When a stunning wealth creator in FY18 stuns you by reversing dramatically into a wealth destroyer in the next fiscal it sets in disbelief and distrust that’s difficult to dislodge. I have been tracking Bombay Dyeing since mid-2017 at levels of Rs.50 and have used it passionately as a valuation case study in my fundamental equity value versus price workshops since.
After its high of Rs.213 (split-adjusted) in 2008, the stock flew to a historic high of Rs.322 in early May 2018 with a market cap of Rs.66.50 billion and then equally dramatically slumped 75% to a 52-week low of Rs.82 and a market cap of Rs.17 billion in October 2018. It is currently at Rs.143 with a market cap of Rs.29 billion.
What caused this roller-coaster ride? It was a combination of fundamentals, as net worth turned negative overnight on transition to Indian Accounting Standard 115, and market movement, as huge unwinding was in progress of an earlier build-up long position that smacked of market operators at play. Further, switching of borrowings from banks to Dewan Housing Finance Corporation and Indiabulls Housing Finance added to the market nervousness.
The New Real(i)ty
Did you know that Bombay Dyeing was actually a Sensex constituent till 1996 on the back of being a leading textile player! Cut to present where the textiles and polyester business has been struggling for years, forcing the promoter a decade ago, like many other textiles companies at the turn of the century, to monetise the company’s prime land bank in Mumbai, located at Worli (25 acres) and Wadala (29 acres). Currently, Bombay Dyeing outsources its textile production, while its polyester operations has been posting a flat topline for some years. A look at the segmental revenues for the past five years reveals the division is really going nowhere and hardly contributes to the bottomline. It’s the real estate buzz that’s going to get louder and better in the coming years and as expressed in the directors’ report in the FY18 annual report: “The business is poised to become the single-largest