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Raymond: An overview

Sep 25, 2003

Raymond’s business interests comprise fabrics, denim, branded garments and files tools. It is the world’s third largest integrated manufacturer of wool and wool blended fabrics with production capacity of 25 m meters. It is also the world’s largest steel file manufacturer with over 90% domestic market share and 30% share globally. It is among the top denim manufacturers in the country. In last three years the company has streamlined its business. The contribution of fabric business to consolidated revenues has gone up significantly from 42% in FY01 to 60% in FY03, mainly due to divestment of its cement division. However, the fabrics business has grown at a CAGR of only 1% over last three years. In contrast, contribution of denims to total revenues grew from 6% in FY01 to 12% in FY03. The company has doubled its denim production capacity to 20 m meters. As a result, the revenues from this segment grew at faster CAGR of 16% during this period.

Apart from denim, the key thrust area for the company is growing the garments business. This is because the company’s other businesses viz. fabrics and files tool have reached a maturity phase. Garments contribution to consolidated revenues increased from 9% in FY01 to 14% in FY03. The company’s folio has well known brands like Parx, Park Avenue and Manzoni, providing wide range (both price and quality) to the customers. The revenues from this segment grew at a CAGR of 9% over the last three years.

The cash proceeds from the sale of cement and steel plants are being utilised towards acquisitions, both in India and international markets. Among the latest acquisitions is a 74% stake in ColorPlus, the premium branded garment range. With an estimated sale of Rs 800 m, this acquisition increases the garment contribution notably and augurs well for the company in the long term.

The synergies between ColorPlus and Raymond’s existing fabric and garment operations are significant, as both companies are suppliers of fabrics to various international brands. Like ColorPlus supplies to Banana Republic. Benefits from raw material sourcing and cross selling of brands through Raymond’s existing distribution network are likely provide the impetus to Raymond’s topline growth in the future.

At the current price of Rs 137, the stock trades at forward P/E of 9x, projected FY04 earnings. Going forward (post 2004), the company will have a sizeable opportunity to explore the foreign markets. Though company’s fabric and files business are stagnant in nature, but they are cash rich. We expect garment and denim business to be the key growth driver for Raymond in the future.

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