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Raymond: Improved performance

Apr 26, 2002

Raymond Limited has posted a net profit of Rs 881 m for the full year ended March 31 2002 as compared to a net loss of Rs 70 m (excluding extraordinary income) in the corresponding period last year. However, the results are not comparable as the company sold its cement and steel division last year.

(Rs m)FY01FY02Change
Net sales 12,868 8,684 -32.5%
Other Income 157 570 262.1%
Expenditure 11,172 7,373 -34.0%
Operating Profit (EBDIT) 1,696 1,311 -22.7%
Operating Profit Margin (%)13.2%15.1% 
Interest 799 252 -68.4%
Depreciation 814 526 -35.4%
Profit before Tax 240 1,103 358.4%
Extraordinary items 3,392 48  
Tax 310 270 -13.0%
Profit after Tax/(Loss) 3,322 881 -73.5%
Net profit margin (%)25.8%10.1% 
No. of Shares (m) 75.1 61.4  
Diluted Earnings per share 44.2 14.4  
P/E Ratio (x)  7.0  

Post the sale of the divisions, the company derives a large portion of its sales from fabrics division where it is one of the market leader (69% of FY02E sales). Apart from fabrics, it is also a world market leader in steel files, which contributes to 14% of sales. The company had targeted a growth of 10% from this division in FY02. The rise in denim prices also have benefited the company in a large way. The denim division showed a growth of 16% in sales. Expansion of capacity in denim division from 11 million metres (mm) to 16.5 mm will be on stream by end June 2002.

But one of the most promising segments for Raymond is garments. The company has brands like 'Parx' and 'Manzoni', which commands a good premium to its peers. The garments sector has been growing at a healthy rate of more than 25% over the last three years and is expected to accelerate in the future as organised retailing is gradually gaining acceptance. The company has been scouting for acquisitions for quite some time, both in the domestic and international markets. During the year, Raymond acquired the entire shareholding in Regency Textiles Portuguesa Limitada, a garment manufacturing and marketing company in Portugal for a consideration of US$ 3 million (Rs 147 m). The acquisition will help the company to expand its market for fabric and garments in Europe.

The performance of the company at the operating level is in line with our estimates and the improvement in margins was led by savings in costs of power, fuel and raw material with the exit from cyclical industries like steel and cement. Raymond was estimated to save Rs 1,533 m (12% of FY01 expenses) as operating expenses post the divestment. Depreciation stands reduced for the same reason. The company has utilised sale proceeds to retire high cost debt (excluding few external commercial borrowings) and consequently interest cost has fallen significantly.

Extraordinary item here includes to Rs 21 m incurred towards major promotion campaign to celebrate the completion of 75 years of service to the customers. The entire expenditure of this campaign has been written off during the current year.

As regarding the outlook for Raymond, the company has consolidated its presence in the steel files segment. Though this business is not a high growth industry, growth is expected to remain stable at around 5%-7%. The rise in denim prices will definitely benefit the company and is also a supplier to many international fashion houses. But Raymond's garments would continue to remain the growth driver in the future and the company's effort to strengthen its presence in this segment is heartening. But there is still a lot to be done. Fabrics, which is growing at a slower rate (2%-3%), contributes to a lion share of its revenues and unless the company increases its presence in the garments businesses, growth is expected to be on the lower end of the spectrum in the future. The stock currently trades at Rs 101 implying a P/E multiple of 7x FY02 earnings.

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