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Raymond: Worsted fabrics make a comeback - Views on News from Equitymaster

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Raymond: Worsted fabrics make a comeback
Jan 25, 2010

Performance summary
  • Standalone sales fall by 2% YoY during 9mFY10, up 5% YoY in 3QFY10.
  • Standalone EBIDTA margins more than double to 10.4% in 9mFY10 due to lower input costs.
  • While denim business enjoys higher margins, branded apparel business suffers from lower volume growth.
  • Bottomline improves due to relatively lower interest costs and losses on foreign currency borrowing.
  • Extraordinary expenses include the VRS writeoffs; which also took a toll this quarter.


Standalone financial performance
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 3,545 3,723 5.0% 10,238 10,056 -1.8%
Expenditure 3,321 3,184 -4.1% 9,831 9,008 -8.4%
Operating profit (EBDITA) 224 539   407 1,048  
EBDITA margin (%) 6.3% 14.5%   4.0% 10.4%  
Other income 26 128 392.3% 329 410 24.6%
Depreciation 217 281 29.5% 626 832 32.9%
Interest 191 211 10.5% 498 670 34.5%
Exchange rate loss / (gain) 24 37   66 156  
Profit before tax (134) 212   (322) 112  
Extraordinary income/(expense) 11 (169)   25 32 28.0%
Tax 7 (45)   27 (104)  
Effective tax rate -5%     -8%    
Profit after tax/(loss) (152) 426   (324) 184  
Net profit margin (%) -4.3% 11.4%   -3.2% 1.8%  
No. of shares (m)       61.4 61.4  
Diluted earnings per share (Rs)*         (46.5)  
Price to earnings ratio (x)         N.A.  
(*On a trailing 12-month basis) Extraordinary expenses refer to the VRS payments written off

What has driven performance in 3QFY10?
  • After a few quarters of disappointing performance in its flagship worsted fabrics business, Raymond has made a comeback. Due to adverse product mix and higher manufacturing cost on account of the additional capacity at Vapi, Raymond was earlier facing pricing pressure in its worsted fabrics business during 1HFY10. However, despite continued pressure on prices, the higher volumes and lower operating cost (with the Thane plant being shut) this business lent some stability to Raymondís overall performance for the nine month period. Despite 19% rise in cost of wool prices, the EBIDTA margins improved from 16% in 3QFY09 to 17% in 3QFY10. With the continuation of the wedding season and cotton prices witnessing a downward trend, Raymond expects the margins to improve further in the next quarter.

    Worsted fabric performance
    (Rs m) 3QFY09 3QFY10 Change
    Revenue 2,920 3,680 26.0%
    % share 82.4% 98.8%  
    EBIDTA margins 16.1% 16.8%  
    Branded apparel performance
    Revenue 1,460 1,380 -5.5%
    % share 41.2% 37.1%  
    EBIDTA margins 8.9% 8.7%  
    Garment performance
    Revenue 250 240 -4.0%
    % share 7.1% 6.4%  
    EBIDTA margins -4.0% 12.5%  

  • The branded fabric sales continued to comprise 37% of Raymondís consolidated sales at the end of 9mFY10. Pressure on volumes and lower average realisation led to sales drop by 5.5% YoY. 26 new stores were opened during the third quarter of FY10 adding 38,400 sq feet of retail space and this sustained Raymondís position as the largest specialty retailer. The company plans to add 289 stores in tier 3 and 4 cities by 2011 mainly through the franchise model. The like to like store sales grew by 8% last quarter.

  • The files and tools division has been spun off to a subsidiary Hindustan Files. The company has announced VRS for the employees of the Thane plant in order to meet the challenge of manufacturing-on costs.

  • In the denim business, Raymondís Indian operations witnessed 4% growth in realizations. This along with improved volumes helped the company improve profitability at the operating (EBIDTA) level. The company is in the process of restructuring this division and has already shut down the US and Belgium operations. The EBIDTA margin of the Indian operations improved from 3% in 3QFY09 to 14% in 3QFY10.

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