Raymond Ltd Q2 FY13 results: FinQuest

Raymond Ltd Q2 FY13 results were above our estimates both on the topline and bottom-line front. In the
quarter, company's net sales increased 13.6% Y-o-Y and 33.1% sequentially to Rs. 11.15 bn, as against
our expectations of Rs. 10.14 bn. In the quarter, the EBIDTA declined 5.3% Y-o-Y, however, increased
414.7% sequentially Rs. 1.59 bn, as against our expectations of Rs. 1.28 bn, primarily on account of
higher than expected margins in the Textile and Branded apparel business of the company. The Adjusted
PAT came in at Rs. 569.5 mn as against our expectations of Rs. 470.6 mn, primarily on account of better
than expected operating performance.

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Textile and Branded apparel segments likely to benefit from strong festival and wedding
season in 2HFY13…
In Q2FY13, the textile division revenue increased 11% Y-o-Y and 51% sequentially to Rs. 5.52 bn while
the EBIDTA margin of the segment declined ~100 bps Y-o-Y, however, increased by a robust ~1800 bps
sequentially to 23%. The Management mentioned that the domestic markets remained subdued; however,
the exports jumped 30% Y-o-Y. In the quarter, the net sales of the branded apparel segment declined 4%
Y-o-Y and 33% sequentially to Rs. 2.28 bn. The margins of the segment continued to be impacted by
inventory liquidation, extended EOSS (End of Season Sale) and subdued consumer sentiments. The EBIDTA
margin of the segment declined ~ 900 bps Y-o-Y, however, improved ~400 bps sequential basis to 10%.
In the quarter, the like to like sales witnessed a 3% growth as against a de-growth of 3% in Q1FY13.
Going forward, we expect the demand to recover in H2 FY13 on account of a strong wedding and festive
season.
Denim business and Cotton shirting continues the robust performances while Garmenting
business benefits from higher exports
In Q2FY13, Raymond Zambaiti - JV net sales increased 41% Y-o-Y and 16% sequentially to Rs. 0.79 bn
while the EBIDTA increased 63% Y-o-Y to Rs. 0.12 bn. We expect the segment to continue with the
robust performance on account of the increase in the capacity utilization and lower cotton yarn prices.
In the quarter, Raymond UCO denim - JV net sales increased 2% Y-o-Y to Rs. 1.95 bn, however, the net
sales declined 2% sequentially. The EBIDTA of the segment increased ~33% Y-o-Y and ~4% to Rs. 0.26
bn. The segment is likely to continue its robust performance on account of a good order book.
In Q2 FY13, Garmenting segment net sales increased 64% Y-o-Y and 78% sequentially to Rs. 0.82 bn
driven by the higher exports while the EBIDTA increased 123% Y-o-Y to Rs. 0.16 bn on account of
increase in sales volume coupled with an 500 bps Y-o-Y expansion in the EBIDTA margin to 19% aided
by the depreciation in the rupee vis-à-vis dollar.
Tools and Hardware and Auto Components witness margin pressures
In the quarter, the Tools and Hardware sales increased 14% Y-o-Y and 4% sequentially to Rs.0.93 bn
while the EBIT margin declined 600 bps Y-o-Y to 10% due to higher export mix. The auto component net
sales decreased 19% Y-o-Y to Rs. 0.31 bn while the EBIDTA margin decreased ~ 300 bps Y-o-Y to 14%,
on account of challenging business environment.
Focus on core brands, operational efficiencies and retail network expansion continues…
In the quarter, the company added 42 stores taking the total count of stores to 902 while the retail space
increased 13% Y-o-Y to 1,730 thousand square feet. For FY13, the company is likely to add 100 stores.
Raymond would be a key beneficiary of rebound in the consumer demand on account of its strong retail
network and brand portfolio. In the quarter, company reported exceptional expense of Rs. 189.2 mn on
VRS payments.
Valuations and outlook
At the CMP, Raymond is trading at an Adjusted P/E of 13.8x FY13E and 9.9x FY14E EPS of Rs. 27.0 and
Rs. 37.4 respectively. Over FY12-14E, we expect the company's sales and EBIDTA to grow at CAGR of
11.8% and 13.5% to Rs. 45.45 bn and 5.9 bn respectively. Raymond is trading at an EV/EBIDTA of 6.7x
FY13E. We value the company at an EV/ EBIDTA multiple of 8.0x FY13E, a ~25% discount to its historical
average; we maintain a target price of Rs. 480 per share, implying a potential return of 29%.
The company's ~ 125 acres Thane land could fetch Rs. 15.0 -18.75 bn (implying valuation of Rs. 244-
305 per share) at conservative land valuation of Rs 120-150 mn per acre. However we do not factor the
land valuation in arriving at our target price.