About SEBI WATCHLIST

In order to curb extreme volatility in the markets and curtail market risk for gullible investors, Securities and Exchange Board of India (Sebi) along with the stock exchanges decided to implement Additional Surveillance Measures (ASM) in early June. The measures involve putting stocks that display big high-low variation in trading, high client concentration, multiple price-band hits, high closing price to closing price variation and extraordinarily high PE ratios in a curtailed trading mechanism that will allow trades only with 100% margin and with a 5% price-band.

Some misinformation about the mechanism has caused unwarranted concern and consternation among prospective investors and existing shareholders of companies that find themselves on the list. While the regulators have clearly indicated that being on the ASM list “does not indicate an adverse action against company”, fears abound.

To better inform investors about the fundamentals of several companies on the list, CNBC-TV18 has launched the SEBI WATCHLIST, which will seek to better inform investors about the strengths and weaknesses of the businesses in order to enable them to take more informed decisions, and segregate the bad apples from the good.

Shares in Bombay Dyeing & Manufacturing Co., the oldest flagship firm of the Wadia Group, have surged 176 percent in the last 12 months on growing expectations that the bedsheet maker’s realty business will unlock even greater value this year.

The investor optimism gathered momentum after the Mumbai-based firm’s move to start monetising nearly 55 acres of its land in Dadar and Worli areas, which was acquired decades ago at a very low cost. According to analysts, this huge land bank has the potential to translate into revenues of about Rs 35,000 crore, once developed.

Bombay Dyeing, known for its stylish linens, towels and home furnishings, derives majority of its revenue and profits from the real estate segment.

Its real estate portfolio, under Bombay Realty, includes some of the posh residences and office spaces, including Beach Towers, Twin Towers, NSE building at BKC, Grand Hyatt- Vakola, all located in the heart of Mumbai city.

The company headed by Nusli N Wadia is already developing two luxury residential towers, with work being sub-contracted to state-owned engineering firm Larsen & Toubro.

Despite the improved growth outlook at the company’s realty business, the financial performance of the company has been quite inconsistent.

While the company swung to profits in fiscal 2018 after two years of losses, 3-year revenue compound annual growth rate stood at a meagre 3.8 percent.

But there’s a silver lining as gradually the share of its realty business in overall sales have seen a rise and in fiscal 2018, it contributed 43 percent to the group revenues.

True value from SCAL?

Another lingering worry relates to company’s unit SCAL.

As per the company’s auditors, nearly Rs 456 crore of revenues and Rs 257 crore of profit-before-tax in fiscal 2018 was booked via sales to SCAL, raising questions on transfer pricing and true value realisation from the land bank.

So while the land bank is a key asset for SCAL, operationally there is no big business line of the company that is showing strong promise besides realty.

Valuation spike

The company’s valuation has spiked up. Whether this is justified, only realisation of benefits from the realty development projects will reveal. However, volatility in revenue and bottomline growth coupled with auditor notes may reign in further appreciation.