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Raymond: What’s on the cards?

Apr 23, 2001

Raymond Limited, the flagship company of the Singhania Group, is set to announce its full year results today. Having successfully sold its non-core business, the company has transformed itself into a pure retail player. The company is expected to report a significant drop in sales as well margins in the last quarter. The company has recorded a loss of Rs 1,638 m for the first nine months of the current year. However, this was primarily on account on loss incurred in the sale of its steel division, Rs 1,760 m, to ThyssenKrupp of Germany. Excluding this loss, the company has actually made a profit of Rs 122 m, down 53% compared to the first nine months of the previous year. However, the results are not comparable because both the cement and steel divisions contributed to 51% of the company’s FY00 turnover (including its clinker manufacturing unit).

The nine months performance…
(Rs m) 9mFY00 9mFY01 Change
Sales 9,363 8,379 -10.5%
Other Income 122 105 -14.2%
Expenditure 7,644 7,070 -7.5%
Operating Profit (EBDIT) 1,719 1,309 -23.9%
Operating Profit Margin (%) 18.4% 15.6%  
Interest 802 716 -10.7%
Depreciation 745 576 -22.7%
Profit before Tax 295 122 -58.7%
Other Adjustments - (1,760)  
Tax 36 -  
Profit after Tax/(Loss) 259 (1,638)  
Net profit margin (%) 2.8% -19.6%  
No. of Shares (eoy) (m) 75.1 75.1  
No. shares 75.1 75.1  
EPS (Rs) 4.6 (29.1)  

Sitting on a cash surplus of Rs 12 bn, the company has been eyeing acquisition for quite some time and is reportedly in talks with many garment manufacturers. It has already retired debt worth Rs 4,700 m in the last two quarters, which is evident from the fact that interest costs in the third quarter dropped by 26% (down 11% in the first nine months). Even in the fourth quarter, both interest and depreciation costs are expected to drop significantly. Added to this, the company is expected to save around 30% of its total raw material costs with the sale of the steel and the cement division. But, the Finance Minister has proposed a 16% excise duty on readymade garments, which is expected to be a drag on its margins.

Meanwhile, Raymond acquired the engineering files division of the AV Birla Group Company, HGI Industries, for a consideration of Rs 175 m. This is expected to consolidate the position of the company, which has more than 30% of the world industrial files market. Post-acquisition, the market share is expected to increase by 7%-8%.

Having hived-off its non-core businesses, the company utilised a major chunk of the profits made through sale of these divisions to buy-back of shares at Rs 160 per share in the last quarter. As a result, the management’s stake in the company is estimated to have gone up from 27% earlier to 31% post-buyback.

The scrips is currently trading at Rs 110, at a P/E multiple of 9.4x the annualised third quarter earnings. Given the strong brands (Raymond, Parx and Manzoni) and its wide spread retail outlets (approximately around 250 outlets), Raymond is well positioned to capitalise of the fast expanding branded readymade garments market (the market is growing at a rate of 25% per annum). The government's decision to impose a 16% margin, however, could act as a dampner.

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