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Raymond Ltd
On a strong growth path
Event
We hosted the post 3Q’FY11 Raymond (RW IN) conference call. The
company has reported consolidated net sales growth of 24% YoY to Rs8.2bn
on account of robust growth in Textile (up 20%), branded apparel (up 29%),
denim (up 28%) and files (up 47%) businesses. Consolidated EBITDA has
increased 62% to Rs1.7bn on the back of 497bp expansion in margin.
Impact
Domestic textile business margin expanded 680bp. Domestic textile sales
grew 21% YoY to Rs4.4bn on the back of 5% volume and 16% realization
increase. However, capacity constraints due to the closure of the Thane plant
led to moderate volume growth. Better realization was led by superior product
mix. Textile EBIT grew by 69% YoY to Rs1.1bn due to a 680bp increase in
margins.
Strong performance by other businesses. Raymond’s branded apparel
sales grew 29% YoY and EBITDA margin expanded by 591bp YoY to 14.6%
on the back of strong performance of Color Plus, Park Avenue and other
branded apparel business. Other businesses also grew strongly:
Denim sales grew 28% YoY to Rs0.8bn, driven by 4% volume and
22% realisation growth on the back of consumer up-trading.
Auto components and files and tools sales grew by 44% and 30% YoY,
respectively, driven by strong volume growth.
Plan to double points of sales and focus on power brands. Raymond is
increasing its retail footprints (from current 710 stores) to tier-III, IV and V
towns as well as strengthening its presence in tier I and II cities. In addition, it
is planning to increase points of sales by 100% in the medium-term (from
current 18,000-19,000). It is also planning to raise promotional investments in
key brands such as Color Plus, Park Avenue, Parx and Raymond in coming
quarters. These initiatives are likely to bear fruit in the next couple of years.
Product mix change, price hikes and up-trading offset higher input cost.
Raymond has reported 21% EBITDA margin in 3Q FY11 despite 10% higher
wool cost and 56% higher cotton cost. The company is confident of
maintaining EBITDA margins despite input cost pressures.
Real Estate monetisation can uplift earnings significantly. Post VRS
settlement with workers, Raymond has 121 acres of prime land in Thane and
it is exploring various options to monetise this land, including co-developing
the property in phases. Channel checks suggest the land price in this area is
Rs2,500/sqf, while residential property is selling at Rs5,000–6,500/sqf.
Outlook
Strong growth outlook. Raymond is on a strong growth track and most of its
business is on a strong growth track. The annual operating cost saving of
Rs0.6bn is due to the Thane plant closure and will also help it improve its
operating performance.
Adjusted for real estate business, the core textile business is currently trading
at 7-10x FY12E PER and 4-7x EV/EBITDA, based on Bloomberg consensus.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Raymond Ltd
On a strong growth path
Event
We hosted the post 3Q’FY11 Raymond (RW IN) conference call. The
company has reported consolidated net sales growth of 24% YoY to Rs8.2bn
on account of robust growth in Textile (up 20%), branded apparel (up 29%),
denim (up 28%) and files (up 47%) businesses. Consolidated EBITDA has
increased 62% to Rs1.7bn on the back of 497bp expansion in margin.
Impact
Domestic textile business margin expanded 680bp. Domestic textile sales
grew 21% YoY to Rs4.4bn on the back of 5% volume and 16% realization
increase. However, capacity constraints due to the closure of the Thane plant
led to moderate volume growth. Better realization was led by superior product
mix. Textile EBIT grew by 69% YoY to Rs1.1bn due to a 680bp increase in
margins.
Strong performance by other businesses. Raymond’s branded apparel
sales grew 29% YoY and EBITDA margin expanded by 591bp YoY to 14.6%
on the back of strong performance of Color Plus, Park Avenue and other
branded apparel business. Other businesses also grew strongly:
Denim sales grew 28% YoY to Rs0.8bn, driven by 4% volume and
22% realisation growth on the back of consumer up-trading.
Auto components and files and tools sales grew by 44% and 30% YoY,
respectively, driven by strong volume growth.
Plan to double points of sales and focus on power brands. Raymond is
increasing its retail footprints (from current 710 stores) to tier-III, IV and V
towns as well as strengthening its presence in tier I and II cities. In addition, it
is planning to increase points of sales by 100% in the medium-term (from
current 18,000-19,000). It is also planning to raise promotional investments in
key brands such as Color Plus, Park Avenue, Parx and Raymond in coming
quarters. These initiatives are likely to bear fruit in the next couple of years.
Product mix change, price hikes and up-trading offset higher input cost.
Raymond has reported 21% EBITDA margin in 3Q FY11 despite 10% higher
wool cost and 56% higher cotton cost. The company is confident of
maintaining EBITDA margins despite input cost pressures.
Real Estate monetisation can uplift earnings significantly. Post VRS
settlement with workers, Raymond has 121 acres of prime land in Thane and
it is exploring various options to monetise this land, including co-developing
the property in phases. Channel checks suggest the land price in this area is
Rs2,500/sqf, while residential property is selling at Rs5,000–6,500/sqf.
Outlook
Strong growth outlook. Raymond is on a strong growth track and most of its
business is on a strong growth track. The annual operating cost saving of
Rs0.6bn is due to the Thane plant closure and will also help it improve its
operating performance.
Adjusted for real estate business, the core textile business is currently trading
at 7-10x FY12E PER and 4-7x EV/EBITDA, based on Bloomberg consensus.
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