Quick when it wants to and means to
Raymond, is sure quick in getting its annual report off the printing presses in double quick time-a feat, no less, given the magnitude of its operations. But the quality of its performance unfortunately pales in comparison. A glimpse of its audited accounts reveals a picture of organised chaos - and entirely of the management's own making, at that. A pity, since much saner options stare the management in its face. For those with a longer memory they may like to recall that the 'Great Helmsman' of yesteryears, Dr Vijaypat Singhania, who steered the fortunes of the company for some 20 years, had brusquely used the family voting power to shift the registered office of the company from Mumbai to Ratnagiri (where its plant is located) in Maharashtra. What this simple amendment achieved then, was that the management had to contend with less pesky shareholder lungpower at meetings convened by the company. Now you know why.
The octogenarian plus company, originally named Raymond Woollen Mills, and which is synonymous with upmarket menswear and accessories, gets its famous brand name not from the current proprietors, but from its founder, the late Raymond Sassoon of the famous Mumbai based Sassoon family. It was acquired by the Late Kailashpat Singhania in 1944, from the original promoters.
No sense of direction
Take a look at the path charted by the management over the last decade. In the financial year ended March 2001 the company recorded a turnover 'including other income' of Rs 14.7 bn, a net profit after tax of Rs 3.3 bn, had equity investments of Rs 6 bn, net fixed assets of Rs 3.7 bn m, and the contribution to the country's exchequer was Rs 2.7 bn. Cut to the present. In the financial year ended March 31, 2010, it recorded a turnover 'including other income' of Rs 14.2 bn, a 'convoluted' net profit after tax of Rs 270 m, had equity investments of Rs 8.9 bn, net fixed assets of Rs 8.9 bn and the contribution to the country's exchequer is Rs 380 m! The going has become so difficult that the company skipped dividend payment in 2008-09 and in 2009-10. It even reduced its advertising spend in the latest year, for whatever reason. The proprietors themselves are so confident about their own baby, that they have chosen not to exercise their right to convert Raymond warrants into equity during the year, and consequently an amount of Rs 209 m representing the initial amount paid on the allotment of such warrants has been forfeited! And, for steering the destiny of the company in such a glorious manner, the CEO Mr Gautum Singhania, is paid a remuneration of close to Rs 35 m!
The state of affairs in the company will make one weep. Its gross block at end 2009-10 (excluding work in progress) at Rs 17.1 bn is more than its turnover including other income, for2009-10! Am I hallucinating, or, is fabric manufacture so acutely capital intensive please? The turnover for 2009-10, it may be noted, also includes traded sales of around Rs 1.1 bn. It has invested in assorted subsidiaries and joint ventures both in India and abroad, and these businesses are mostly into apparel or fabric manufacture or some such, or, are sole selling agents incorporated abroad (the company also exported close to Rs 1.3 bn in the latest financial year). All that Raymond has to show for this jumble, is by way of provision for depreciation in the value of its investments or, by way of provisions for loans and advances to subsidiaries and joint ventures. The many notes to the accounts on this score is truly fascinating to read. Hans Christian Andersen tales if you please. And guess what, the company actually spent a little over Rs 1.2 m during the year on R&D expenses!
Its Portugese subsidiary even managed the feat of running itself to the ground during the year leaving large unpaid bills. For the matter of record it has 16 subsidiaries, 9 joint ventures and, 6 other companies - where control exists. This list, please note, does not include subsidiaries of subsidiaries which have not been enumerated on by the management in detail. If a company is known by the number of subsidiaries etc that it has, then it is doing very well, thank you. And, with such a profusion of affiliates, it is only logical that there would have to be a welter of inter-company transactions on multiple counts.
Atrocious financial management
Its long term investments, and, trade investments totaling Rs 8.9 bn (of which Rs 5 bn represents readily encashable securities), gets it very meager returns indeed and not including the depreciation in the value of some of the investments. The details of its investment in shares and mutual funds and, its trading portfolio, actually run into a 9 whole pages of the annual report. This makes one wonder whether the primary focus of the company is in finance or in manufacturing. The management has also apparently decided that there is money to be made in playing the markets through the mutual fund route, which netted Raymond a princely Rs 180 m during the financial year.
The company is leveraged to the hilt (Rs 12.5 bn at year end), relative to its ability to service this debt. The problem is that it is not generating sufficient cash from operations. The net cash inflow from operations was a mere Rs 1.0 bn and timely sale of long term investments of Rs 1.0 bn helped eased the pressure on the management. But sadly enough some of this cash generated (Rs 460 m) went back into its investment portfolio. One wonders what mantra the management has in mind holding on to its encashable investment portfolio of Rs 5.0 bn.
That is not all. It has advanced over Rs 1.3 bn to its subsidiaries (up from Rs 708 m in the preceding year), which earns the principal not a penny in interest, and especially when the parent itself is in dire need of working capital dose. Then there are the Rs 1.2 bn worth of guarantees given to bankers for facilities availed of by its subsidiaries - and why not please?
Book entry profits
Even the measly net post tax profits of Rs 270 m that it has arrived at in 2009-10 is due to generous help from other bits and ends. Export incentives, assorted book entries including the write-back of provisions, and what not, the surplus on divestment of the files and tools business, the more than generous profits apparently generated from traded sales - a gross margin the region of Rs 370 m perhaps - and probably even the income from air taxi operations! It even continues to make do with a few other bric-a-brac items of insignificance. Perhaps the only silver lining in the horizon of the management's possible commitment to the company was the closure of what it calls its high cost Thane plant operations in end 2009, the transfer of its files and tools business and, the currency of its gross block on paper (relatively young). The closure of the Thane plant may lead to some operational relief to the beleaguered company in the current year. And, then, there is a lot of real estate coming up for development too.
Going through this company's report gives one an acute migraine, and also a longing to re-affirm ones faith in the almighty.
Disclosure: Please note that I am not a shareholder of this company
This column "Cool Hand Luke" is written by Luke Verghese. Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.
© Equitymaster Agora Research Private Limited