>BOMBAY RAYON FASHIONS (MOTILAL OSWAL)

■ 4QFY09 results below expectation: Bombay Rayon standalone 4QFY09 sales are up 27% YoY at Rs3.33b (expected Rs4.2b). PAT is down 26% YoY at Rs251m (expected Rs475m). Sales and EBITDA are below expectation mainly due to delay in commissioning of two of its garmenting units at Latur and Islampur. PAT is sharply lower than expected mainly due to (1) charging of full year’s interest on account of borrowings against GURU; and (2) charging of deferred tax on projects commissioned in 4Q (effective 4Q Tax/PBT of 49%)

■ 9-10% downgrade in FY10 and FY11 EPS estimates: Considering the delay in capacity addition, we have lowered FY10E sales estimate by ~7%. Further, pending clarity, we had assumed the equity issue proceeds to be parked in liquid investments. The same is now deployed in the operations. However, we have not increased commensurate sales or margins. As a result, our PAT and EPS are downgraded by 9-10% to Rs28.6 for FY10 (up 45% YoY) and Rs43.8 for FY10 (up 53% YoY). FY09-11E EPS CAGR works out to a high 49%.

■ Stock trading at 6.4x FY10E, target price of Rs286 (10x FY10E) Buy: Bombay Rayon stock is trading at a P/E of 6.4x FY10E and 4.2x FY11E. We believe this is extremely attractive considering its 49% EPS CAGR and RoE of over 25%. We value the stock at 10x FY10E EPS to arrive at a target price of Rs286, 55% upside from current levels. We maintain Buy.

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