Textile stocks stitch realty gains

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http://www.business-standard.com/india/news/textile-stocks-stitch-realty-gains/405578/

The recent real estate deals in Mumbai by National Textile Corporation (NTC) as well as moves by some textile companies to develop their surplus land have evoked a strong market response. Stock prices of these textile companies have risen sharply in the recent past on expectations of value unlocking from the vast land that they acquired at historically low costs.

The enthusiastic response from investors is not surprising, given that NTC’s recent auction of Bharat Mills and Poddar Mills has valued the land at an average Rs 190 crore an acre, which is significantly higher than was expected. Notably, these textile companies have also seen an improvement in the performance of their core business of textiles, which has added to the gains.

Here are a few prominent names in this sector which own considerable land banks and have plans to monetise them:

Arvind
Led by higher capacity, expansion of retail outlets and contribution from the real estate business, Arvind has set a turnover target of Rs 4,000 crore in 2010-11 (22 per cent higher). Arvind has about 1,000 acres in Ahmedabad (Gujarat), which it expects will contribute around Rs 250 crore next year and Rs 500 crore in 2012-13 to overall revenue.

Outlook for its core business is also improving and analysts expect about 15 per cent growth in textile revenues over the next two years. More important, during this period, Arvind’s net profits are expected to double from Rs 50 crore in 2009-10.

Bombay Dyeing
Bombay Dyeing’s turnover from the real estate has more than doubled to Rs 561 crore in 2009-10 from last year. The company has 64 acres in Worli and Wadala, both in Mumbai. So far, it has sold a fraction – or 900,000 sq ft out of 8.8 million square feet – which will be developed over the next five-six years. Its core business of textile and polyester is also turning around.

But the market does not give much value to its textile business, considering that it has a huge debt of Rs 1,775 crore (debt-to-equity of over nine times). However, the company hopes to turn debt-free in the next two-three years with the help of proceeds from the real estate business. This could substantially add to its profits, given that the company paid Rs 207.5 crore as interest and reported a net profit of Rs 18.4 crore in 2009-10.

HIGH ON REALTY GAINS
In Rs crore Land bank
(in acres)

Value

Value Per share (Rs)

 CMP
(Rs)		 FY11E
PE (x) *
Real estate Others
Arvind 1,000

NA

NA

NA

 42 14.0
Bombay Dyeing 64 6,500 1,684 115 654 24.2
Century Textiles 40 3,000 320 340 505 14.0
Raymond 120 2,500 408 180 378 25.2
Source: analysts estimates

Considering its enterprise value of about Rs 4,300 crore and the potential value of its land bank, there are gains to be made.

Century Textiles
Century Textiles, which is into textiles, cement and paper businesses, has about 40 acres at Worli in Mumbai and construction work has already begun. Of this, about 30 acres (10 acres is in dispute) is valued at about Rs 3,000 crore against its current enterprise value of Rs 8,000 crore. It has started construction at its office building in Worli having a saleable area of 400,000 sq ft, which will be given on lease to hospitality and IT companies.

The business environment for its core businesses of textile and paper is also improving, though cement (60 per cent of revenue) may remain under pressure (on the margin front) in the interim. Notably, expansion plans in cement, textile and paper segments are underway and should help sustain growth in future.

However, considering that its core business is valued at 10 times its 2010-11 estimated earnings, further news on its real estate plans will be among key triggers. The stock can be considered on declines.

Raymond
Raymond, a leading player in the fabrics and apparel business with strong brands like Raymond, Park Avenue, Parx and ColorPlus, has a total 120 acres in Thane. Even at Rs 20 crore an acre, the valuations of the company’s land bank work out to about Rs 2,500 crore.

To start with, the company has only earmarked about 20 acres for the first phase of development, although this is facing hurdles from government and workers — the latter are demanding Rs 350 crore as compensation.

Meanwhile, its textile business is showing traction as losses have come down 80 per cent to Rs 50 crore in 2009-10. The company is expected to do well over the next two years on the back of an improved demand and expansion in capacity as well as retail network.

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