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Shanthi Venkataraman

Competence in the home textiles segment to drive profits.

FRESH investments can be considered in the Bombay Dyeing stock, which quotes at a price-earnings multiple of about 10 times. As the stock is likely to follow the current broad market trend, additional exposures can be contemplated on declines.

The company has declared impressive results for 2004 and looks set to continue its good performance this fiscal as well. The largest player in the home textiles segment, it is one of the companies that will be able to capitalise on the opportunities thrown open in 2005, when the quantitative restrictions on textiles will be removed.

Financial performance

The company posted a modest growth in sales of about 7 per cent for 2003-04. However, the growth in operating profits was far more impressive; four-fold to Rs 58 crores, owing to sustained cost-cutting efforts.

Profit-before-tax (excluding `other income'), at Rs 13 crore is a turnaround from the loss of Rs 41 crore in the previous year.

Apart from better operating efficiencies, lower finance costs and sale of non-profitable assets also contributed to healthier bottomline. Finance costs fell from about Rs 18 crore to Rs 10.39 crore over the period, with the company raising low-cost funds — internationally and domestically.

The turnover of the dimethyl terephthalate division, which accounts for about 55 per cent of the revenues, rose 20 per cent but was subject to margin pressure on the back of rising raw material prices.

However, the textile division, that accounts for 45 per cent of revenues, showed dramatic improvement in financial performance. From making a loss of Rs 14 crore in 2002-03, it bounced back clocking a profit of Rs 21 crore in 2003-04.

Business scope

The company's competence in the home textiles segment will be a driver of future profits. Home textiles are value-added products that command a high margin and, as such, the company is positioned high up in the value chain.

The company exports about 50 per cent of its production of bed-sheets and bath linen to the US and the EU. Many leading international retailers are now looking to source from low-cost countries such as India, and Bombay Dyeing may be preferred, given its leading position in the market. In addition, after 2005, the cost of acquiring quotas would go and this could impact earnings favourably.

However, competition is rising with smaller companies, such as Alok Industries and Welspun India, steadily garnering market share, especially in the export market.

Over the years, Bombay Dyeing's domestic textiles division has taken a hit, with competitors making inroads into its markets. But over the past two years, the company has proactively revampe its textile business.

Having transferred the garment business to Proline, the company has attained a sharper focus on the textile division. The number of products in the division has been trimmed.

Marketing efforts have been stepped up and the company is working at improving its product line. It also plans to provide customers with international quality by marketing its export products domestically, and is revamping its showrooms. These steps have been successful, as is evident from the turnaround of the textile division.

Management of real estate

In 2002-03, the company raked in Rs 5 crore from the sale/lease of its properties. Bombay Dyeing has over 1,200 acres of land in prime locations and these are being developed.

What is interesting is that the company has not confined itself to disposing of non-profitable assets to supplement income. It has instead tried to develop real-estate business.

The company has received clearance for developing its Spring Mills property in Mumbai, which extends over 50 acres. The old manufacturing facility has been wound up and the company plans to set up a mix of residential, entertainment and retail units on the property. This business would be a potential revenue-earner for the company.

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