Raymond Ltd.’s textile segment (standalone) sales for the quarter ended December 31, 2011, registered an increase of 16 per cent to Rs. 514 crores on the back of both higher realizations and volume growth. The segment reported earnings before interest and tax (EBIT) of Rs. 104 crores.
The branded apparel business witnessed a 7 per cent increase in the quarterly sales to Rs. 198 crores and reported an EBITDA of Rs. 29 crores. The branded apparel business has shown strong resilience in a challenging business environment.
Raymond’s retail network has crossed the 800-store mark. The store count as on December 31, 2011, stood at 807, including 40 stores in the Middle East and SAARC region covering over 1.6 million square feet of retail space.
The Indian operations of denim business witnessed a 11 per cent sales growth during the quarter to Rs. 171 crores, while its EBITDA stood at Rs. 18 crores.
Announcing the results, Mr. Gautam Hari Singhania, Chairman & Managing Director, Raymond Ltd., said: “After a robust performance in the first half of the current financial year, the third quarter has been more challenging. Consumer sentiment has been impacted mainly due to high inflation. However, we have a strong portfolio of power brands which have shown resilience during these times. Moreover, times like these help us become more efficient and competitive. We also believe that this is a short-term phenomenon and the long-term domestic consumption story in India is well intact. Accordingly, we will continue to focus on our core strategies and strengths and will continue to roll out our retail expansion plan in smaller towns and cities as envisaged”.
To encash fully on the strong brand value the firm has forayed aggressively into retail business. It has set up 200 stores in the past three years and has plans to set up 100 stores this year. The firm is largely targeting Tier III, IV and V cities for further expansion. It enjoys one of the largest retail networks with 762 exclusive stores with over 1.53 million square feet. Majority of these stores are franchisee operated. The company products are present in nearly 18,000 touch points.
Raymond commands over 60 per cent of the market share in the worsted segment and is the largest integrated textile company.
The Indian apparel market is growing at 11 per cent CAGR. The share of the organized segment is expected to increase much faster. Companies with strong brands like Raymond do benefit most.
Restructuring
As its restructuring initiative, Raymond is shifting its 7 mmpa worsted fabric manufacturing facility from the high-cost region Thane to low-cost locations of Jalgaon (weaving capacities) and Vapi (finishing capacities). Post restructuring the total capacity of the firm will increase to 38 mmpa, including 14 mmpa at Chindwara and 14 mmpa at Vapi. The facility is totally integrated, including combing, spinning, weaving and finishing. Major products include poly viscose, poly wool, all wool and recently started cotton fabric.
The company is likely to spend around Rs. 100 crores for modernizing and re-location of plant. This would enable it to add up additional capacities in a short period of time with minimum capex considering that it would be relocating its existing plant and machinery.
The restructuring is likely to improve volume for the firm from 31 mmpa to 38 mmpa. A large part of this business is through B2C model. Cost savings on account of employee expenses and modernization would further improve the margin for the business by 200-300 basis points.
Raymond has entered into a 50 per cent JV with Zambaiti for its shirting fabric manufacturing. Total capacity of the unit has increased from 11.5 mmpa to 21.6 mmpa in FY11. This expansion will yield results in the current year itself. Volume from this business is expected to double by FY13E.
Closure of loss-making denim units
Restructuring initiatives include closing down the denim manufacturing facility in Belgium and the US with total capacity of around 40 mmpa. Raymond has a 50 per cent JV with UCO NV Ltd. for its denim facility. Post exiting its loss-making Belgium and US facility, Raymond will have total denim capacity of 47 mmpa, including 40 mmpa at Yavatmal and 7 mmpa at Romania where the company has a 25 per cent stake. The decision would certainly benefit the firm in the long term.
The firm already has exited its loss-making brands like Zapp and Be Home. Zapp mainly targeted the kidswear segment and Be Home was mainly a home textiles brand. The move would benefit it by synchronizing its brand portfolio.
Raymond branded apparel business contributes around 21 per cent to consolidated topline of the company and 15 per cent to the bottomline. With increasing presence the business is expected to grow at a CAGR of 15 per cent. The firm has witnessed 10 per cent like-to-like sales growth in FY11. However, growth has slowed down to 5 per cent in H1FY12 due to macro concerns of inflation and interest rates. No near term revival is likely. However, demand may stabilize from the current level.
The segment has witnessed challenges in terms of volatile raw material prices and levy of excise duty on readymade garments. However the firm has successfully passed on the cost increases due to the strong brand presence. This has led to increase in the margin from 10 per cent in FY11 to 16 per cent in H1FY12. Margins are expected to be maintained in the range of 12-14 per cent.