Bombay Rayon Fashions Ltd.

Industry : Textiles IPO Price Band : Rs.60-70

Company profile
November 9, 2005 Analyst: Rupa Shah +91 22 22836307 rupa@networthstock.com Script Scan Face Value (INR) Book Value (INR) FY05 Equity (INR Mn.) (pre issue) Equity (INR Mn.) (post issue) EPS (INR) (FY06) (post issue, fully diluted) P/E (FY06) (post issue, fully diluted) Market Cap (INR Bn.) (post-issue) No of Shares to be issued (Mn) To Employee (Mn) Net to Public Premium (INR) Issue Size (INR Mn.) Issue Size (Net to Public) Issue Opens on Issue Closes on Listing Shareholding Pattern (Post Issue) Promoters Public Others Total 10.00 13.93 355.00 489.75 4.00 15-17 2.94-3.43 13.48 0.61 12.86 50-60 808.5-943.25 771.75-900.38 11-Nov. 05 17-Nov. 05 BSE & NSE (%) 56.60 9.30 34.10 100.00 The company is engaged in the manufacturing of a variety of fabrics and garments with modern production facilities. Bombay Rayon Fashions Limited (BRFL) which initially started manufacturing fabrics in mid 80s, realizing the potential in the high margin offering business of garment manufacturing has now moved to manufacturing designer/fancy shirts.

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Takeaways
BRFL is exporting 100% of its garments production, to European Union and Middle East. In addition to this, the company is supplying fabrics to the domestic garment exporters. Present capacity of weaving is approximately 10.9 million meters per annum which will be 13 million meters post expansion and garment manufacturing capacity is 6000 pieces per day, which will be eventually, scaled up to 60000 pieces per day after the expansion project to be completed by March06. Fabric weaving is their core strength. The company has a strong fabric supply chain. At present 30% of sales come from garments, which will scale up to 60% post expansion. The companys production facilities are spread across four locations namely Navi Mumbai, Silvassa, Sonale in Thane and Bangalore. The company also has a showroom in the strategically located destination conducive for EU in Almere in Netherlands. The company intends to open a showroom in USA by the end of the financial year. The company is planning to set up an integrated textile plant of yarn dying, weaving, fabric processing and garmenting at one place at the apparel park in Doddaballapura in Bangalore, by March06. The project cost is Rs.1617.2mn segregated into capital expenditure of Rs.1443mn and margin money for working capital of Rs.174.2mn for the expansion out of which Rs.1017.2mn is a term loan raised under TUFS (Technology up gradation fund scheme); with the interest cost being 3.5% and the rest will be attributed from the IPO proceeds. The term loan would significantly increase the debt equity ratio. The company has registered a CAGR of 60.64% in sales and 94.14 % in PAT from 2001 to 2005 respectively. EXIM bank has already taken 2.82% of the pre issue capital at Rs.50 per share aggregating to Rs.5 crores, based on the valuations carried on by them.

Capacity post expansion

Activity Yarn dyeing Weaving Processing Garment manufacturing Existing capacity N.A. 150 machines N.A. 6000 pieces per day Capacity under expansion project 2000 kgs Per day 48 machines 93999 mtrs per day 22000 pieces per day Post expansion capacity 2000 kgs Per day 198 machines 93999 mtrs per day 28000 pieces per day

Further intermittent expansions will take garment capacity to 60000 pieces per day (95% men shirts) by April 2006.

IPO Note

Bombay Rayon Fashions Ltd.

Industry scenario
Global scenario The implementation of ATC (Agreement on Textiles and Clothing) has put an end to all trade barriers both (tax and non tax) imposed by developing countries from 2005 plus, the high cost of production in these countries have opened gates for the Indian textile industry. Indian scenario Textile industry in India contributes 14% to the industrial production and 4% to GDP, and is the second largest employer. India accounts for around 3.30% of the world trade in textiles and garments and contributes to about 21% to the gross export earnings of the country. Vision 2010 for the textiles formulated by Government OF India aims to increase Indias share in worlds textile trade from around 3.30%(around US13bn) in 2003 to 8% by achieving export turnover of US 50bn by 2010. It also envisages growth in domestic textile trade from the current US 25bn to US 55bn by that period.

Valuations
By venturing into far lands and increase in overall productivity and customer base, BRFL is set to reap the benefits provided by the international arena with Indian government support. Also the company is catering to the high fashion space which commands higher margins. The issue is priced at 17x the upper band of diluted FY06 annualized EPS of Rs.4. The company will significantly increase its capacity as a result of this expansion. Witnessing the strong fundamental growth evident in the company and the industry, we recommend investors to subscribe the issue with a long-term perspective (Rs.mn) Particulars Total income Total expenditure Operating profit Finance charges Depreciation Provision for tax Net profit OPM (%) NPM (%) EPS (Rs) FY04 552.86 505.56 47.30 11.92 5.938 11.39 18.04 8.56 3.27 3.62 FY05 1096.56 959.30 137.25 26.44 18.83 19.37 72.60 12.79 6.78 2.20 FY06 (3 months) 442.82 375.63 67.19 8.50 6.58 4.36 47.75 15.24 10.83 1.00

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November 9, 2005 IPO Note