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Raymond: Somber end to painful year - Views on News from Equitymaster
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Raymond: Somber end to painful year
Apr 25, 2009

Performance summary
  • Standalone sales grow by a marginal 4% YoY during FY09, down 18% YoY in 4QFY09. Consolidated sales up 7% YoY.
  • Both standalone and consolidated EBIDTA margins improve from 7% in FY08 to 9% in FY09.
  • Higher interest costs and loss on foreign currency borrowing drain bottomline.
  • Higher realisations in the worsted fabric business aid margins.
  • Extraordinary items include provisions on diminution in exposure to JVs and value of investment in subsidiaries.
  • The company has not declared any dividend for FY09.


Standalone financial performance
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 4,358 3,554 -18.4% 13,225 13,792 4.3%
Expenditure 3,904 3,467 -11.2% 12,313 12,605 2.4%
Operating profit (EBDITA) 454 87   912 1,187  
EBDITA margin (%) 10.4% 2.4%   6.9% 8.6%  
Other income 196 174 -11.2% 1,048 628 -40.1%
Depreciation 211 262 24.2% 811 888 9.5%
Interest 115 133 15.7% 456 631 38.4%
Exchange rate loss / (gain) (19) (198)   169 (891)  
Profit before tax 305 (332)   862 (595)  
Extraordinary income/(expense) (9) (2,363)   (45) (2,388)  
Tax 85 (304)   156 (272)  
Effective tax rate 28%     18%    
Profit after tax/(loss) 212 (2,391)   662 (2,711)  
Net profit margin (%) 4.9% -67.3%   5.0% -19.7%  
No. of shares (m)       61.4 61.4  
Diluted earnings per share (Rs)*         (44.2)  
Price to earnings ratio (x)         N.A.  
(*On a trailing 12-month basis)

What has driven performance in 4QFY09?
  • Branded fabrics (38%) and branded apparel (23%) together comprised 61% of consolidated net sales in FY09 as was the case in FY08. The composition of denim, however, shrunk from 17% to 14% in the last fiscal. While exports comprised 19% of total sales, the growth in sales from the company’s retail outlets was up 13% YoY.

    Better product mix, resilient pricing power and reduction in cost of wool prices (declined 17% YoY in 4QFY09) led to an appreciable performance of Raymond’s flagship worsted fabrics business. Having said that, despite the sustained demand for worsted fabrics, shift was seen towards lower price points. The division operated at 84% capacity utilisation (earlier 100%) and the segmental EBIDTA margins dropped from 15% in FY08 to 13% in FY09 with 8% YoY fall in realisations.

  • The branded apparel division remains largely reliant on its star brands namely ‘Parx’ (146% of apparel sales), ‘Park Avenue’ (37% of apparel sales) and ‘Colorplus’ (30% of apparel sales).Store rationalization (5 stores were closed) and rental renegotiation have helped cut down costs in the branded apparel business.

    Worsted fabric performance
    (Rs m) FY08 FY09 Change
    Revenue 11,340 11,380 0.4%
    % share 85.7% 82.5%  
    EBIDTA margins 14.7% 13.1%  
    Branded apparel performance
    Revenue 4,980 5,700 14.5%
    % share 37.7% 41.3%  
    EBIDTA margins 10.0% 8.4%  
    PBT margin 5.2% 2.5%  
    Garment performance
    Revenue 970 1,010 4.1%
    % share 7.3% 7.3%  
    EBIDTA margins 14.4% 8.9%  
    PBT margin 8.2% 2.0%  

  • 1.1 lac sq feet of retail space was added in FY09 (up 10% YoY) and this sustained Raymond’s position as the largest specialty retailer.

  • Turnover from the files and tools division grew by 25% YoY due to 2% increase in volumes and significant cost reduction due to increased sourcing from China.

  • The high loss making operations of the denim JV in US and Belgium were closed down in December 2008. On the basis of the assessment of the value of its investments in the overseas subsidiaries, Raymond provided Rs 2.3 bn towards write down of investments. The Indian operations, meanwhile, continue to be EBITDA positive and continue to run at full capacity. The division was also impacted by forex loss of Rs 360 m.

    What to expect?
    At the current price of Rs 87, the stock is trading at an EV/EBIDTA multiple of 10 times our FY11 estimates. While the company’s performance on the topline front has been a marginal 3% lower than our estimates, due to the extraordinary write-offs of the denim division and the higher forex losses the bottomline performance has been much lower than our estimates. We believe that the volatile operating margins across businesses and higher cost of operating the extended retail network may continue to impact the company’s bottomline in the medium term. Risks on the forex side also remain unresolved. We maintain our negative view on the stock. We will have to review our estimates for the stock after factoring in the losses from the denim business.

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