Century Textiles - Is it the new Godrej property

Century Textiles - Market Cap 2500 Crore as on 25th March 2020, Debt 1400 Crore as on Dec’19

Century Textiles did a demerger of its cement undertaking in October 2019.The Cement Division of Century which consisted of 3 integrated cement units with a total capacity of 11.4
MTPA was transferred to Ultratech Cement (excludes 1.2 MTPAfor which statutory clearance is pending) and 1 grinding unit of 2 MTP).
Along with that approx 3000 Crore of Debt was also transferred to Ultratech

All shareholders got 1 share of Ultratech for every 8 Century Textiles

Post this Demerger, the market due to its anomaly is now paying us to own certain assets

Let me explain how

As on March 2020, the basic details of the business is as follows

  • The Paper Biz has done an EBITDA of 417 Crore for 9 months FY20. Even last year it did EBITDA of similar amount i.e. 600 Crore odd. Co is doing well in this segment and is even planning capacity exapnsion. West Coast Paper does lesser EBITDA than Century and is trading at 1300 crore Enterprise Value even in this depressed market. In a more better market this business would fetch upwards of 2000 Crore

  • Real Estate - The company has fully leased out Commercial buildings in Worli through which it earns 140 Crores of Rent yearly. At a Capitalisation rate of 8 time, this business can be valued at 1200 Crores approx

  • There is Textile business which the company has been partially leased out to Grasim for a yearly rental of 50 Crore. On December 12, 2017, Grasim entered into an agreement with Century Textiles and Industries Ltd - Pursuant to the agreement Grasim will receive the right to manage and operate the viscose filament yarn (VFY) business of Century for 15 years, and consequently, right to use assets related to this business. - Grasim has paid an upfront 600 Crores Royalty and refundable interest free as Security Deposit of 200 Crore - The VFY Plant is located in Shahad in Thane District. After the agreement ends, the entire asset will come back to Century Textiles

  • The other part of Textile division is still earning 80 Crores of EBITDA for the year and hence together the entire textile business can be conservatively valued at 500 Crores roughly

Therefore we have operating biz being valued at 3000 to 3500 Crore value depending atleast.

Apart from this the company has now a Real Estate Division which it has floated under the Brand Name Birla Estates and which has the following land bank and projects under it.

  • 132 Acres of land in Kalyan - already started construction work
  • 31 acres of land in prime area of Worli - all Muncipal approvals obtained. Construction to start in 2021
  • 44 Acres land in Talegaon near Pune
  • Company has now started JDA work with various developers in Bangalore and Gurgaon and using Godrej Property Model is working on developing these land parcels.

Land bank story never excites me unless there is a trigger

In case of Century Textiles the trigger is that company has floated a new subsidiary under the name of Birla Estates (https://www.birlaestates.com/) and is looking at active developement of these land parcels that it owns. What is heartening to note is that the quality of Senior Management hired by them for the Birla Estates divisions

Notes from Birla Estate Website

  • Birla Estates will be developing many land parcels held by the group as well as look at joint development/strategic tie-ups across top cities .

Management

Name Designation Last Company
KT Jithendran CEO MD, Godrej Property
Ananya Gindotra Head – Design Taj Hotel
Gaurav Jain COO Godrej Property
Anitha Krishnan Head – Marketing JWT
Sachin Sinarkar Head – Liasion Hiranandani
Narendra Joshi Head – Project Godrej Property

Commercial Projects

  • Birla Aurora – 22 Floors - Worli
  • Birla Centurion – Worli
  • Century Bhawan – Worli – 4 Floor

Residential

  • Birla Vanya Phase 1 – Kalyan

    • Maha RERA P51700019178
    • 21 Acre area, 4 towers being built
    • Hafeez Contractor is the Designer
  • Birla Alokya – Nangalore, Whitefield

Partners and Alliances

  • Foster + Partners – World’s best Arhcitechure Firm, has developed Wembley, Apple HQ, Bloomberg HQ
  • Sasaki – Landscaping Architect – Did work for 2008 Olypmics
  • Leslie E Robertson Associates (LERA)
  • Hafeez Contractor
  • BuroHappold Engineering – Consulting Engineers – but they have worked on Lodha , Omkar also
  • LDP, Sydney – Lighting Designers

Disclosure : 15% of my portfolio and no trades in last 30 days

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Paper Biz

Product Installed Capacity
Paper 197,810
Pulp 31,320
Tissue Paper 36,000
Board 180,000

The business has grown its revenue at a 10% CAGR, since 2012.
Business plans to improve growth with a capex of Rs. 250 Crore in 2 years period:
- Doubling the Tissue Capacity

  • Modernising the machines of paper plant to have required product mix.
  • Capacity Utilisation during Q3 FY 20 was at 104%
  • Require capex of ~ Rs. 300 crs over two years.

Textiles

  • State-of-the-Art Vertically Integrated Plant (Fibre to Finishing).
  • Installed Capacity - 37.5 million tonne
  • Plan to modernise and upgrade facilities
  • Capacity Utilization in Q3 is 95%,

Rental Real Estate

  • 2 Rental properties
  • Birla Aurora : 2.55 Lakh Sq. Ft. of Commercial Space
  • Birla Centurion , Worli - 3.5 Lakh Sq. Ft. of Commercial Space
  • INR 125 Crore annual leasing revenue from assets.
  • Commanding best rentals in Worli micro market (~ Rs.185 /sq. ft.)

Birla Aurora major tenants are General Atlantic, TA Associates, Orios Venture Advisors and AIMIA India Loyalty Management

Birla Centurion major tenants are Birla Group Cos like Idea, Hindalco . Woori Bank and RMZ Co works are other players

Developmental Real Estate

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Century Textiles Con Call Key notes Highlights:

  1. 67% growth year on year. EBITA improved to Rs.133 crs from Rs.66 crs last year. Free cash flow Rs. 53 crs. This quarter there was a good turnaround in textie and paper business.

  2. There are three business verticles :-

  3. 1 Realestate – Launched second phase of Birla Vanya in September and clocked Rs.105 crs of sales in first month. Rs76 crs from all the projects. No impact on prices of project even if cement and steel prices go up. For the new projects first focus is on residential buildings and collecting cash. In 2 to 3 years will launch commercial buildingds. The Mangdi project in Bangalore will be over by 3 years. Top line expected 600crs and IRR 30%.

    1. Pulp and paper – This quarter major achievement is highest volume in sales. Q2 sales grew by 64% YoY to rs 686 crs. Capacity utilization more than 100%. This is due to increase in demand for paper, opening of high school and offices. There was an increase in prices of raw material and import of pulp causing increased cost of production. Shortage of container has increased logistics cost and impacted exports. ESG initiatives have been taken.
    1. Textile – Inventory has come to normal level with festive season coming up. Sale grew by 109% year on year to Rs. 261crs. Raw material prices have again increased. Overall good. Birla is investing on product development. Increase in cotton prices and import duty, margins are under pressure.
  4. Q4 no supply pressure of raw material will be seen. Eligible for PLI scheme. 8% manufacturing cost has increased in paper segment.

  5. JV with Grasim. 50% Grasim and 50% Century Textile to develop specialized products. Revenue expected is 450 to 500 crs and margins will be 20% to 25%. 40% power from renewable resources and 60% from coal.

  6. This year we can expect a Joint Venture the details will be given when finalized.

  7. Recycled paper only 60 million ton went into the market due to reduced demand and high costs. Chemical and coal prices have gone up so retailers also have to bear the cost. Capex- no major plan in textile business. It will be environment related and will be met with internal cash flow.

  8. Manufacturing capacity used is more than 100%. Dependence of real estate is not just on existing business but also borrowings of parent company. Currently there is concentration on 4 cities, Pune Mumbai, Delhi and Bangalore for real estate.

  9. Coming quarters will be better.

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Birla Niyaara at Worli

  • 14 acres
  • 3 Towers in the project
  • One tower of 77 floors of 422 apartments is currently up for sale. Remaining two towers will be launched later
  • 86% or 363 units of the inventory are dominated by 2BHK & 3BHK’s. There are 170 units of 2BHK’s and 193 units of 3BHK’s. Remaining are 4BHK’s and above
  • Wide spectrum of amenities
  • Pricing at an all-in level (including GST, Stamp duty) is around INR 53k-54k per square feet. Hence a 2BHK of ~850 square feet will be around INR 4.60 crore
  • Possession date as per RERA is December 2028
  • Payment to be done as per construction. No flexible payment/pre-EMI scheme
  • With around 1,200 units, this is not as dense as most other projects in the vicinity
  • Expensive for an early-stage under-construction project when there are ‘competing’ products at similar price points that are ready-to-move or almost ready-to-move
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