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Key Takeaways
Strong demand growth to continue in key segments
Both Raymond's (RW) fabric business (48% of FY11 revenue) and the branded
apparel business (25% of FY11 revenue) are set to gain from the exponential increase
in its retail presence in the recent past (added 500 stores over the past 2.5 years)
and the planned opening of 100 more stores in FY12. The management sounded
upbeat about demand in new locations (tier-3, 4, and 5 towns).
The worsted fabric business has been able to deal very well with raw material price
hikes (~50% YoY and ~28% QoQ) by blending of RM. In the branded apparel business
RW raised prices. RW's ability to withstand such pressure without hurting margins
and clocking 24% YoY volume growth in its key segment (worsted fabric) reasserts
its brand value.
Operating efficiencies to continue in FY12
The closure of the Thane plant resulted in significant savings in 1QFY12. These
savings will continue to accrue in the remaining quarters, increasing margins.
The raw material prices, especially wool continue to remain at elevated levels which
continue to remain a matter of concern. However, the new wool clippings expected
in October are expected to lead to price correction.
The company is in the process of transferring the 7 mn meters of capacity from
Thane to Jalgaon that will help the company to further accelerate its production.
Focused player with a clear business strategy
Raymond is now concentrating only on four brands in its branded apparel segement
i.e Raymond Premium apparel, Park Avenue, Parx and Colorplus and has removed
its presence in the children wear segment.
The company has guided for a capex of INR2b, largely towards moving of Thane
plant and machinery to Jalgaon, retail expansion and capacity expansion in the
engineering and auto component businesses and other routine capex.
Meaningful clarity is yet to emerge on monetization of RW's land bank (120 acres)
in Thane (post shifting of its factory to Jalgaon). The management is considering all
routes of monetization including sale, partial sale and joint development.
Valuation and view
RW looks set for 20-25% growth in revenue and sustained/improving margins over the
next two years. The stock trades at 7.3x and 13.3x FY12E EV/EBITDA and PER respectively
and 6.5x and 11x FY13E EV/EBITDA and PER consensus earnings estimates respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Strong demand growth to continue in key segments
Both Raymond's (RW) fabric business (48% of FY11 revenue) and the branded
apparel business (25% of FY11 revenue) are set to gain from the exponential increase
in its retail presence in the recent past (added 500 stores over the past 2.5 years)
and the planned opening of 100 more stores in FY12. The management sounded
upbeat about demand in new locations (tier-3, 4, and 5 towns).
The worsted fabric business has been able to deal very well with raw material price
hikes (~50% YoY and ~28% QoQ) by blending of RM. In the branded apparel business
RW raised prices. RW's ability to withstand such pressure without hurting margins
and clocking 24% YoY volume growth in its key segment (worsted fabric) reasserts
its brand value.
Operating efficiencies to continue in FY12
The closure of the Thane plant resulted in significant savings in 1QFY12. These
savings will continue to accrue in the remaining quarters, increasing margins.
The raw material prices, especially wool continue to remain at elevated levels which
continue to remain a matter of concern. However, the new wool clippings expected
in October are expected to lead to price correction.
The company is in the process of transferring the 7 mn meters of capacity from
Thane to Jalgaon that will help the company to further accelerate its production.
Focused player with a clear business strategy
Raymond is now concentrating only on four brands in its branded apparel segement
i.e Raymond Premium apparel, Park Avenue, Parx and Colorplus and has removed
its presence in the children wear segment.
The company has guided for a capex of INR2b, largely towards moving of Thane
plant and machinery to Jalgaon, retail expansion and capacity expansion in the
engineering and auto component businesses and other routine capex.
Meaningful clarity is yet to emerge on monetization of RW's land bank (120 acres)
in Thane (post shifting of its factory to Jalgaon). The management is considering all
routes of monetization including sale, partial sale and joint development.
Valuation and view
RW looks set for 20-25% growth in revenue and sustained/improving margins over the
next two years. The stock trades at 7.3x and 13.3x FY12E EV/EBITDA and PER respectively
and 6.5x and 11x FY13E EV/EBITDA and PER consensus earnings estimates respectively.
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