Bhartiya International: Value unlocking through real estate
Bhartiya International Ltd. (BIL), a flagship company of Bhartiya Group, is India's largest manufacturing export house of leather garments and amongst the top 25 leather apparel manufacturers in the world. Company with its quality products, strong client relationship and in-house design & manufacturing facilities has emerged as one of the preferred Asian vendors for some of the major global brands. Another Bhartiya Group company BUILDCO, in which BIL has 30% stake, has started developing its 125acre land into an integrated city in Hebbal, North Bangalore. SPA Securities believes that this initiative would provide huge value unlocking benefits to the company in medium to long term.
Largest player in leather garment exports
BIL is India's largest leather exporter and accounts for ~6% of the country's leather garment exports. BIL derived 84% of its FY12 consolidated sales from leather garments exports which has registered 2 years CAGR of 8%. Company caters to more than 60 brands globally and is exporter to some of the biggest global brands like Zara, Hugho Boss, Trussardi, Massimo Dutti, Replay, G-Star, Guess to name a few. Strong design capability, diversified & consistent RM sourcing arrangements and integrated manufacturing facilities provide the company an edge over other domestic exporters.
Value unlocking through real estate
BUILDCO, in which BIL has 30% stake, announced the launch of the Bhartiya City, a 125 acre (17.2 sq ft built-up area - 8.2mn sq ft residential and 9mn sq ft retail) integrated township in Oct 2012. The township will include residential, retail, hospitality and IT SEZ projects and is located in fast growing real estate market of Hebbal in North Bangalore. The company is in possession of the land and has obtained necessary approvals for the project. 1st phase of the project comprised of built up area of ~7.2mn sq ft (3.2mn sq ft residential, 3.87mn sq ft of IT SEZ) which would complete construction in 3-4 years for residential and 5-6 years for IT SEZ.
Outlook and Valuation
Despite stiff competition in leather industry, company would remain the largest player in leather exports owing to its strong client relationship, over two decades of experience in the industry, diversified RM sourcing arrangements and in-house design & manufacturing facilities. Company's aggressive plans to drive its revenue growth through new categories and new geographies bode well for the company in medium to long term and would aid margin expansion. Company's leather business is valued at Rs95 (6x FY14E EPS) and investment in SEZ at book value of Rs10/ share. For the company's investment in real estate, present value of future cash flow from the 1st phase residential sale, is arrived at by discounting it by 25%. Further the remaining land area is valued at current selling price in the region and applied liquidity discount of 50% to it. Timely execution of the Group's real estate projects would bring huge gains to BIL. Using SOTP methodology, SPA Securities arrive at a fair value of Rs270.
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