Punters are hoping for massive value unlocking in Bombay Dyeing, Raymond, Century Textiles, Alok Industries and Provogue, among other companies
A lot of textile stocks including Raymond, Bombay Dyeing, Century
Textiles & Industries, Provogue India, and Alok Industries seem to be rising not because of any change in their fundamental business, but based on the land parcels they own and want to develop — of course, Indiabulls’ extravagant purchase of NTC’s land parcel must have helped. Even so, the pace of the rise in some of the stocks is stunning.
In Raymond’s case, the whole excitement seems to be around a Business Standard report that it will arrive at a new settlement with its Thane mill workers that will allow it to use the mill’s 126 acres for realty development. The mill is non-operational since December. Raymond had wanted to pay the Thane workers Rs1.6 billion while the mill workers are pressing for twice that amount. The Maharashtra government had also stepped in on the workers’ behalf threatening Raymond with nationalisation.
However, a ray of hope has now opened up for both the workers and Raymond in the form of the Thane Municipal Corporation, which is likely to offer it additional floor space index for the redevelopment of some slums on a portion of its property. Raymond will probably agree to pay the mill workers more than it was initially prepared to only out of the proceeds of the redevelopment — but this solution seems to be acceptable to the government, too, which was initially vehemently opposing Raymond’s realty plans. The meeting to discuss this is to be held tomorrow — expect more action around the stock. Around the same time last year, Raymond had announced its realty plans but it had talked of 15-20 acres of surplus land, which was not a part of its factory. However, the stock languished between Rs170 and Rs250 until 5th August, when it started its phenomenal up-move. Since then, the stock has risen from Rs240 to almost Rs400. On 13th August, HDFC Mutual Fund bought 997,596 shares of Raymond at Rs364.
Bombay Dyeing shares started rising a little before Raymond. From 2nd August, the shares have risen from around Rs550 to almost Rs700 now.Chairman Nusli Wadia had said at its AGM last week that the company was focusing harder on its real-estate business and was looking at this business to clear off it Rs18 billion debt. The company’s real-estate business was Rs5.6 billion in FY10, twice as much as in FY09. Bombay Dyeing has a 67-acre land bank in Mumbai. Its textile business has been incurring losses for quite some time now — late June, RIL was said to have purchased its 165,000tpa polyester unit for Rs3 billion. This is not confirmed by the company.
Bombay Dyeing is also believed to have sold property to Axis Bank for
Rs7.8 billion in May — again not confirmed by the company. BD has apparently relocated its textile mills to Pune and is planning two real estate projects on the freed land in central Mumbai. The general belief is that it has the potential to develop almost 8 million sq ft of land in central Mumbai.Century Textiles is already in the process of building two commercial buildings on its 16 hectares in Worli in Mumbai.
Alok Industries is planning to sell its real estate in Mumbai to cut its debt and apparently expects around Rs7 billion (expectations may have risen after the recent Indiabulls deal where it bought just 8.3 acres of land from National Textile Corporation in Worli for a whopping Rs15 billion). The shares of Century Textiles have moved up from almost Rs450 to Rs500 while Alok Industries is steady at Rs20. Provogue, which plans to develop real estate in Tier-II cities, has risen from Rs58 to Rs67. Among other stocks with embedded real estate value is DCM. The Punjab and Haryana High Court recently cleared 250 acres of land for sale from its closed unit.
While a Singapore exchange promoted by it has got the recognition, its regular technology products are doing very well. Market players are building positions, expecting some major announcement soon
There are expectations of some big announcement from Financial Technologies fuelled by promoter statements to the media that they would continue to unlock value in its various ventures by broadening their investor base. There is also market talk that its tussle with the Securities and Exchange Board of India (SEBI) could end which would be a big beta for the stock.
Financial Technologies (FT) used to be a software technology provider but eventually evolved into an incubator of exchanges. Its biggest aces are MCX and MCX-SX - the largest commodity and currency exchanges in India. FT has investments in 10 exchanges and 11 ecosystem ventures spread across India, the Middle East and Southeast Asia. Most of its value is centered around five key ventures - MCX (Multi Commodity Exchange), MCX-SX (MCX Stock Exchange), IEX (Indian Energy Exchange), NSEL (National Spot Exchange) and NBHC (National Bulk Handling Corporation). FT also has an interest in other exchanges like Dubai Gold and Commodities Exchange (DGCX) and IBS Forex. Stake sales in its ventures will be a key value driver for this stock. Incidentally, NSEL was looking at an IPO in June and in May, and FT had said it expected three of its international exchanges to go live this year.
According to data available from the BSE, FT has investments of about Rs9.23 billion in subsidiaries and a JV entity. These companies have losses to the tune of Rs2.7 billion. As of end-June 2010, FT had cash and bank balances of Rs1.5 billion, lower than Rs2 billion at the end of April, and investment in mutual funds of Rs8.6 billion versus Rs8 billion at the end of April.
The company's original business was providing brokerage and exchange software and technology - like companies such as Fidessa and ORC Software do. A Deutsche research report of this May values FT's software business at 19x FY11E earnings (comparable to Fidessa and ORC's valuation) and comes up with a valuation of Rs 1,041/share for just the technology side of the business, which is 45% of its total valuation. The report says that brokerage solutions contribute 27% of revenues, exchange solutions 67%, and ecosystem ventures 6%. FT has a philosophy of only sharing its technology with ventures in which the parent has an equity stake. This ensures, the report says, zero competition and provides high revenue predictability. Deutsche expects the software technology business to report earnings at a compounded annual growth rate (CAGR) of 44% over FY10-12E.
In the brokerage solutions business, its two flagship products are ODIN and Match. ODIN is a computer-to-computer link, multi-exchange, multi-currency front office trading and risk management system that enables trading on multiple markets through the use of a single application - it is apparently used by almost 900 brokerage houses in India and has more than 80% market share. Its competitors are Omnesys, Fidesa, TCS, SDG, Religare Techno Global Services (formerly Asian CERC) and NSE IT.
FT is locked in a fierce tussle with the National Stock Exchange (NSE), which (it says) is attempting to block its software and promote its own using strong arm tactics such as putting ODIN on a watch list, saying there have been member complaints of bugs and performance issues. FT took NSE to court after the latter rejected its application for the issuance of new licenses. The court appointed KPMG to complete a systems audit and asked NSE to not stop issuing fresh licenses. According to the Deutsche report, it faces no competition in its exchange solutions business, which has proprietary software - DOME and CNS.
FT's stock exchange, MCX-SX, got permission to launch currency futures in 2008 and has beaten NSE hands down despite NSE's muscle power, brand equity and reach. But MCX-SX has had to wait to get permission to launch other currency products including the equity segment. MCX-SX then went to the High Court against SEBI, arguing that it is delaying clearance to enter new segments, including trading in shares which is inflicting huge losses. MCX-SX has filed a petition in the High Court over this delay and in a hearing on 10th August, the counsel for SEBI argued that MCX has entered into a buyback agreement with certain banks, which SEBI is inquiring into. A recent newspaper article said that FT had entered into a special arrangement (of helping find a nominee in case they wanted to exit) with some banks and financial institutions that are investors in MCX-SX, assuring them a fixed return for a specified period. SEBI is also not happy with the way in which MCX-SX has complied with public shareholding norms - two promoter entities hold warrants totaling 60% of the ownership. If this controversy ends, MCX-SX hopes that it will have satisfied the regulator that it is fully compliant with SEBI norms, will be able to launch a stock market -the first time in 15 years - and this will be a big boost for this stock.
This highly entrepreneurial company was set up by Jignesh Shah and Dewang Neralla in 1995. They were actively involved in creating the firm's proprietary software. But the big break for the group came when it got the license to set up MCX which raced to become the dominant commodities market. MCX has 80% share of the market. Last week, FT informed the BSE that its Singapore Mercantile Exchange has got final approval from the Monetary Authority of Singapore as an international commodity and currency derivative exchange.
The promoter group holds about 45% stake in the company while FIIs hold 25% (up in the June quarter) and DIIs hold about 7%. In its latest quarter (Q1FY11), the net profit of MCX jumped up 2x y-o-y to Rs451.5 million from Rs205 million. Its total income went up 45% to Rs941.6 billion from Rs 649.5 billion. The stock is not heavily traded; its market cap is Rs6 billion (Rs3.3 billion free float). The stock is much more active on the futures and options side.
Despite its moniker, the fund may do better by switching between sectors. But that makes it an equity diversified fund
Baroda Pioneer Mutual Fund has filed its draft offer document with the Securities and Exchange Board of India (SEBI) to launch an open-ended 'Baroda Pioneer Sector Focus Fund'. The scheme will be benchmarked against the S&P CNX Nifty. The fund will have exposure to six sectors with 25% of net assets to each sector at any given point of time depending upon their growth prospects and valuation. The scheme has provided an indicative list of 15 sectors which it may invest in.
These sectors include automobiles, cement & cement products, construction, consumer goods, energy, financial services, industrial manufacturing, industrial capital goods, information technology, media & entertainment, metals, pharma, services, textiles and telecom. Baroda Mutual Fund manages a corpus of Rs3,954 crore as on July 2010 and has 15 schemes in its basket.
Is it worth investing in this fund? Unfortunately, sector funds are not a good idea. They are launched when a particular sector is doing well, which is when prices have already run up. The subsequent stock price performance is usually lacklustre. We analysed the performance of 49 equity sector funds. Over a one-year period, 40 funds have outperformed their respective benchmarks while only 9 have lagged behind.
However, over a three-year period, only 23 funds outperformed their benchmarks while 26 funds failed to outperform their respective benchmarks. The Baroda Pioneer Sector Focus Fund may do better than others because it will able to switch between six sectors. But then, that makes it a diversified equity growth fund!