Stock Review: Century Textiles

In this uncertain market, because obviously I have tried to focus on the companies, which have a relatively good cash flow, intact business model, plus backed by the rich assets. We all know that they have a strong presence in cement, paper, textile, rayon, chemicals.

In cement they have a sizeable capacity of 9 million tonne; in paper they have 2 lakh tonne per annum plant. I am not giving any value—if I just take a financial performance, they will be having a topline of close to Rs 4,500-5,000 crore for FY11 with an EPS of quite close to about Rs 40 and cash EPS of about Rs 65. If I take purely on the financials and share is ruling at a P/E multiple of 10, which is in fact in line with other cement majors which have a similar capacity of 10 million tonne and above and they are in the process of expanding the cement capacity also.

But if we purely confine or focus myself on the property, which they are developing in Mumbai at Worli—they have close to about 40 lakh square feet of which part is under development, maybe some of the area is in dispute with Wadias—but if I take the net present value of the clear property, which is lying with the company, the net present value is close to about Rs 5,000 crore while the marketcap of the company is right now at Rs 4,000 crore with enterprise value of close to about Rs 5,000 crore because company doesn't have significant debt. It is close to about Rs 1,000 crore. The management has hinted that entire property which they will be developing over next three-four years is going to get leased out and if that happens, maybe 3-4 years down the line company will be having a rental income of close to about Rs 1,200-1,500 crore with the ownership of the entire property remaining with the company.

We have been taking call on the real estate stocks but they are in the process of selling the property, booking the profit but here companies will continue to enjoy the rental income. Company is going to keep the ownership of the company with the core business of cement, paper and textile remaining with the company. I see this stock hugely undervalued at close to about Rs 415-420, where it is now ruling. If somebody can keep a view of maybe couple of years, this should give a good return.