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Raymond – Towards core-competence?

Jul 17, 2000

This company has learned the lesson of core competence in a hard way. It has been restructuring its business by selling its cement division to Lafarge India and Raymond Synthetics Limited to Reliance Industries last year. Though the management has decided to hive off its steel, things are not encouraging enough… There has been a notable shift in the sales mix for the company. While, the sale of garments has gone up marginally from Rs 117 m to Rs 141 m, the sale of fabrics has dropped sharply from Rs 7,680 m to Rs 6,966 m (a drop of 8% as a percentage of total turnover). This is worrying because the company has envisaged fabrics and garments as a focus division in the future.

A Notable shift…
(Rs m) FY99 % of turnover FY00 % of turnover
Fabrics 7,680 53.0% 6,966 45.5%
Garments 117 0.8% 141 0.9%
CR Steel strips 1,361 9.4% 2,315 15.1%
CR Silicon Steel 1,567 10.8% 1,916 12.5%
Portland Cement 3,276 22.6% 3,571 23.3%
Total Turnover 14,493   15,321  

However, there has been sharp increase in the sales (9% in FY99 to 15% in FY00) of the cold-rolled steel strips (a non-core division). But both the steel and cement business suffered due to increased competition and an overall drop in demand scenario, which led to lower price realisations.

With branded garments expected to gain momentum, the company’s introduction of new ranges under the ‘Parx’ brand is seen a positive move. But, Indian Rayon, its direct competitor, seems to have an upper hand with the recent acquisition of Madura Garments and its strong brands such as Allen Solly, Louis Phillips and Van Heusen. However, Raymond’s strong distribution network and product range (especially the premium segment), may act as a catalyst to the bottomline growth.

Inspite of all these factors, the main concern would be the management’s focus. For example, the company’s recent venture into aviation business (which is a highly capital intensive business). The best possible solution would be to sell its steel division, utilise the proceeds towards retirement of the high cost debt and concentrate on the garment business, which has huge potential to grow. But, will the management be atleast reactive (if not proactive) to the situation?

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