Raymond Ltd - Better times ahead ::Macquarie Research,

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Raymond Ltd
Better times ahead
Event
 We hosted Raymond (RW IN) post the 1Q’FY12 conference call. The
company has reported consolidated net sales growth of 34% YoY to Rs7.8bn
on account of robust growth in the textile (up 38%), branded apparel (up
26%), denim (up 43%) and auto components (up 29%) businesses.
Consolidated EBITDA increased 76% to Rs1bn on the back of 290bp margin
expansion.
Impact
 Domestic textile business margin expanded 662bp. Domestic textile sales
grew 44% YoY to Rs3.4bn on the back of 24% volume and 13% realization
growth. Textile EBIT grew by 479% YoY to Rs0.3bn due to a 662bp increase
in margins. Margin expansion was primarily due to superior product mix and
cost savings due to the Thane plant closure. However, a significant jump in
wool prices has hurt the margin.
 Strong performance by other businesses. Raymond’s branded apparel
sales grew 26% YoY and EBITDA margin expanded 550bp YoY to 14.9% on
the back of a strong performance from Park Avenue and other branded
apparel businesses. Other businesses also grew strongly:
 Domestic denim sales grew 48% YoY to Rs1.9bn, driven by 45%
realisation growth on the back of consumer up-trading.
 Auto components and files and tools sales grew by 29% and 20% YoY,
driven by strong volume growth.
 Management expects margin improvement, going forward. According to
the Raymond management, softening in key raw material costs such as
cotton, polyester and viscose is likely to improve its margins, going forward.
The company was also optimistic on a slight moderation in wool prices (up
~60% YoY) and all these should help improve margins in coming quarters.
 Plan to double points of sales and focus on power brands. Raymond is
increasing its retail footprints (from current 750 stores) into tier-III, IV and V
towns and is planning to add ~100 stores in FY12E. In addition, it is planning
to increase points of sales by 100% in the medium term (from the current
18,000-19,000). These initiatives should bear fruit in the next couple of years.
 Thane land monetisation could turn it cash positive. Post VRS settlement
with workers, Raymond has ~120 acres of prime land to monetize in Thane.
The company is currently exploring various options to monetise this land,
including a complete sale or part-sale of the land in phases. Going by the
current land rate in the area, land monetisation could generate Rs14-16bn of
cash and could wipe out its current net debt of ~Rs12bn fully.
Outlook
 Strong growth outlook. Raymond is on a strong growth track and most of its
business is on a strong growth track. Adjusted for the real estate business,
the core textile business is currently trading at 8-13x FY12E PER and 5-8x
EV/EBITDA, based on Bloomberg consensus.