>Bombay Rayon Fashions Ltd - BUY (MERRILL LYNCH)

Strong growth despite unfavorable macro

Earnings, PO cut on worsening macro outlook:
We have cut FY10E EPS by 5% and FY11E by 14%, primarily to factor-in lower
Guru sales, as management has stalled its growth plans, following global
slowdown. We keep FY09E EPS unchanged, given the in-line 3Q results. PO is
reduced to Rs225 (from Rs270) to reflect both earnings cut and higher risks
(implied FY10E PE of 7x vs 8x earlier). The stock has corrected sharply in last
few months and valuations look attractive at 3x FY10E PE. Maintain Buy.

EPS growth still strong led by new capacities:
We expect EPS growth of 32% in FY10 helped by new capacities coming onstream
by March’09. These capacities would enjoy several fiscal benefits making
them globally cost competitive, which should help BRFL gain market share.
Management had aggressive plans for expansion of Guru operations which have
now been put in the back burner. After the sharp cut in Guru’s estimates, it now
accounts for less than 5% of BRFL’s consolidated EBIDTA versus 9% earlier.

To see full report: Bombay Rayon