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Raymond: Steadily improving!

May 13, 2005

About the company
<>Raymond is India's largest and the world's third largest integrated manufacturer of wool and wool blended fabrics with a production capacity of 24 mm (million meters). The company is the second largest denim producer in the country with a capacity of 30 mm. It has divided its business into 3 divisions: textiles, denim and files and tools. It is the leading producer in suiting fabric with 60% market share, which is marketed under the brand name 'Raymond'. Through its subsidiary company, Raymond Apparel Ltd, it owns reputed brands such as Park Avenue, Parx & Manzoni.

(Rs m) FY01 FY02 Change FY03 Change FY04 Change FY05 Change
Net sales 12,868 8,684 -32.5% 9,361 7.8% 10,239 9.4% 11,438 11.7%
Expenditure 11,133 7,334 -34.1% 7,939 8.2% 9,004 13.4% 10,177 13.0%
Operating profit (EBDITA) 1,735 1,350 -22.2% 1,422 5.3% 1,235 -13.2% 1,261 2.1%
EBDITA margin (%) 13.5% 15.5%   15.2%   12.1%   11.0%  
Other income 157 570 263.1% 753 32.1% 1,025 36.1% 679 -33.8%
Interest outgo/(inflow) 799 252 -68.5% 273 8.3% (190)   142  
Depreciation 842 541 -35.7% 591 9.2% 634 7.3% 638 0.6%
Profit before tax 251 1,127 349.0% 1,311 16.3% 1,816 38.5% 1,161 -36.1%
Extraordinary items-gain/(loss) 3,392 (21)   19   35 84.2% (247)  
Tax 311 270 -13.2% 417 54.4% 548 31.4% 82 -85.0%
Profit after tax/(loss) 3,332 836 -74.9% 913 9.2% 1,303 42.7% 831 -36.2%
Net profit margin (%) 25.9% 9.6%   9.8%   12.7%   7.3%  
No. of shares (m) 61.4 61.4   61.4   61.4   61.4  
Diluted earnings per share (Rs)* 54.3 13.6   14.9   21.2   13.5  
Price to earnings ratio (x)               24.1  
(* annualised)                  

Performance over the years
FY02: The year proved to be a tough one for Raymond on the back of a global recession and disturbances in the state of Gujarat. However, despite the odds, the company's performance was satisfactory compared to the previous fiscal. The company had earlier exited from the steel and cement businesses and the savings in raw material costs were reflected in improved margins (up 200 basis points YoY). If we consider the segmental performance of the company during FY02, textiles division (over 2/3rd of revenues) was affected due to reduced demand both in the domestic as well as the global markets. It must be noted that owing to the fact that the company had hedged itself for the full year, the spurt in raw wool prices did not affect it significantly. Denim witnessed a revival in demand. Better price realisations and subdued cotton prices resulted in better margins during the year.

FY03: Topline grew at a steady rate of 8% YoY and bottomline by 9% YoY on the back of strong denim sales. Operating margins of the denim business also improved by 450 basis points due to lower cotton prices, richer product mix and higher volumes. The company expanded its denim production capacity to 20 mm. Further, despite the stagnant domestic demand, revenues of textiles segment grew by 4% YoY on the back of improved realisations. Files and tools continued to face pressure on its operating margins, which fell by 360 basis points due to marginal sales growth in the domestic market and a decline in export sales. Export sales of files and tools were affected due to the almost stagnant demand in the global market and cheap exports from China.

FY04: The impact of the denim capacity expansion was felt in FY04, which aided the company's 9% YoY topline growth. However, operating profits took a hit and fell by 13% YoY due to rising cotton and wool prices. Textile exports were adversely affected falling by 14% YoY due to severe competition in the overseas market. Nonetheless, the bottomline registered a growth of 43% YoY propelled by higher other income (up 36%).

FY05: Strong denim sales continued to support the company's topline growth (21%) in FY05 also, which was aided by a further expansion of the company's denim capacity by 10 mm. However, sustained strong raw material prices dented margins by 110 basis points. Despite softening cotton prices during the course of the year, the company could not take advantage of the same owing to existing inventory, which were at higher price points. Further, operating margins of the files and tools division was also severely affected owing to rise in steel prices. This all led to the bottomline dipping by 36% YoY. Non-recurrence of extraordinary income earned in the previous year added to the woes. However, but for the VRS expenditure write-off to the tune of Rs 252 m, the net profit fall would have been lower at 15% YoY.

Thus, textiles and denim divisions have recorded steady growth in revenues over the years, particularly denims, which has increased its share of contribution in total revenues from 12% in FY02 to 19% in FY05. Further, while revenues from the files and tools division have remained more or less stagnant, it is the significant of margins (PBIT) of this segment from 16.6% in FY02 to 0.4% in FY05, owing to rising input costs (steel) that has affected the overall profitability of the company since FY02.

What to expect?
At Rs 327, the stock is trading at a price to earnings multiple of 24.1 times FY05 earnings. Going forward, the company has embarked on expansion plans. While the textiles capacity is being expanded from 25 mm to 28 mm, denim capacity is expected to increase to 40 mm by March 2006. Also, the garment expansion in Bangalore is on stream and we expect significant contribution from these initiatives over the next two to three years.

All the above initiatives are likely to augur well for the company, as it will be able to take advantage of the post quota regime and push for higher volume sales and consequently better revenues. Further, the company currently has a 26% global market share in the files and tools segment, which is expected to go up to 30%. This, coupled with the likely softening in input prices, could help ease the pressure on margins of this segment going forward.

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Nov 26, 2021 (Close)


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