A fortnight back, Raymond finally succeeded in selling its 2.24 m tonne cement plant at a very decent price of Rs 7.85 bn. The management had hinted they could use a part of the money for acquisitions and some part of the money could be used for the repayment of debt.
The point to consider is: does Raymond have any other option other than the repayment of debt? The company has an approximate total debt of Rs 9.50 bn and its interest burden in the current year was Rs 968 m.
The steel business, which contributes 20% of the FY2000 turnover, is still in the doldrums. The company’s product silicon steel is largely used by the electrical industry. With the power reforms not taking off as fast as they were expected to, the demand for electrical equipment has been lukewarm at best.
Its core business, worsted suiting volumes are expected to slow down in the future due to increased competition and a shift in the consumption pattern in favour of readymade garments. (Raymond itself has introduced the ‘Parx’ range of casual wear apart from the Park Avenue range of shirting). Volumes are not expected to grow beyond 28 million metres over the next two years (from the present level of 24 million metres).
The apprehension that the management could diversify into unrelated areas again still remains. Raymond’s venturing into chopper services is cited as an example.
This is the best chance that the company has to get out of the hole it has got itself into. Will the management seize the opportunity?
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