RAYMOND PRESSES RESET BUTTON FOR GROWTH

Company’s sales, profits lag behind peers as note ban hits hard

Even as the Singhanias of Raymond fight a pitched battle

over its assets, the promoters are taking several steps to get their mojo back. Demonetisation and the GST have disrupted its business model, pulling its sales and profits down even further. The firm remained an industry laggard by a large margin on most financial parameters in the past five years. DEV CHATTERJEE & KRISHNA KANT report

Even as the Singhanias of Raymond fight a pitched court battle over the company’s assets, the professional management of the textilet-o-retail empire is taking several steps to get their mojo back. Demonetisation and the goods and services tax (GST) have disrupted the company’s business model, pulling its sales and profits down even further. According to statistics collated by

Business Standard, Raymond remained an industry laggard by a large margin, and consistently underperformed its industry peers on most operational and financial parameters in the last five years. This was despite being one of the early entrants in the men’s fashion category.

For example, Raymond’s consolidated revenues are up 32 per cent cumulatively since FY13. During the same period, Arvind’s revenues were up 75 per cent, while Aditya Birla Fashion’s (AB Fashion) revenues were up five times, thanks to its string of mergers and acquisitions.

The company had acquired Pantaloon Fashion from Kishore Biyani’s Future Group in 2012 to become one the country’s largest fashion retailers. The Birla group also decided to exit textiles this year, citing falling margins.

In the last three years since a new management led by Sanjay Behl took over, Raymond’s consolidated revenues have grown at a compounded annual growth (CAGR) of 5.7 per cent. In the same period, Arvind and AB Fashion have grown at a CAGR of 10.4 per cent and 58.4 per cent, respectively.

Raymond’s profits also now lags behind its peers. In the last three years, Raymond’s operating profit has also been on a decline at an annualised rate of 9.2 per cent, sliding from ~522 crore in FY14 to ~387 crore last fiscal year. In the same period, Arvind and AB Fashion operating profit had grown at an annualised rate of 1.3 per cent and 117 per cent, respectively. The result has been a near stagnancy in the Raymond net worth unlike the dynamism shown by Arvind and AB Fashion.

Raymond’s net worth has grown at a measly rate of 4.5 per cent in last three years, against 15.6 per cent and 18.2 per cent CAGR growth in Arvind and AB Fashion net worth during the period.

This means Raymond’s peers now have a greater and faster growing pool of capital to invest in the future. Arvind’s revenues and net worth are now almost double Raymond’s, and AB Birla is now ahead in terms of revenues.

Analysts said while India’s original fashion brand is struggling in the market, its stock price went up 87 per cent in the last three years to ~886 a share as on Wednesday, even as the new management tries to put the disparate house in order.

Raymond officials said after the company’s ownership baton was passed on to Gautam Singhania, a new management led by Sanjay Behl, formerly with Reliance Communications, took over the company’s lifestyle business and worked on a turnaround plan to increase shareholder value. The idea was to build the mothership business of branded textiles and invest in brands. As part of the plan, the ColorPlus team was brought to Mumbai from Chennai to be integrated under Raymond Apparel.

All was going well till November’s demonetisation was announced by the Prime Minister Narendra Modi. The shock move hit the textiles sector hard, and affected the company’s turnaround plan. Besides, the GST launch in July this year also disrupted sales. Branded textiles contributed 48 per cent to the company’s sales, while garment business added another 11 per cent.

According to Raymond group Chief Financial Officer Sanjay Bahl, who joined the company from Lifestyle group Dubai, the business is now on the rebound after getting severely impacted by demonetisation which disrupted the business model of the textile sector that works largely on a cash model.

“The company decided to get into tier 34 cities via the franchise model by decreasing the size of its flagship stores. With this, many entrepreneurs opened 750 sq feet shops across the country with around ~30lakh investment, compared to the earlier format where 2,500 sq feet shops with over a crore investment was needed. The company also decided to focus on its core business of textile where the margins are 18 per cent and return on capital employed was 35 per cent,” Bahl said.

In the apparel business, the company is focusing on its four power brands, Raymond Ready to Wear, Park Avenue, ColorPlus and Parx. “We expect this business to grow by 18 per cent and generate ~2,000 crore of revenues by 2020, and earnings before interest, depreciation, tax and amortisation,” said Bahl. The company’s entry into shirtings business grew from zero to ~500-crore revenues in the last three years, he added.

The company’s owns 120 acres of land in Thane, which would be redeveloped by the company once it gets regulatory permission to change the use of the land from industrial to commercial use. With the real estate sector facing a slowdown due to cash ban, analysts expect a delay in the development of the property.