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Raymond: Turning around

Oct 29, 2001

Raymond Limited, the textiles and denim major, is clearly on the turnaround path. The company has registered a net profit of Rs 411 m for the second quarter ended September 30, 2001 as against a loss of Rs 1,500 m in 2QFY01. The notable aspect is the sharp rise in operating margins.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Sales 3,393 2,655 -21.8% 6,661 3,976 -40.3%
Other Income 51 66 28.4% 78 90 15.3%
Expenditure 2,690 1,990 -26.0% 5,802 3,190 -45.0%
Operating Profit (EBDIT) 703 665 -5.4% 859 786 -8.5%
Operating Profit Margin (%) 20.7% 25.1%   12.9% 19.8%  
Interest 285 42 -85.4% 556 90 -83.8%
Depreciation 210 130 -38.0% 483 258 -46.5%
Profit before Tax 259 559 115.6% (102) 528  
Extraordinary item (1,760) -   (1,760) (15) -99.1%
Tax - 148   - 148  
Profit after Tax/(Loss) (1,500) 411   (1,862) 365  
Net profit margin (%) -44.2% 15.5%   -28.0% 9.2%  
No. of Shares (eoy) (m) 75.1 61.4   75.1 61.4  
Diluted number of shares 61.4 61.4   61.4 61.4  
Earnings per share (Rs)* - 26.8   - 11.9  

In the corresponding quarter of the previous year, Raymond recorded a loss primarily on account of loss on sale of steel division, which the company sold to EBG India for a consideration of around Rs 3,870 m. Though sales have fallen by 21.8% to Rs 2,655 m in 2QFY02, the results are not comparable as the company had both the cement and steel plant contributing to turnover last year. The rise in margins is in line with our estimates. Raymond is expected to save around Rs 1.3 bn as operating expenses from sale of its cement and steel divisions. The other major factor that could have resulted in improving margins is the recovery in denim prices. Denim prices, on an average, had gone up by 5%-7% in 1QFY02.

The Board of Directors of the company also approved a proposal to acquire the entire shareholding of Regency Textiles Portugesa Limitada, a company incorporated in Portugal. It is engaged in manufacturing and marketing of readymade garments. The consideration for the proposed acquisition is US$ 3 million (Rs 144 m). The company has been scouting for acquisitions both in the domestic as well as in the international markets for sometime in an attempt to provide an impetus to sales. The garments division currently contributes to a meager portion of sales for the company and acquisitions are necessary in the long run. But it remains to be seen how well the new acquisition pays off.

Interest and depreciation charges are also down sharply as the company had retired close to debts worth Rs 2.2 bn in 1QFY02 itself. For 1HFY02, net profit of the company stood at Rs 365 m as compared to a loss of Rs 1,862 in the corresponding quarter of the previous year.

The scrip is currently trading at Rs 75 on a P/E multiple of 6.3x the annualised 1HFY02 earnings. We expect the company to report around Rs 650 m to Rs 700 m as net profit for FY02.

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