X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
1992 batch of Sensex stocks: Bombay Dyeing - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Sep 26, 2012

    1992 batch of Sensex stocks: Bombay Dyeing

    A famous quote by Charles Darwin, the man who changed the way the world thought about evolution, goes thus: "It is not the strongest or the most intelligent who will survive but those who can best manage change." The brilliance of Mr Darwin's ideas shows in the fact that they hold true across all aspects of life. Fashions and trends come and go. Old technology gets replaced by new and better technology. Governments rise and fall out of power. Ideologies change over time. As the cycle of change evolves, only the fittest survive. The same goes for business and economics. Some businesses tend to prosper immensely, creating great wealth for their shareholders. Others fade away with the trials of time.

    Take the Indian textile industry for instance. This was a highly lucrative business a few decades back. Some of the major business empires made big fortunes in this industry. Reliance Industries, Century Textiles, Bombay Dyeing and Indian Rayon (now Aditya Birla Nuvo) are some very pertinent examples. The popularity of the textile sector is evident from the fact that back in the early 1990s, all these four companies were part of the BSE-Sensex. However, in August 1996, Century Textiles, Bombay Dyeing and Indian Rayon were dropped from the benchmark index.

    In a previous article, we discussed the reasons that led to the decline of Indian Rayon and its elimination from the BSE-Sensex. In this article, we will discuss the reasons for a similar fate of Wadia Group textile firm Bombay Dyeing.

    Corporate rivalries amidst a changing economy

    Established in 1879 by the Wadia family, Bombay Dyeing has been a major textiles player in India. While the company flourished for over one century, it saw its fortunes dwindling on account of the changing dynamics of the textile industry, its long-drawn battle with Dhirubhai Ambani-led Reliance Industries and its inability to capitalise on its legacy in the textile industry. Bombay Dyeing was the largest manufacturer of DMT (dimethyl terephthalate), a chemical used in the manufacture of polyester. On the contrary, Reliance chose the cheaper and efficient PTA (purified terephthalic acid), an alternative key ingredient for polyester. The stiff competition from PTA, unfavourable government policies and a flood of cheap imports severely hampered Bombay Dyeing's DMT business. The textile business, too, suffered on account of increased competition and high costs.

    Core business falters, land bank remains sole saviour

    Over the years, the company lost several big business opportunities to its competitors, while struggling to restructure its businesses. In 2008, the company sold off its DMT plant in Patalganga which accounted for 65% of its total revenues. Instead, it ventured into the manufacture of polyester stable fibre. However, this shift doesn't seem to have worked well for the company. Even in the latest financial year, the division reported losses.

    Let's have a look at how the company has performed over the long term. The company's topline has increased from Rs 11.9 bn in FY96 to Rs 22.3 bn in FY12. That implies a meagre compounded growth rate of 4%. On the profitability front, the company has done even worse. While sales have nearly doubled during the 16 year period, the company has never been able to achieve the same level of profits that it did in FY96. While in FY96 profit after tax stood at about Rs 1.2 bn, the same for FY12 was less than half at about Rs 594 m. Moreover, the company's debt has gone up substantially since FY07. In fact, in FY09, its debt to equity ratio shot up as high as 10.2 times.

    The company's only saving grace has been its old land bank at near zero cost. Under its arm, Bombay Realty, it is developing and undertaking real estate projects of the company. It also plans to develop the land bank of the Nusli Wadia group (its promoter). It is worth noting that the Wadia Group has about 10,000 acres of land across India. Of this, 64 acres is owned by Bombay Dyeing.

    During FY12, the real estate business contributed 25% to the company's topline. The remaining came in from the textile (19%) and polyester division (56%). On the profitability front, the real estate business contributed 97% of the profits. While the textile division accounted for about 3% of the profits, the polyester division incurred losses of about Rs 8.6 m. The company hopes to reduce its debt with cash accruals from its real estate business.

    In conclusion, Bombay Dyeing's decline is a classic example of how legacy became a liability.

    1992 batch of Sensex stocks Series - Previous: Hindustan Motors | Next: Mukand Ltd.

     

     

    Equitymaster requests your view! Post a comment on "1992 batch of Sensex stocks: Bombay Dyeing". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS