Raymond Ltd --A turnaround story: Macquarie Research,

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Raymond Ltd
A turnaround story
Event
 Raymond is the world's third-largest worsted fabric manufacturer. With its
enviable brands in worsted suiting and strong distribution, it has a market
share of over 60%. Raymond has a strong foothold in the apparel space,
through its brands Park Avenue, Colourplus and Parx.

Impact
 Strong brand and robust distribution are its strengths. The Raymond
brand, under which the company’s worsted fabric retails, is India’s largest
textile brand. The company has invested in its brands over the years and has
gained acceptance as one of the most respected brands in India.
 Plans to double points of sale and focus on power brands. Raymond is
increasing its retail footprint (from currently 710 stores) to tier-III, IV and V
towns as well as strengthening its presence in tier I and II cities by opening
125 stores. Its network spans across 271 towns, including 200 own stores in
tier 4 and 5 towns. In addition, it is planning to increase points of sale by
100% in the medium term (from currently 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 could bear
fruit in next couple of years.
 Real Estate monetisation can uplift earnings significantly. Post the 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. Our channel checks suggest the land price in this area
is Rs2,500/sqf, while residential property is selling at Rs5,000–6,500/sqf.
 Direct play on rising discretionary consumption in India. Raymond is a
direct play on the rising income as well as aspirations of the Indian consumer
and favourable demand demographics in India. Raymond reported a 21%
EBITDA margin in 3Q FY11 despite 10% higher wool costs and 56% higher
cotton costs. The company is confident in maintaining EBITDA margins
despite input cost pressures due to consumers up-trading.
 Restructuring initiatives to drive turnaround in profitability. Raymond’s
profitability in the last few years was impacted by large losses in associate
companies outside India. The company has exited these loss-making
operations like denim operations in Belgium and the US. Further, post closure
of Thane plant, Raymond will save ~Rs500m (2% of consolidated EBITDA) in
employee costs each year. The company will switch to captive power from
April 2011, which will add another 50bp to margins.
Outlook
 Strong growth outlook. Raymond is on a strong growth track and most of its
business is on a strong growth track. Annual operating cost savings of Rs0.6bn
due to the Thane plant closure will also help improve its operating performance.
 Adjusted for the real estate business, the core textile business is currently trading
at 7-10x FY12E PER and 4-7x EV/EBITDA, based on Bloomberg consensus.


Raymond Ltd Aide Memoire
1. What is your guidance revenue growth guidance for next two years?
2. What are your future growth initiatives for Raymond?
3. What kind of competitive intensity and margin pressure do you see, going forward?
4. What are your plans for monetizing the Thane land parcel, post worker VRS?
5. What is your guidance for raw material costs such as wool, cotton?