Growth Story You Can Bank On

Growth Story You Can Bank On

INTRODUCTION 

Raymond Limited is a Indian diversified group with interests in lifestyle, textile and branded apparels and considered as one of the most trusted brands in India . The company is engaged in wool/wool blended and shirting fabric business in national and international markets. It also has strong presence in segments like real estate, fast moving consumer goods and engineering. 

The company is one of the largest manufacturer of worsted suiting fabrics with four power brands in menswear. It is the only Indian manufacturer to craft full canvas premium jackets. 

Through Raymond Apparel Ltd, the company offers brands such as Raymond Premium Apparel, Park Avenue and Parx. Its subsidiaries include JK Files (India) Ltd, JK Talabot Ltd, Everblue Apparel Ltd, Pashmina Holdings Ltd, Celebrations Apparel Ltd and Dress Master Apparel Private Ltd. 

The company has huge growth potential as it continues to build capacities for enhanced performance and delivery across verticals followed by innovation in products and services with technology adoption which includes digitisation and automation. 

INDUSTRY OVERVIEW 

The global textile and apparel industry is witnessing several changes in consumption and production patterns which include shift in manufacturing hubs driven by the availability of cheap labour. The textile and apparel trade is expected to grow at a compounded annual growth rate (CAGR) of 3.7 per cent during 2018-28. While increase in apparel trade is expected to grow at a CAGR of 4.5 per cent, textiles is expected to rise at a CAGR of 2.5 per cent during the same period. Currently, China holds largest share in textile and apparel global trade but this is expected to change. Various global manufacturers believe that share of Bangladesh, Vietnam and India will increase in future. 

The labour intensive Indian textile industry contributes around 10 per cent to the country’s manufacturing sector and around 4 per cent to gross domestic product. With exports forming major share in Indian textile sector, volumes and revenues are affected heavily by currency fluctuations. The country’s apparel market is estimated to grow at a CAGR of nearly 8 per cent during 2018-28 and reach about US $118 billion by 2028. 

Margins are impacted owing to higher Analysis Equity discounting, weak demand and competitive pressure. Visual merchandising is expected to be the growth driver for the retail sector with significant rise in e-commerce shopping due to rising penetration of mobile phones and internet even in India’s remote regions. 

SEGMENT REVIEW 

The branded textile business segment of the company includes suiting and shirting for individuals. During Q2FY20, suiting business grew marginally by 1 per cent year on year (y-o-y) due to lower offtake in the wholesale channels which in turn was due to lower secondary sales. Growth was largely due to expansion of new smaller outlets and low priced products. Benefits which were to be realized from the price hike implemented by the company were impacted due to the adverse product mix and higher discounting. 

Shirting business witnessed a decline of 11 per cent y-o-y due to lower offtake and destocking in the trade channels. The destocking was followed with a planned stock correction of around Rs9 Cr in B2C Shirting in order to compensate for the sluggish retail demand that has been prevalent in the industry during the past few quarters. The effects of this correction which was made in Q4FY19 were seen during Q2FY20 with a decrease in net sales and EBIDTA in Q2FY20 byd 2 per cent and 3 per cent y-o-y to Rs869 crore and Rs129 crore respectively. The company posted a flat growth in revenues of Rs1469 crore in H1FY20 compared to Rs1473 crore for H1FY19 due to consumption slowdown. A revival is expected during H2FY20. 

Strong growth in the company’s brands namely Parx (7 per cent)and Park Avenue (21 per cent) followed by Color Plus (4 per cent) and Raymond Ready- To-Wear including institutional sales (4 per cent) were the main growth drivers for the branded apparel segment. .In Q2FY20, net sales grew 9 per cent y-o-y to Rs529 crore while EBITDA registered a growth of 47 per cent y-o-y to Rs20 crore in Q2FY20. In H1FY20, net sales increased by 11 per cent y-o-y to Rs842 crore while EBITDA jumped 79 per cent y-o-y to Rs36 crore for H1FY20. The company posted an improvement in EBITDA margin mainly due to lower discretionary spend.The branded apparel segment can expand more with increased channel penetration. 

Growth in the company’s garmenting business in Q2FY20 was led by increase in exports to the Japanese markets. Ethiopian operations regaining momentum was also a relief to the segment’s sales and revenues. Net sales during Q2FY20 increased by 6 per cent y-o-y to Rs233 crore. However, change in product mix in Indian operations led to a degrowth of 31 per cent y-o-y in EBITDA to Rs11 crore for Q2FY20. Similar trends can be seen in the half yearly financials as well with net sales registering a growth by 11 per cent y-o-y to Rs423 crore and EBITDA contracting by 45 per cent y-o-y to Rs14 crore. 

High value cotton shirting segment was mainly impacted due to damages caused by floods thus affecting production of Kolhapur plant. As a result, sales declined 8 per cent y-o-y to Rs161 crore in Q2FY20 For H1FY20, net sales increased by merely 1 per cent y-o-y to Rs335 crore and EBITDA grew 16 per cent y-o-y to Rs54 crore. Improved product mix and operating efficiencies led to improvement in the EBITDA margin. 

The company’s tools and hardware business segment was affected by slowdown in domestic files business and hence registered a degrowth of 1 per cent y-o-y to Rs103 crore in Q2FY20. EBITDA reduced by 8 per cent y-o-y to Rs14 crore. For H1FY20, net sales reduced by 3 per cent y-o-y to Rs194 crore. EBITDA declined by 11 per cent y-o-y to Rs20 crore in H1FY20. The company reported lower EBITDA margin is owing to lower contribution from higher margin domestic business 

The auto components segment saw a major drop of 18 per cent y-o-y in nets sales to Rs52 crore in Q2FY20. EBITDA also reduced by 44 per cent y-o-y to Rs8 crore in Q2FY20. Continued slowdown in the Indian auto sector for past several months has impacted the company’s orders from key accounts in both domestic and foreign markets. For H1FY20, net sales reduced by 5 per cent y-o-y to Rs120 crore . EBITDA also decreased by 27 per cent y-o-y to Rs22 crore. 

The company’s Raymond Realty business segment is its maiden venture into Real Estate Development. Thus, during the quarter the company’s orderbook looked strong. Net sales was reported to be Rs35 crore during Q2FY20. For Q2FY20, EBITDA margin was 18.4 per cent. 

FINANCIALS 

In Q2FY20, consolidated nets sales rose marginally by 1.92 per cent y-o-y to Rs1,883.17 crore. Profit before depreciation and tax increased 2.69 per cent y-o-y to Rs157.65 crore. However, net profit jumped 23.79 per cent y-o-y to Rs82.42 crore. In FY19, net sales and PBDT rose 11.44 per cent 21.21 per cent and 24.68 per cent to Rs6,582.28 crore, Rs464.89 crore and Rs182.77 crore respectively 

DEMERGER 

Raymond Ltd is set to demerge its lifestyle business into a separate entity, which will also be listed later through a mirror shareholding structure. The new company will include Raymond’s current business segments of branded textiles, branded apparel and garmenting while Raymond Ltd will retain real estate projects, Thane land bank, B2B shirting business, engineering business segments of auto components and tools and hardware, denim and FMCG . Post demerger, every shareholder of Raymond Ltd. will be issued shares of the new company in the ratio of 1:1. The demerger will help the company to unlock value, give investors sufficient clarity on the utilisation of cash generated from lifestyle business and get higher valuation multiples. 

CONCLUSION 

Key industry growth drivers such as growing urbanisation, higher disposable income of Indian households and a favourable demographics along with an upward trend in the purchasing pattern will benefit the company’s growth. Increasing e-commerce shopping led by rising mobile and internet penetration is expected to give further boost and lead to consistent growth in sales volume for the entire industry including the company. 

Raymond Ltd continues to have a strong focus on digital platforms and connect with consumers through social media. The company has been increasing its presence in the e-commerce space through Raymondnext.com, which is a one-stop fashion solution for all brands that come under the Raymond umbrella. 

Amid its dedication to judicious capital allocation strategies for sustainable growth, Raymond Ltd continues to work towards achieving cost efficiencies and provide its customers the best experience at the same time. In FY19, the company entered a phase of focused execution, wherein it planned to build tech-enabled capabilities and platforms that would gear the organisation for long-term growth and value creation. For FY20, Raymond Ltd has been preparing for future opportunities to fulfil its vision to build on the company’s strengths, capabilities and offerings. Hence, we recommend a BUY

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR