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Bombay Rayon Fashions Ltd.

IPO Note

Company profile

The company is engaged in the manufacturing of a variety of fabrics andgarments with modern production facilities. Bombay Rayon Fashions Limited(BRFL) which initially started manufacturing fabrics in mid 80s, realizing thepotential in the high margin offering business of garment manufacturinghas now moved to manufacturing designer/fancy shirts.

Takeaways

BRFL is exporting 100% of its garments production, to European Unionand Middle East. In addition to this, the company is supplying fabricsto the domestic garment exporters.

Present capacity of weaving is approximately 10.9 million meters perannum which will be 13 million meters post expansion and garmentmanufacturing capacity is 6000 pieces per day, which will be eventually,scaled up to 60000 pieces per day after the expansion project to becompleted by March06. Fabric weaving is their core strength. Thecompany has a strong fabric supply chain. At present 30% of salescome from garments, which will scale up to 60% post expansion.

The companys production facilities are spread across four locationsnamely Navi Mumbai, Silvassa, Sonale in Thane and Bangalore. Thecompany also has a showroom in the strategically located destinationconducive for EU in Almere in Netherlands. The company intends toopen a showroom in USA by the end of the financial year.

The company is planning to set up an integrated textile plant of yarndying, 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 ofRs.1443mn and margin money for working capital of Rs.174.2mn for theexpansion out of which Rs.1017.2mn is a term loan raised under TUFS(Technology up gradation fund scheme); with the interest cost being3.5% and the rest will be attributed from the IPO proceeds. The termloan would significantly increase the debt equity ratio.

The company has registered a CAGR of 60.64% in sales and 94.14 % inPAT from 2001 to 2005 respectively.

EXIM bank has already taken 2.82% of the pre issue capital at Rs.50per share aggregating to Rs.5 crores, based on the valuations carriedon by them.

Capacity post expansion

Act iv it y Exi st in g cap aci ty Capa ci ty un der Pos t exp ans io n cap aci tyexpansion project

Yarn dyeing N.A. 2000 kgs Per day 2000 kgs Per day

Weaving 150 machines 48 machines 198 machines

Processing N.A. 93999 mtrs per day 93999 mtrs per day

Garment manufacturing 6000 pieces per day 22000 pieces per day 28000 pieces per day

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

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Industry : Textiles

IPO Price Band : Rs.60-70

November 9, 2005

Analyst:

Rupa Shah

+91 22 22836307

rupa@networthstock.com

Script Scan

Face Value (INR) 10.00

Book Value (INR) FY05 13.93

Equity (INR Mn.) (pre issue) 355.00

Equity (INR Mn.) (post issue) 489.75

EPS (INR) (FY06) 4.00

(post issue, fully diluted)

P/E (FY06) 15-17

(post issue, fully diluted)

Market Cap (INR Bn.) 2.94-3.43

(post-issue)

No of Shares to be issued (Mn) 13.48

To Employee (Mn) 0.61

Net to Public 12.86

Premium (INR) 50-60

Issue Size (INR Mn.) 808.5-943.25

Issue Size (Net to Public) 771.75-900.38

Issue Opens on 11-Nov. 05

Issue Closes on 17-Nov. 05

Listing BSE & NSE

Shareholding Pattern (%)

(Post Issue)

Promoters 56.60

Public 9.30

Others 34.10

Total 100.00

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Bombay Rayon Fashions Ltd.

November 9, 2005 IPO Note2

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.

ValuationsBy 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

Particulars FY04 FY05 FY06 (3 months)

Total income 552.86 1096.56 442.82

Total expenditure 505.56 959.30 375.63

Operating profit 47.30 137.25 67.19

Finance charges 11.92 26.44 8.50

Depreciation 5.938 18.83 6.58

Provision for tax 11.39 19.37 4.36

Net profit 18.04 72.60 47.75

OPM (%) 8.56 12.79 15.24

NPM (%) 3.27 6.78 10.83

EPS (Rs) 3.62 2.20 1.00

(Rs.mn)

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