Dead Presidents! - India Equity Research: Bombay Rayon

Showing posts with label Bombay Rayon. Show all posts

Friday, March 12, 2010

Bombay Rayon Fashions

Traders with short-term trading perspective can buy the stock of Bombay Rayon Fashions. Since August 2009, the stock has been on a broad sideways consolidation in the range of Rs 180 and Rs 220. Though the stock tested the upper boundary in January and February, however, it failed to breakthrough. The stock is trading well above its 21 and 50-day moving averages and is re-testing the upper boundary.

There has been an increase in volume over the past three trading sessions. The daily relative strength index has entered in to the bullish zone and weekly RSI is on the verge of entering this zone. Both the daily and weekly moving average convergence and divergence indicators are featuring in the positive territory and the daily MACD has signalled a buy. Moreover, within this consolidation, the stock has been on a medium-term uptrend since December 2009. Considering that the medium-term up trendline is in tact we are bullish on the stock from short-term perspective.

We expect the stock to penetrate the upper boundary and rally until it hits our price target of Rs 245. Traders can consider buying the stock while maintaining stop-loss at Rs 211.

via BL

Sunday, January 03, 2010

Bombay Rayon Fashions

Investors with a long-term perspective can buy the stock of small-cap textile player Bombay Rayon Fashions (BRFL), manufacturer of fabric and apparel. At Rs 189, the stock trades at 10.6 times its trailing 12-month per share earnings. Though not strictly comparable, this valuation is at a discount to other export and apparel textile players such as Gokaldas Exports and S Kumars.

In a year marked by sliding textile exports, BRFL has doubled its exports, added clients and increased business per client, boding well for its growth prospects. Healthy growth in revenues, an integrated manufacturing process leading to stronger margins and significant manufacturing capacities are other positives for this company. With consumer demand now on an upswing, domestic markets too hold good prospects.

BRFL makes fabric primarily for the domestic market, while garments are channelled almost entirely into exports. Higher-margin garments have contributed 64 per cent to sales in 2008-09, up from 43 per cent the year earlier. With design offices in India, New York, London, Amsterdam and Italy, among others, BRFL is able to provide a wider range of services. Besides creating its own designs according to seasons and trends, it works with clients to manufacture fabric and garments to suit their requirements.

Export strength

Export revenues have more than doubled in FY-09, contributing 63 per cent to the year's revenues. This is a huge jump from the 40 per cent contribution in earlier years. The increase in exports amid the global slump, was the result of the trend of retailers turning to increased sourcing from low-cost suppliers. BRFL's clients are large-scale manufacturers and retailers such as Inditex, Carrefour, Walmart and so on.

As global players went in for cost controls, BRFL had scalability in terms of production capacity to meet a step-up in client requirement. The company has thus increased business per client and added new clients. Hitherto concentrated in the UK and the EU, BRFL is expanding geographical footprint, exploring tie-ups in Japan and China. It also has clients in West Asia.

Integrated manufacturing

The manufacturing process is integrated, from yarn dyeing to fabric processing to making garments. Such integration gives it the flexibility to alter production according to demand and helps cost control. Operating margins have held above 20 per cent for the past three years; margins in the first half of FY-10 are at 25 per cent.

The company had undertaken massive capacity expansions — fabric capacity is at 120 million meters per annum against 50 million in 2007. Garment manufacturing capacity increased from 19.2 million pieces per annum in 2007 to 73.8 million pieces currently. Its Maharashtra plant is expected to begin production from the next quarter.

Interest and debt

Sales, over the past three years, grew at a compounded annual rate of 88.7 per cent, while net profits doubled in the same period. Profit growth has been helped by reductions on the raw material front and manufacturing costs. For the first half of FY-10, sales have grown 28 per cent, though profit growth was at 9 per cent.

Interest costs, increasing almost five times between FY-07 and FY-09, have been the key cause for slower profit growth. Net margins dropped to 11 per cent in FY-09 from 13 per cent a year earlier. Similarly, net profit margins in the first two quarters of FY-10 have been lower than the margins in the same period in FY-09.

Debt has been taken on to fund capacity expansions. This debt comes under the Government's Technology Upgradation Fund Scheme that comes with an interest rate of 5 per cent and a long repayment period of 10 years. The company has further plumped up its funds base through equity — Rs 436 crore was raised through a GDR issue last quarter, Rs 322 crore came in earlier via an equity stake sale, another Rs 193 crore is in the pipeline post warrant conversions. With funds required now completely tied up, interest outgo is set to dwindle over the next few quarters.

Points of concern

In mid-2008, BRFL acquired high-end Italian brand; outlets span Portugal, Netherlands and Italy. It closed on a loss for FY-09, and BRFL hopes to break even this year. The first Indian store has also been opened in Mumbai, with no concrete roll-out plans on the cards. Higher-end retail is yet to return to it's hey days in the European markets. The retail venture is not likely to contribute significantly to revenues or profits in the near-term.

BRFL is also facing difficulties in sourcing yarn and grey fabric, which could lead to delays in production. On the forex front, the company has an average contract term of three months, mitigating risks of a steady decline in exchange rate, butexposes the company to short-term exchange rate fluctuations.

via BL

Friday, October 02, 2009

Bombay Rayon Fashions

Friday, August 28, 2009

Bombay Rayon Fashions

We recommend a buy in Bombay Rayon Fashions from a short-term perspective. It is apparent from the charts of the stock that it has been on medium-term up trend from July low of Rs 140. Moreover, the stock has been on an intermediate-term uptrend since March low of Rs 80. On August 27, the stock jumped up 7 per cent, accompanied with good volume penetrating key resistance at Rs 200. It is trading well above 21- and 50-day moving averages. The daily relative strength index ( RSI) has entered in to the bullish zone. Beside, both daily and weekly moving average convergence and divergence indicators are hovering in the positive territory. Our short-term outlook on the stock is bullish. We anticipate the stock’s uptrend to prolong until it knocks our price target of Rs 226 in the forthcoming trading sessions. Traders with a short-term perspective can buy the stock while maintaining a stop-loss at Rs 194.

via BL