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RAYMOND LTD

Current Market Price-: 376 Rs.

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It is in very rare case we go beyond our investing style and suggest companies which do not meet the minimum darkhorsestocks criteria but when looked at this company despite its lack of profitability, a current year loss making company and not having healthy financial ratios we feel going forward this can be emerge as strong wealth creators for the Investors who are patient and willing to take risk. The risk here is that company has extremely high level of debt as compared to almost all other darkhorsestocks ideas suggested before and also management in past had internal disputes which created a drag on the company. Additionally the demerger can also take uncertain amount of time due to regulatory approvals despite managements efforts to get it done as quick as possible. Therefore any one willing to invest in this company is strongly requested to read this report in full and understand that there is significantly high amount of risk associated with investing in this stock.

Raymond Ltd is a part of almost 96 years old Raymond group which is a diversified group with majority business interests in Textile & Apparel sectors as well as presence across diverse segments such as FMCG, Realty, Engineering and Prophylactics in national and international markets 55+ Countries including the USA, Europe, Japan & Middle East.

Incorporated in 1925 Raymond now has significant presence in Indian Fashion Industry. The group owns apparel brands like Raymond, Raymond Premium Apparel, Park Avenue, Park Avenue Woman, ColorPlus, Kamasutra & Parx . All the brands are retailed through ‘The Raymond Shop’ (TRS), with a network of over 700 retail shops spread across India and overseas, in over 200 cities. The Company has a retail network of 1,638 stores, including 1,589 stores in about 600 towns and cities in India and 49 overseas stores in nine countries. It is one of the largest vertically and horizontally integrated manufacturers of worsted suiting fabric in the world. With an expansive network of over 20,000 points-of-sale in India, Raymond and its brands are also available in tier IV & V cities.

BUSINESSES

SUITING

Raymond is one of the largest vertically and horizontally integrated manufacturers of worsted suiting fabric in the world and commands a dominant market share of over 60 percent in the worsted suiting fabric space in India. It can manufacture suiting fabric extending across all wool, poly- wool, silk, polyester viscose blend, cotton blend, linen blend and other premium blends. Marketed under the brand ‘Raymond Fine Fabrics’, it is undoubtedly amongst the most preferred brands in the Textile sector. It produces suiting fabric, with a capacity of producing 31 million meters of wool and wool-blended fabrics.

SHIRTING

Raymond manufactures some of the finest shirting fabrics in India, marked by innovative designs and aligned to latest fashion trends. A B2B business, Raymond Luxury Cottons, produces the world’s finest 340s count cotton and 150 lea pure linen fabrics.Raymond is the largest OTC branded fabric player in the organized shirting segment and commands a strong brand preference in the category.

GARMENTING

A white label-integrated supplier to leading international brands, the garmenting business includes manufacturing of high-end suits, jackets, trousers and shirts with exports spanning to USA, Europe and Japan. Silver Spark Apparel Ltd is the only Indian manufacturer with an expertise to craft Full Canvas Suits.

RETAIL

With the launch of its first exclusive retail showroom, at King’s Corner, in Ballard Estate (Mumbai), Raymond’s expansive retail presence has been the cornerstone of the brand’s success. Raymond has an indomitable retail presence with over 2 million square feet of retail space spread across its 1100+ stores spread in over 380+ cities & towns, and is growing steadfastly.Today, Raymond Group is amongst the three leading branded apparel players in the menswear industry with a portfolio of four Power Brands – Raymond Ready-to-wear (RRTW), Park Avenue (PA), Color Plus (CP) and Parx.

ECOMMERCE

Marking its foray in the ecommerce space, Raymond launched raymondnext.com – a one-stop fashion solution for all brands under the Raymond umbrella.

DENIM

Raymond UCO Denim (a JV with UCO NV of Europe) is a pioneer in the introduction of specialty ring denim in India. The business caters to customers across Americas, Europe, Asia as well as domestic markets.

TOOLS & HARDWARE

Raymond Group ventured into the engineering business in early 1949, with the inception of JK Files & Tools. This segment comprises of manufacturing of steel files and cutting tools and marketing of hand tools and power tools. Today, JK Files & Tools is the largest manufacturer of Steel Files in the world.This business holds over 60% market share in India and 30% share in the global markets and is the leader in the category.

FMCG

The Raymond group forayed into the FMCG business in 1964 through its subsidiary JK Helene Curtis and has various products in the male grooming space such as Park Avenue range of fragrances, soaps, shaving foam and gel, among others.

The Raymond Group has a noteworthy presence in the FMCG business through associate companies – Raymond Consumer Care Private Limited. With pioneering brands like Park Avenue and KS; home care segment through Premium brand and sexual wellness segment through KamaSutra brand, Raymond is steadfastly expanding its presence in the category.

Kamasutra

Raymond Group acquired control of brand KamaSutra globally by buying out Ansell’s stake in a joint venture entity known as JK Ansell Pvt. Ltd. Ansell is an Australian company which had 50 per cent stake in the joint venture company. Raymond Group already owned the balance stake.

This acquisition paved the way for Raymond to further scale up the FMCG Business and unlock the immense potential of brand KamaSutra globally. Raymond announced the formation of its FMCG group last year. KamaSutra Condoms is India’s second largest condom brand. KamaSutra was launched in 1991 and is today a leading condom brand in India. It is also exported to over 40 countries around the globe

AUTOMOTIVE COMPONENTS

Raymond forayed into the Automotive Components sector by acquiring a controlling stake in Ring Plus Aqua Ltd- a prominent Ring gear & Flex-plate manufacturer in India. Incorporated in 1984, Ring Plus Aqua Ltd has a long celebrated history with the global Auto industry through its manufacturing base for Starter Gears, Water Pump Bearings & Flex Plates.

Raymond Group is one of the three leading branded apparel players in the menswear industry comprising portfolio of four Power Brands – Raymond Ready-to- wear (RRTW), Park Avenue (PA), Color Plus (CP) and Parx. All four brands command a significant share of wardrobe solutions in the market.

Raymond has also forayed into ethnic wear segment through the launch of ‘ethnix’ brand.

RAYMOND REALITY

Brand Raymond has pushed the benchmarks of quality, leadership and extraordinary product across fashion, apparel and lifestyle industries for years now. From clothing the Complete Man in impeccable sartorial flair, the legacy of Raymond now enters into the Real Estate space with Raymond Realty. The same dedication to quality, minute details and absolute style, will now take a form in luxurious residential spaces. The fabric of choice this time is brick and mortar. They have woven into residences that offer the man-about-town and his family a COMPLETE LIFESTYLE.

In 2019, Raymonds announced its venture into real estate business under Raymond Realty. The new venture is poised to start with an investment of Rs. 250 crore (approx $36 million) in developing mid-income and premium housing units on 20 acres of land in the growing suburb of Thane. Raymond group holds over 125 acres of land in this region.

In addition, the group also has business interests in readymade garments, designer  wear, cosmetics & toiletries, engineering files and tools, prophylactics and air charter operations. 

Raymond Group also has a significant presence in theB2B space through its garmenting business. Its state of the art & wholly owned subsidiaries such as Silver Spark Apparel Ltd, Celebrations Apparel Ltd & Everblue Apparel Ltd by crafts suits, trousers, shirts & Jeans for leading fashion labels across the world and is the only manufacturer of Full canvas premium jackets in India.

Raymond Ltd. ventured into the engineering business with the establishment of JK Files (India) Ltd. in 1949. Today, JK Files Ltd. is a leading manufacturer of steel files in the world with a domestic market share of about 65% in the files business. The group also has a presence in the auto components industry through its subsidiary Ring Plus Aqua Ltd. This business comprises of the manufacture of Ring Gears, Flexplates and Water pump bearings. The company is present in diverse industry segments such as Automotive, Industrial and Power generators, Agricultural and Marine Applications, marked by strong relationships with domestic and international OEMs.

Recently, Raymond Group forayed into the real estate development business. With central theme of â€˜Go Beyond’, the company has undertaken the project to build quality housing for all. A large gated community named â€˜Aspirational District’ is spread over 14 acres that celebrates a new epoch in living.

Demerger 

Raymond Ltd announced demerger of its core Lifestyle business to be listed as a separate entity – Raymond Lifestyle Ltd 

The move is a crucial part of the strategic transformation aimed at leveraging value through Company’s strengths by optimising its resources and enhancing its brand equity.

The resulting simpler group structure will further infuse efficiencies across the organisation. Overall it offers a strong and more focused choice to investors, thereby unlocking shareholder value. 

Detailed transaction overview 

  • Demerger of its core Lifestyle business into a separate entity that will be listed through mirror shareholding structure
  • Every shareholder of Raymond Ltd will be issued shares of the new company in the ratio of 1:1
  • Create a clear demarcation of Lifestyle & other businesses leading to the simplification of the Group structure

Post-Demerger: Business restructuring to deliver sustained value creation 

The deleveraging and demerger will enable Raymond ltd to create a stronger, more efficient and a simplified organisation. The two separately listed companies will optimise their resources & strengths and will focus their energies on accelerated growth. Both the entities will have the advantage of brand Raymond that exemplifies Quality, Trust and Excellence through its 95 year journey. The existing company will have real estate development as its core business which has already received overwhelming response in the market. The new company will continue to be a market leader in textiles and branded apparel segment and will further pursue newer growth opportunities. 

Demerger has been an important step for the group. Company has received approval from stock exchanges and already filed application with NCLT. Due to Covid_19 pandemic and related lockdowns, the entire business environment and processes including regulatory approvals have been impacted due to temporary closure of business offices and government departments. Company expects the overall process to be completed in the current financial year – FY22. Users are requested to not send us queries regarding the demerger.

FINANCIALS

Q4 FY2021 

  • Consolidated revenue for FY21 at Rs. 3,648 Cr, compared to Rs. 6,578 cr in previous year 
  • Pandemic significantly impacted the revenues during the 1st Half. However, with the unlocking sales recovered almost 3 times in H2 as compared to H1 
  • Company reported positive EBITDA @ Rs. 135 cr in FY21 compared to Rs. 612 cr in previous year. 
  • Net working capital reduced by Rs. 738 cr from Rs. 1,855 cr in Mar-20 to Rs. 1,117 cr in Mar-21 by focused approach on collections and reducing inventory 
  • Operating Cash flow: Rs. 702 Cr & Free Cash flow: Rs. 417 Cr 
  • The cost rationalization efforts and effective working capital management helped to reduce Net Debt by 24% which is Rs. 443 cr from Rs. 1,859 Cr in Mar-20 to Rs. 1,416 cr in Mar-21 
  • Q4FY21 revenue grew by 9% over previous year from Rs. 1,291 cr to Rs. 1,407 cr. 
  • EBITDA of Rs. 197 cr with EBITDA margins of 14.0% which has improved sequentially from 12.2% in Q3FY21 as well. 
  • Net profit of Rs. 56 cr for the quarter compared to Net Loss of Rs. 68 Cr in last year 
  • The core business of Branded Textile segment grew by 24% led by strong pickup in primary sales from upcoming wedding season and Branded Apparel segment saw improvement in recovery led by extended EOSS and marriage demand . Engineering businesses continued strong profitable growth momentum with Tools & Hardware having strong growth of 53% over previous year and Auto Components also having a strong 46% growth over previous year.
  • Company was able to maintain about Rs. 600 – 650 cr of Cash & Cash Equivalents throughout the period while reducing the debt at the same time. 
  • Company’s gross debt was lower at Rs. 2,076 Crores vis-à-vis Rs. 2,191 Crores as of end of December and Rs. 2,430 Crore as of end of March, 2020. The net debt levels in March, 2021 stood lower at Rs. 1,416 cr compared to Rs. 1,583 Crore in December, 2020 and Rs. 1,859 Crore in March, 2020 .
  • The Company has maintained a strong focus on de-leveraging and demonstrated a net debt reduction of over Rs. 1,000 cr over the last 6 quarters. This reduction has been achieved mainly through internal cash accruals and proceeds of land sale which was done in 3rd quarter of FY20. 

Segment wise financials

  • Branded Textile: segment grew by 24% in Q4 
  • Suiting business grew by 24% 
  • B2C Shirting grew by 40% over previous year 
  • Branded Apparel witnessed recovery at 60% of previous year levels 
  • Garmenting segment sales at Rs.126 Cr, witnessed recovery at 69% levels led by recovery in Bulk business due to slowly opening up of global markets.
  • High Value Cotton Shirting segment sales at Rs. 133 Cr, grew by 12% 
  • Tools & Hardware segment sales at Rs. 120 Cr, growth of 53% vs PY levels 
  • Auto Components segment sales at Rs. 69 Cr, reported growth of 46% over previous year 
  • Real Estate business, continue to maintain growth trajectory with one of the strongest quarterly bookings in 4Q since the launch of the project driven by consumer incentives 
  • Overall, received ~214 bookings in 4Q resulting in a total of 1,387 bookings (over 60% of total inventory of ~2,350 units launched is sold) till Mar’21 with a booking value of ~Rs. 203 Cr 
  • Raymond’s affordable project located in prime location in Thane with unparalleled connectivity has received about 400 bookings in H2. Its construction is on full swing and currently the status is: 38th floor slab competed for Towers 1, 2 & 3 and 20th floor work in progress for Tower 4 while for Towers 5, 6, 7 & 8 – Ground Floor work in progress; Tower 9: Excavation complete and Tower 10: Excavation work in progress 
  • Currently, almost 30% (384 out of 1353) of company’s stores are operational. 

GOING FORWARD

Company is having discussions with couple of customers both in Europe and the US to diverge and they have been successful in a couple of cases. With respect to order book what has happened over the last one year is there are a lot of inventories, which have been consumed in the international space and especially in the US all the retailers have reduced their inventory and now they have also seeing a further surge in demand and they are seeing increased improvement in full price sales for them as compared to the discounted sales, which are a majority ratio. So, so far company has seen the reflection in its order book for future during H1 and company is very positive that this can convert into a good quarter and half year past. 

On the real estate side that company is selling close to 3,000 apartments, which puts the revenue close to Rs.2,800 Crores to Rs.2,850 Crores and based on this project the net profit, which company is going to generate over the next three to four years would be in the range of Rs.750 Crores to Rs.850 Crores that is the kind of profitability company is expecting from the real estate projects.

Apart from that company is also sitting on huge land bank which is close to 100 acres, roughly valued at around Rs.3,500 Crores. 

New Wedding Campaign

Raymond has launched its latest campaign titled ‘Weddings by Raymond’ welcoming the season of weddings. The 360 degree marketing campaign spells for its viewers the modern way of weddings. With its thought-evoking storyline, the campaign showcases couples and their families starting a new journey by embracing something new, be it a new definition of equality, a new culture, a new bond, and a beautiful new dream.

The company is expecting a strong pickup in primary sales from upcoming wedding season .

Conclusion-:

The Branded Textile business has registered a significant recovery with topline growing by 24% YoY in Q4, The Branded Apparels segment has seen recovery to the tune of 60% of the previous year levels , The Tools & Hardware business grew by 15% yoy this quarter with EBIDTA margins at 18.5%. The real estate business has seen one of the highest booking of 214 in this quarter as compared to 179 bookings in the December quarter. The total cumulative bookings as on March,21 have now reached almost 60% (1,387 units) of the total units opened for booking (2,350 units). Additionally there is debt reduction of around 1000 crores from internal accruals and cash and equivalents have increased from 328 crores to 552 crores which suggests company’s strong financial position despite posting loss for the year ended FY 21. However going forward management is strongly confident of the revival of the business on an overall basis that is from the domestic as well as global perspective with company in talks with customers for many orders in recent times .  Additionally Company is also working on de-merging its business across two listed companies which could again be a value unlocking for the company and can be rewarding for the shareholders as well.

Apart from the above , if we put in simple terms Raymond Ltd is trading at around 372 Rs while the value of the Land Bank company has is around 3500 crores which is approx 530 Rs per share basis. Considering the total debt of the company at 2200 crores there would still be significant value left after discharging the complete debt of the company.

Normally we do consider stocks with a holding period of 1-2 years at least but in cases where there is demerger considered we would suggest users to increase the time horizon to beyond 2 years that is in some cases there can be significant delays on account of compliances as well as permissions from the various authorities and not to mention there always prevails risk of demerger not going through due to various regulatory concerns . So those points must also be kept in mind while exploring Raymond Limited for long term.

Also there were various other points related to the family disputes which we have not covered as we feel that it is all behind the company. Therefore users are requested not to send unnecessary queries regarding the same.

To conclude we feel this can be by far one of the most Riskiest darkhorsestock suggestions. Please do your own analysis before investing in this stock. No member/analyst of darkhorsestocks would be responsible for any loss.

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