Dress Yourself To Stay In Comfort With Raymonds

Industry

Textile is one of the oldest industries in the Indian economy dating back several centuries. Even today, textile sector is one of the largest contributors to India’s total exports which accounts to 11 per cent of the total exports from the country. The textile industry is highly labour intensive and is one of the largest employers among all the industrial sectors. We can broadly divide this industry in two segments. First, the unorganised sector which consists of handloom, handicrafts and sericulture, operated on a small scale and through traditional tools and methods. The second is the organised sector consisting of spinning, apparel and garments segments which use modern machinery and techniques.

Strong Government Support

The textile sector has been getting strong support from the Centre as it provides direct employment to crores of skilled labourers. In a bid to improve the share in the global textile market, Union Finance Minister Arun Jaitley in July 2016 announced a package of Rs 6000 crores for this sector with a hope of creating 1 crores new jobs in the next three years, which may attract Rs 74,000 crores worth investments.

About

Raymond produces pure wool, wool blended and premium polyester viscose suiting in addition to its famous blankets and shawls. The company has over 60 per cent market share in worsted suiting in India and it ranks amongst the first three fully integrated manufacturers of worsted suiting in the world. Raymond is the only company in the world to have a diverse product range of nearly 20,000 design and colours of suiting fabric to suit every age, occasion and style. The company exports its products to over 55 countries including the USA, Canada, European destinations, Japan and the Middle East. The company has been pioneering technological breakthroughs over the years and been the first one to introduce polyester wool and polyester wool viscose in the Indian market.

Divestments

The company has seen divestment in this fiscal. Firstly, Raymond's unlisted subsidiary, Ring Plus Aqua entered into a share purchase agreement with Neel Metals Products to transfer by way of sale its entire equity share holding of 1,04,30,631 equity shares in its 50:50 joint venture company namely Rose Engineered Products India. The enterprise value of ROSE was arrived at Rs 20.19 crores.  Secondly,state owned Life Insurance Corporation of India has reduced its stake in Raymond by 2.01 percent, by selling 12.34 lakh shares in the open market. LIC, which had 7.54 per cent stake earlier, brought down its shareholding in the company to 5.53 per cent by selling shares between March 15, 2012, and October 10, 2016.

Porters Five Forces Analysis

Financial numbers

The financial numbers of Raymond in the financial year ended March 2016 are outstanding. The top line of the company has increased by a whopping 49 per cent and stands at Rs 2910.46 crores. EBITDA stands at Rs 215.67 crores which has increased by 11 per cent YoY. Net profit of Raymond stands at Rs 82.09 crores which has increased by 46 per cent as compared to the previous year. The balance sheet of company looks healthy. Reserves and surplus stands at Rs 1569.98 crores which has increased by 6 per cent. Net worth too has increased by 6 per cent. However the debt of Raymonds in the financial year ended March 2016 has increased by 9 per cent.

The Q1FY17 numbers of Raymond are disappointing. Total income from operations stands at Rs 1061.9 crores which has decreased by 5 per cent as compared to the previous quarter. EBITDA of the company stands at Rs 35.63 crores which has decreased 26 per cent YoY. Raymond has posted a net loss of Rs 16.61 crores in this quarter.

Valuations

With a market capitalisation Rs 3758.66 crores, the company maintains dividend yield of 0.49 per cent. Trailing-Twelve-Month P/E stands at 47.50 which is quite healthy as compared to the industry P/E of 29.57. Return on equity of Raymond stands at 6.82 per cent whereas the industry ROE stands at 8.89 per cent. Return on capital employed stands at Rs 10.21 per cent.Debt to Equity ratio of the company stands at 1.15 per cent which is more than the industry. The trailing-twelve-month EPS stands at Rs 12.87. The shares of the company in the last 6 months have surged by 55 per cent. Fifty-two- week High/Low of the scrip stands at Rs 635/351.50.

Conclusion

The future of Indian textile industry looks promising, buoyed by both strong domestic consumption as well as export demand. The organised apparel segment is expected to grow at a Compound Annual Growth Rate of more than 13 per cent over a 10-year period. On the other hand, Raymond Group has signed a Memorandum of Understanding with Maharashtra Government for setting up a textile manufacturing plant with an investment of Rs 1,400 crores in Maharashtra’s Amravati district. Looking at the investments made by the Centre in the sector, the prospective of the company looks promising however the Q1FY17 results wore not in line with the industry estimates meanwhile the valuation of the Raymond at the current levels looks promising. The scrips of the company are already very close to its 52-week high and it could be interesting to see whether the scrips of Raymond hits a fresh high in the upcoming days. Till then we suggest our reader-investors to HOLD the scrip.

(Analysis by Arshad Hippagri)
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Chirag Modi, MD, CM Investments

1} How do you see the textile industry stocks moving from here looking at the new policy initiatives of the central government?

Ans:   Textile stocks were in consolidation for a long time. The current BJP government is aggressively focusing on the manufacturing sector which is creating a lot of jobs and in that, the textile sector plays an important part. After the new government has come into power almost three years back, the government has taken multiple steps to improve this sector. The textile sector had a big burden because of high interest rates and high power costs, but in recent times both of these have come down and they will drop even further. The government continues to focus on the textile sector and in the forthcoming budget, many more influential policies favourable towards the sector might come. Textile stocks are still trading at discounted prices and they are going to breakout soon. There have been a lot of improvements in the recent Q1 and Q2 results, and the results are expected to improve much more hereafter. So I like Raymond, Century Textile, JBF Industries, Bombay Dyeing, and Sumeet Industries. 

2} What is the fate of stocks like Raymond? What would be your guidance to retail investors when it comes to Raymond stock as an investment?

ANS: Raymond is a 90-year-old company and the brand is well known. The company continues to invest in strengthening the brand by opening new stores and renovating the existing ones. The company continues to grow product categories in the fabric business. It is also looking to re-engineer operations to drive into cost efficiencies and expand capacities in business, which will increase its export potential. FIIs are also interested in retail businesses and the government has already approved 100% FDI limit in the retail sector. So Raymond looks good and investors can easily get consolidated returns of over 20% hereon for many years. 

3} How new textile policies and government announcements for this sector are going to help heavyweights textile companies like Raymond, Arvind Mills, Aarvee etc.?

ANS: As I already said, the government is bringing down interest rates and it is also improving related infrastructure and  connectivity. With that, the recently announced Rs 6,000-crore textiles package that envisages significant flexibility in labour laws is a part of a larger policy for the sector which will bring a lot of benefits for these companies. These new policies and developments will result in bringing costs of the production down. This will make them better suited to increase production, expand and export more. Heavyweight textile companies like Raymond, Arvind Mills and Aarvee will also benefit from economies of scale, which will bring the costs down even further.

4} How do you see export oriented textile companies doing on the wake of Welspun scam when foreign buyers alleged Welspun had provided them cheaper, inferior quality products in place of superior ones?

ANS: The Welspun scam was a mistake of a single company, but this has resulted in the deterioration of the trust that foreign buyers had in Indian textile companies. Other companies in the textile sector have worked and they have worked hard to rebuild that trust, a mistake like that hasn’t happened again ever since. Although the Welspun scam had hit the Indian textile companies, it hasn’t brought them down as foreign buyers are realizing  that these companies are reliable. Therefore, export oriented textile companies have continued to do well, are doing well and will continue to do well, the trust is getting stronger every day and the companies are growing. 

Prashanth Victor

Research Analyst- textile sector, Karvy

Fundamental strength of the textile industry in India is its strong production base of wide range of fibre and yarn from the abundant availability of raw materials like cotton, jute, silk and wool; and ably supported by skilled workforce. Driven by strong domestic consumption and demand for exports, the Indian textile market is expected to touch USD 226 billion by 2023 growing at a CAGR of 8.7 per cent between 2009-2023E. The central funding scheme Amended Technology Upgradation Fund Scheme (ATUFS) that is expected to boost ‘Make in India’ in the textiles sector by attracting investments of Rs.1,000 Billion.

The revenue outlook in FY17 driven by the enhanced domestic consumption of fabrics, apparels and home textiles in a view of higher production efficiency and export demand. In FY16, production of raw cotton in India decreased to 35.2 million bales from 38 million bales in FY15 due to pest attach, lower yield and uneven rainfall. As a result, consumption is estimated to exceed production which influenced high cotton price in H1FY17. However, the prices are expecting to get influenced in H2FY17 by higher production which will support the improvement in cotton availability.

We expect positive outlook on Indian textile market influenced by low raw material price, increase in capacity utilisation, strong demand from US and Europe; and low interest charge backed by regular debt repayment on utilised capex which lead to significant margin expansion and profit for the textile companies.

Dinesh Rohira,Founder CEO, 5nance.com

Indian government has infused a new life to textile sector with its export promotion policies and allowing 100 per cent FDI in this sector under the automatic route. Additional steps like reduction of custom duty to 2.5% for raw materials will help in giving an economical boost to this sector. Also the focus of government on expenditure for rural and agricultural sector is bound to increase the demand of textiles. The growth momentum in the sector has not been at par with other growing sector in recent past and thus the potential is yet to unfold and stimulate growth in textile sector. Looking forward, this sector is expected to grow by 12-13% and double in next 6 years. Backed by both strong domestic consumption as well as export demand, the future for the Indian textile industry looks promising