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Raymond: Realisations move north

Aug 7, 2010

Raymond declared its 1QFY11 results. The company has reported 3% YoY growth in net sales while it has declared losses at the net level. Here is our analysis of the results.

Performance summary
  • Standalone sales grow by 3% YoY during 1QFY11 backed by higher realisations.
  • Standalone EBIDTA margin marginally in the positive despite higher input costs.
  • Revenues from the textile and garments segments grow by 29% YoY and 20% YoY respectively.
  • Higher interest costs continue to remain a drag on the bottomline, despite forex gains.

Standalone financial performance
(Rs m) 1QFY10 1QFY11 Change
Net sales 2,347 2,409 2.6%
Expenditure 2,461 2,400 -2.5%
Operating profit (EBDITA) (114) 9  
EBDITA margin (%) -4.9% 0.4%  
Other income 215 146 -32.1%
Depreciation 270 254 -5.9%
Interest 330 246 -25.5%
Exchange rate loss / (gain) 48 (53)  
Profit before tax (451) (398)  
Extraordinary income/(expense) (50) (19)  
Tax (85) (131)  
Effective tax rate N.A N.A  
Profit after tax/(loss) (316) (248)  
Net profit margin (%) -13.5% -10.3%  
No. of shares (m)   61.4  
Diluted earnings per share (Rs)*   N.A  
Price to earnings ratio (x)   N.A  
(*On a trailing 12-month basis)
Extraordinary expenses refer to the VRS payments written off

What has driven performance in 1QFY11?
  • After two consecutive years of disappointing performance in its flagship worsted fabrics business, Raymond seems to have finally made a comeback. The worsted fabrics business managed 14% YoY growth in volumes and 11% YoY growth in realizations this quarter. For the shirting business, volume was up by 26% and realisations were higher by 4%. The operating margins in this segment, however, dipped on account of high cotton yarn prices. The lower operating cost (with the Thane plant being shut) lent some stability to Raymondís overall performance for 1QFY11.

    Worsted fabric performance
    Revenue 1,850 2,380 28.6%
    % share 39.2% 41.0%  
    EBIDTA margins -3.8% 2.1%  
    Branded apparel performance
    Revenue 1,240 1,490 20.2%
    % share 26.3% 25.6%  
    EBIDTA margins 6.5% 9.4%  
    Garmenting performance
    Revenue 180 230 27.8%
    % share 3.8% 4.0%  
    EBIDTA margins 17.8% 11.3%  

  • The branded fabric sales continued to comprise 25% of Raymondís consolidated sales at the end of 1QFY11. The performance of this division improved significantly with margins going up from 6.5% to 9.4%.

  • 14 new stores were opened during 1QFY11 adding 30,172 sq feet of retail space and this sustained Raymondís position as the largest specialty retailer. Simultaneously aggressive reviews of the non performing stores during the year resulted in 7 store closures. The company plans to add 200 stores in tier 3 and 4 cities by 2011 mainly through the franchise model. The like to like store sales grew by 5% last fiscal.

  • In the denim business, Raymondís Indian operations witnessed an improved performance at the operating level, despite cotton prices moving up by 23% YoY. While the domestic order book remains healthy, the company witnessed volume growth of 7% and realization growth of 20% this quarter. The company clocked EBIDTA margin of 12% in the Indian operations as against 14% in 1QFY10.

What to expect?
At the current price of Rs 219, the stock is trading at an EV/EBIDTA multiple of 25 times our FY13 estimates (ResearchPro subscribers can view latest updates here). 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 companyís bottomline in the medium term. Risks on the forex side also remain unresolved. The companyís diversification into the real estate business is also not a very enthusing proposition. We maintain our negative view on the stock.

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Feb 17, 2020 03:31 PM


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