ICC project at Dadar wanted to withdraw in bulk due to several plan changes and reduced amenities, MAHARERA chief says “no” as it would jeopardize project for other 520 flat buyers!

Clearly not a consumer friendly stance taken by MAHARERA. I hope it would put pressure on company to expedite the project and hand over the flats ASAP…

Disclosure - initiated tracking position

Bombay dyeing consists of textile and real estate business. Investors are very much interested in their real estate business as they possess 150 plus acres of clear title land parcels in the heart of Mumbai City. The enterprise value of Bombay Dyeing is to the tune of Rs. 6150 crores which includes debt of around 3500crs. The mgmt. has come on record and stated that the cash flow from the ICC I & II has the potential to generate 2000 crs of free cash flow in the coming fiscal and reduce the debt substantially. In a recent interview the mgmt. has come on record and talked about future plans of real estate division which includes an upcoming project (a commercial project of over a million sq. ft. ) in their Worli Land parcel. This could ensure recurring revenue from real estate which will have much higher margin as key raw material land is owned by the company. Currently, ICC I & II is the only on-going project of Bombay Dyeing. They are expecting OC for the said project in Mar-2019. 1/3 rd of the inventory is unsold which is expected to fetch Rs. 45,000 sq. ft. on carpet which could give sales realization of more than Rs. 1000 crores. Generally after OC, Sales velocity and realization of any project gets much better due to no GST on the flat. GST, at present, on an under-construction property is 5% for flats over and above 45 lacs. In ICC I & II flats starts from Rs. 7-8 Crores. So in absolute number wise 5% on 8 Crs flats comes to around Rs. 40 lacs which is a big number and can influence a buying decision.

I recently visited their project ICC I & II in dadar east to get a feel about their real estate business. Here is my take on the project:

  • L&T is the contractor
  • Construction work was in full swing and it was happening till late evening till I left the site around 7 PM.
  • Sales office was plush to give a feel of luxury project
  • Sales Executive was not so keen for discount. They said that they don’t discount beyond 1-2% of the flat cost
  • She hinted me about an upcoming project in Worli which will have smaller size flats (2 bhk mainly). (Note- Smaller size flats have much better sales velocity). Project might come during Diwali-2019.
  • Ultra net worth People are interested in living in tower with amenities in Mumbai than in a standalone building. People are also buying flats in project to to save tax on capital gains.
  • OC is expected in a week’s time.
  • Couldn’t see sample flat as the sample flat is showcased only till 5 pm and I came after that.

Disclosure: Already invested and intent to buy more

Latest credit rating agency report on Bombay Dyeing. The report gives some insight about the company’s real estate business.
Disc.-investedThe-Bombay-Dyeing-and-Manufacturing-Company-27Mar2019 (1).pdf (237.5 KB)

Could anyone give clarity over SCAL realty business merger with Bombay Dyeing.

Friends- Thank you for all the information shared on this thread so far. I found the following very helpful:

  1. https://www.cnbctv18.com/videos/earnings/bombay-dyeing-set-to-launch-commercial-building-in-worli-project-says-ceo-ranganathan-2206331.htm

  2. https://www.outlookbusiness.com/specials/my-best-pick_2019/gaurav-parikh-5074

I had a couple of questions:

  1. When I look at the Maha Rera site, it looks as if 90%+ of the apartments have been booked. Doesn’t this look much higher than what builders normally manage to sell?
  2. Post completion of ICC, what are the sources of revenue for Bombay Realty considering that WIC has not started yet?

Your responses would be much appreciated.

If we go by the analysis done in https://www.outlookbusiness.com/specials/my-best-pick_2019/gaurav-parikh-5074
then Bombay Dyeing seems like a no-brainer which is hardly the case in market!

What is it that we are missing? What are the risks here that are causing the market to give it such a low multiple?

Also, can anyone tracking the company mention the reason for such a huge jump in PAT in last quarter? Was there any exceptional other income?

1 Like

Any updates on this regard given the current price is Rs 69 ?

The curious case of Bombay Dyeing, what is wrong with this company where the net profit is more than market capitalisation. How can this happen

Can the senior please through some light. Stock P/E 0.74 , Profit of 1242 cr vs Market Cap of 1085 cr.

1 Like