BOMBAY RAYON FASHIONS Report by Prabhudas Lilladher

BOMBAY RAYON FASHIONS

Brokerage Prabhudas Lilladher has re-initiated coverage on Bombay Rayon Fashions with a ‘buy’ recommendation for target price of Rs 620. Bombay Rayon Fashions plans to invest Rs 1,100 crore over a span of three years in Maharashtra, to set up six manufacturing units, and this would quadruple and nearly double its fabric and garment manufacturing capacities.

The company has also signed an agreement with the Maharashtra government, to set up its fabric processing and garmenting units in the state. The brokerage expects this initiative to contribute about Rs 1,000 crore in revenue in 2009-10, expanding operating margin by about 500 basis points and net margin by 200 basis points.

Revenue is expected to grow at 73 per cent CAGR and earnings by 77 per cent over 2007-2010. With better government support and greater operational synergies, the company could witness margin expansion of about 740 basis points over 2008-10 estimate, says the brokerage.

At the current price, the stock is trading at 21.3 times, 11.6 times, 6.2 times 2007-08, 2008-09 and 2009-10 estimated earnings per share respectively. The brokerage has derived the target price of Rs 620 (93% upside), by assigning 2009-10 estimated earning per share, an estimate of Rs 51.8, a 12 times PER multiple.

Prabhudas Lilladher believes the true picture of company’s financials would only emerge in 2009-10, once the Maharashtra plans come on-stream.