Raymond m-cap doubles on strong profit growth
Fabric and apparel maker Raymond has seen its market capitalisation double to ~46 billion over the past two and a half years, outperforming most peers. Even as the compound annual growth rate (CAGR) in revenue was just 3 per cent, net profit grew 26 per cent a year.
Raymond’s performance comes on the back of its assetlight retail expansion, continued growth by existing apparel brands, and steady B2B numbers despite demonetisation hurting apparel players.
Raymond Group Chairman Gautam Singhania says, “One of Raymond’s most defining moments was when I took shareholder control in 2015 and was then able to take hard decisions, which was when the transformational journey, the new innings started.”
Over the past three years, mutual funds have increased their shareholding by four times to 16 per cent, and foreign portfolio investors have increased their stake by a third to 10 per cent. Raymond, Singhania says, makes 14,000 suits daily, or over 4 million a year, making it the fourthlargest maker of suits in the world, and is expanding the number of stores by adding almost one daily. In June 2017, the company started a factory in Ethiopia with an installed capacity of 2.4 million suits a year and will feed exports to Europe and America. Sanjay Bahl, chief financial officer, says the factory’s products are exempt from customs duties for 15 years in the US.
Seven years ago, the company kicked off the project “P99”, which rolled out 99 stores in 99 small towns such as Chomu, Rajasthan, and Jainagar, Bihar. Last year Singhania started “Mission300”, which focuses on opening mini stores. Even as the company’s core business of branded fabrics has grown at 10 per cent a year, established brands have been growing steadily. The big scale-up is happening in Tier 4 to Tier 6 towns, where the smaller format works, Bahl says.
Equity analysts point to two growth drivers. “One is that the pace of retail franchising is much faster, and second, product offers across brands have improved in design and relevance to market in terms of being up to date with global trends,” says Abhijit Kundu, analyst with Antique Stock Broking.
While fabrics is a strong force in the company, the apparel business will be the driver in the next three years. Apparel has grown from around ~8 billion to around ~14 billion in the past four years, says Bahl, at 16 per cent CAGR and fabric growth at 9 per cent a year.
An instance: ColorPlus, a trendy menswear brand that Raymond bought for ~400 million in 2002, had a turnover of ~2.8 billion last year. There are others the management expects to see grow the same way and those include Ethnix, and Raymond Khadi, a new label co-developed with the Khadi and Village Industries Commission, featuring khadi garments with a label that depicts Gandhi’s spinning chakra. Raymond has formalised a deal with a mainstream US department store for supplying made-to-measure garments, expected to go live in a couple weeks.
Bahl says the new push is on return on capital employed and how the company can be assetlight.
Devangshu Dutta, managing director of Third Eyesight, a brand and retail consultancy, says if there is one word that Raymond elicits, it’s “premium”. “Raymond’s core is about international quality, and pursuing product line-ups in that direction ought to pay dividends,” he says.
The firm recently kicked off a bespoke VIP lounge for men at its flagship store on Warden Road in Mumbai, where customers can smoke a cigar and sip whisky as they choose to shop from suits, denim, linen shirts, leather jackets, shoes, wallets, belts, iPad cases, and even Vicuna blazers. While the concept is in “launch mode”, Singhania says Raymond will open more such lounges in metros in six months.
While the company’s debt is
around ~21 billion, it seems close to evaluating options to monetise assets and paring debt. “The net debt to equity ratio is around 1:1, which is not alarming,” Kundu says.
Bahl says of the 120 acres in Thane, there’s board approval to use 20 acres for residential plans.
For Raymond shareholder value creation and unlocking value are topmost on the agenda. Singhania says, “I will do whatever it takes to maximise shareholder value.”