Analysts have largely given a thumbs up to efforts by Raymond Ltd to restructure its business in an effort to get out mounting debt, a decline in revenue and other legacy issues.
Raymond Ltd. is a leading branded textiles and apparel franchise in India, with presence in other businesses such as garment manufacturing for global brands, tools & hardware, auto components and real estate. The company, which enjoys a strong recall for its century-old brand, is led by promoter Gautam Singhania, who also serves as the company’s chairman and MD.
Over the past three years, Raymond has announced several strategic changes, including plans to demerge its lifestyle and real estate businesses.
Firstly, it sold the FMCG business operated by Raymond Consumer Care Ltd (RCCL), which is owned 48% by Raymond and 50% by the promoter, in an all-cash deal of Rs 28 billion in April this year. This was done primarily with the intention of turning the company debt-free and consolidating its business lines.
Secondly, it announced the hive-off of its lifestyle business – comprising Raymond, Park Avenue, Parx, Ethnix, and Color Plus – into RCCL. This had two outcomes: It made RCCL — home to the lifestyle business — debt-free, separating the consumer apparel business from unrelated businesses such as real estate and engineering, which remained with the mother ship.
Thirdly, it managed to attract most of the Rs 22 billion, generated from the sale of the FMCG business, back into itself. Although the cash was divided between the company and its associate in accordance with the ownership of the FMCG business, it channeled Rs 17 billion out of the amount back into Raymond by issuing non-convertible debentures to the associate.
“All these steps have helped in deleveraging the balance sheet and creating healthy cash to drive growth, cleaning up the operating structure of respective businesses, and reinforcing the promoter's confidence through its cash infusion of Rs 11 billion at a price of nearly Rs 1,500 per share,” said Motilal Oswal, intiating coverage of the stock with a price target of Rs 2,600.
Along with other, market-facing innovations, said analysts, these efforts position the company for growth in coming quarters.
“These efforts are expected to drive future growth, with projected revenue and profit growth of 10% and 19%, respectively, between FY 2023-25,” noted Motilal Oswal.
Dealing with change
While Raymond has a strong presence in branded fabrics, the category is facing challenges due to changing customer preferences. Customers are increasingly opting for readymade garments instead of buying fabric and getting it custom-stitched by a tailor.
This trend is further aggravated by a decline in the availability of tailors and a lack of formal training for the profession.
To deal with this, the company more recently also expanded into the fast-growing branded apparel market, incubating well-known brands such as Park Avenue, Raymond Ready-To-Wear, ColorPlus, Parx, and Ethnix.
The business had seen a sharp revenue decline in FY 2021 due to Covid-19, although it has since recovered significantly. To offset the rise in input prices, Raymond has taken product price hikes, which have led to higher realisations.
“These factors contribute to modest growth in the branded fabrics industry, and Raymond aims to ramp up its franchise through premiumisation and gaining market share. Despite these challenges, Raymond has delivered decent growth in the past, with a 9% revenue CAGR pre-Covid over FY13-19,” said Jefferies which also intiating coverage of a price target of Rs 2,600.
Downsizing outlets
The ready-made segment of the company has undergone a restructuring process that involved downsizing its loss-making Exclusive Branded Outlets (EBOs) and tightening the control over Multi-Branded Outlets (MBO) channels.
The plan is to add a net of 150 exclusive outlets annually, with a focus on a franchise model for brands such as Raymond, Park Avenue, ColorPlus, Ethnix, and product extensions like Park Avenue casual and athleisure wear.
This move is expected to lead to a 20% revenue annual growth over FY 2023-27 from the current revenue base of Rs 13 billion (16% of revenue), said Jefferies.
Revenue lag
Despite this, analysts flag the companies poor performance on top-line growth. Raymond’s revenue is still below pre-Covid levels, while the peers have scaled higher, noted analysts.
“Raymond's branded apparel revenues are nearly 20% lower compared to its pre-Covid FY 2020 levels, while most peers have seen a double-digit revenue growth over FY 2020-23. Park Avenue, which is the largest brand in the Raymond portfolio, saw the sharpest revenue decline to more than 70% of FY 2020 levels, while the second largest brand Raymond Ready to Wear declined to 78%,” pointed out Jefferies.
While Raymond was also an early mover in branded ready-made garments (Park Avenue launched in 1986), it has missed the opportunity here, significantly lagging peers on growth.
“Raymond has been sitting on a gold mine of well-established brands, but it has not been fully utilized,” noted Jefferies.
“Specific to Raymond, the company had a complex structure, delivered weak profitability and sluggish revenue growth over FY 2014-20,” noted Jefferies.
With legacy issues behind, the target now is to aggressively expand the franchise with a focused strategy for each of the businesses. Raymond's growth plans include a focus on each business, premiumisation, share gains and casualisation, rapid build-out of the apparel franchise, capacity expansion in garmenting, and digital transformation.