The Bombay Dyeing scrip, which was almost written off by the market, has been in the limelight lately. In fact, gains reported by the stock have been much higher than the gains made by the market. As against an 11 per cent jump recorded by the Sensex, the shares of Bombay Dyeing have leaped by 23 per cent in the last six trading sessions, with the scrip jumping from Rs 75 to the current level of Rs 93.The latest appreciation in the share price has been supported by a decent jump in volumes. The daily average volumes have increased from 11,150 shares on February 23 to 37,980 shares on March 2. The question, however, is whether the rally in the counter is justified?
As far as the fundamentals are concerned, looking at the recent industry trends, the answer seems negative.
The price of its main product, DMT, has been on a gradual decline, falling from Rs 30,000 per tonne in April last year to Rs 26,000 in January 1998. Although the price of the main raw material, paraxylene, has also declined, theslowdown in the polyester sector has affected overall volumes. And results in the first half of 1997-98 were just a reflection of the gloomy scenario.
The future outlook does not appear to be very bright. Industry sources claim that the polyester manufacturers, the actual users of DMT, have been shifting to PTA. Greater availability of PTA at cheaper prices has been the reason behind this shift. This trend, coupled with cheap PTA imports and no signs of a recovery in the polyester sector will continue to affect the company. The PTA prices have also declined from Rs 29,110 in July last year to Rs 24,600 per tonne in January. The factor which can positively affect Bombay Dyeing is changes in the Urban Land Ceiling Act. Since the worth of Bombay Dyeing's land is estimated at around Rs 1,500 crore, such a change should aid sentiment in the stock. That, however, is likely to take quite some time.
The only factor which seems to be having a positive impact on the stock price is rumours of Bombay Dyeing gettinghuge export orders for DMT. If this is to be believed, the new market for DMT could cushion the company's falling bottomline.
But expecting this to change the company's fortune entirely would not be fair and the long-term prospects would still be determined by the prices of DMT.
As such, the recent rally lacks the backing of strong fundamentals. The technical position of the stock also weakened when the stock broke its support of Rs 81 a couple of months ago before falling to an eight-year low of Rs 74.
Since the averages are in a negative phase, the current rally could be termed as technical. As such, the sensible step for the time being is to exit from the stock and re-enter at lower levels.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
