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Raymond: Profits barely in the black - Views on News from Equitymaster
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Raymond: Profits barely in the black
May 5, 2012

Raymond declared the results for fourth quarter and financial year ended March 2012. The company has reported 25% YoY growth in net sales in FY12 while it posted profits for the full year period, after losses in FY11. Here is our analysis of the results.

Performance summary
  • Standalone sales grow by 25% YoY in FY12, despite higher volumes in the suiting and garmenting businesses.
  • Standalone EBIDTA margins contract marginally to 12.9% from 15.2% in FY11 due to higher input costs.
  • Higher interest costs, VRS write-offs erode bottomline during 4QFY12.
  • Return on capital employed inches up from 11% in FY11 to 12% in FY12.


Standalone financial performance
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 4,134 5,122 23.9% 14,965 18,719 25.1%
Expenditure 3,527 4,592 30.2% 12,685 16,307 28.6%
Operating profit (EBDITA) 607 530 -12.7% 2,280 2,412 5.8%
EBDITA margin (%) 14.7% 10.3%   15.2% 12.9%  
Other income 172 197 14.5% 761 871 14.5%
Depreciation 267 290 8.6% 1,037 1,098 5.9%
Interest 260 346 33.1% 1,019 1,348 32.3%
Exceptional items (153) (67)   (2,526) (67)  
Profit before tax 99 24 -75.8% (1,541) 770  
Tax 86 36   (539) 206  
Effective tax rate 87% 150%   N.A 27%  
Profit after tax/(loss) 13 (12)   (1,002) 564  
Net profit margin (%) 0.3% -0.2%   -6.7% 3.0%  
No. of shares (m)       61.4  
Diluted earnings per share (Rs)*         9.2  
Price to earnings ratio (x)         43.9  
(*On a trailing 12-month basis)
Exceptional items refer to the VRS and employee termination costs

What has driven performance in FY12?
  • Although the standalone performance was impact by the VRS writeoffs, on a consoliaded level, the growth in branded apparel, garmenting and denim business offered Raymond some edge in FY12. While the standalone sales grew by 25% YoY, on a consolidated level sales were up 20% YoY. For the worsted fabric (suiting) business, besides 9% growth in volumes and realizations during the fourth quarter, the exports nearly doubled. However, exchange rates and higher input costs impacted margins adversely. The branded apparel segment was impacted by the extension of season sale for inventory liquidation. The operating margins in the garmenting segment improved significantly due to lower cotton yarn prices. The lower operating cost (with the Thane plant being shut) lent some stability to Raymond's overall performance for FY12.

    Segmental contribution to consolidated sales
    (Rs m) FY11 FY12 Change
    Worsted fabric performance
    Revenue 14,850 18,650 25.6%
    % of cons.sales 48.8% 51.2%  
    EBIDTA margins 19.2% 16.9%  
    Branded apparel performance
    Revenue 6,410 7,590 18.4%
    % of cons.sales 21.1% 20.8%  
    EBIDTA margins 10.3% 10.4%  
    Garmenting performance
    Revenue 1,280 1,730 35.2%
    % of cons.sales 4.2% 4.8%  
    EBIDTA margins 10.9% 13.9%  
    Shirting fabric performance
    Revenue 2,120 2,290 8.0%
    % of cons.sales 7.0% 6.3%  
    EBIDTA margins 15.1% 13.1%  
    Denim (India) performance
    Revenue 5,960 7,400 24.2%
    % of cons.sales 19.6% 20.3%  
    EBIDTA margins 10.6% 10.8%  

  • The branded fabric and denim sales continued to comprise 21% and 20% of Raymond's consolidated sales at the end of FY12.

  • 114 new retail stores were opened during FY12 adding 150,000 sq feet of retail spac. This sustained Raymond's position as the largest specialty retailer. 58 stores with 91,340 sq feet of retail space was added in 4QFY12 itself. The company plans to add 200 stores in tier 3 and 4 cities by end of 2012 mainly through the franchise model. The like to like store sales grew by 15% YoY in FY12.

  • The fundamentals of the denim business improved with 5% growth in volumes and lower cotton prices. Further, the domestic order book remains healthy due to increased denim garmenting capacity of 4 lac pieces per annum.

  • Higher interest costs (long term debt to equity of 1.1 times) coupled with write-off of the VRS related expenses eroded profits in FY12. While there are conflicting reports about the company selling off the land parcel to repay debts as against the earlier plans of developing the same, the management has not confirmed any details for sale of 12 acres of its land at Thane.

What to expect?
At the current price of Rs 403, the stock is trading at a steep multiple of 44 trailing 12 month earnings. While the performance on the topline front has been in line with our estimates, we believe that the volatile operating margins across businesses and higher cost of operating in addition to the extended retail network may continue to impact the company's bottomline in the medium term. We will soon update the revised estimates for the stock. In the event of the company confirming details about plans to sell its land parcel to reduce debt, we will have to incorporate the same into our estimates.

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