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Raymond spins decent yarn this quarter, meets expectations

Raymond spins decent yarn this quarter, meets expectations

Raymond Ltd is a diversified conglomerate with its presence in Textile & Apparels, FMCG, Auto Components, Engineering and Real Estate sector. The company is one of the largest exclusive retail chains in the textile and fashion segment in the country. The diversified conglomerate also has a business interest in men’s accessories, personal grooming and toiletries, files and tools, Prophylactics, and auto components. The company has 1,392 stores across India by FY19.

Market Data:

CMP Rs. 760.30
BSE Code 500330
NSE Code RAYMOND
Market CAP Rs. 4667 Cr.
52 Week High Rs. 1142
52Week Low Rs. 593
  1. Net profit: Rs. 168crores
  2. P/E: 30.54x
  3. ROE: 58%
  4. EPS: Rs. 27.37
  5. ROCE: 7.91%
  6. ROIC: 13.81%
  7. Dividend Yield: 0.39%
  8. Debt/Equity: 1.0x

 

Financial for the year 2018-19

  • The consolidated net revenue for Q4FY19 stood at Rs. 1,837 crores against Rs. 1,655 crores in Q4FY18. It had 11% growth on a YoY basis.

 

  • Consolidated EBITDA grew by 11% YoY at Rs. 195 crores in Q4FY19 as compared to Rs. 176 crores in Q4FY18. EBITDA Margin was flat for Q4FY19 at 10.6% from 10.6% in Q4Fy18. The margins were subdued due to the increase in a one-time cost of wage settlement and increase.

 

  • The Net Profit grew by 27% YoY, it stood at Rs. 68 crores in Q4FY19as compared to Rs. 53 crores in Q4FY18.

 

  • Segmental Performance:

 

Branded Textile: Raw Material and one-time cost resulted in declined in margins.

The company’s flagship segment, Branded textile revenue grew by a mere 4%on a YoY basis at Rs. 832crores for Q4FY19. It was Led by 3% growth in the suiting business and 9% growth in shirting business. EBITDA for the quarter stood at Rs. 132 crores against in Q4FY18. Like to Like (LTL) EBITDA Margins (Excluding common cost allocation) for Q4FY19 was at 16.7% as compared to 19.5%. The decline in the LTL EBITDA Margins, mainly due to the higher advertisement and sales, channel check stock corrections carried in the second half of the year. In the Suiting business, the company carried out stock pipeline correction and inventory correction in its old sale. The margins of Branded textile were also impacted due to the unprecedented spike in the wool prices absorbed by the company. It was also due to the one-time cost increase due to the wage settlement during the quarter

 

Branded Apparels: Ceremonial and ethnic apparels for men boosts growth

The company’s Branded apparel segment grew by 21% on a YoY basis from Rs. 403 crores in Q4FY18 to Rs. 489 crores in Q4FY19. The growth was led by the launch of an extension to menswear in ethnic space. The company launched an ethnic and ceremonial category for men. The company has received 45 letters of intents to open a store of Raymond in this segment. The EBITDA for Q4FY19 accounted for Rs. 32 crores against Rs. 15 crores In Q4FY19 it grew by 115% on a YoY basis. EBITDA margins improved to 7% against 3.7% YoY led by improved sales channel mix and operational efficiencies.

 

Garmenting: Ethiopia utilization and B2B cost impacted margins

The revenue from this segment was up by 5% on a YoY basis from Rs. 201 crores in Q4FY18 to Rs. 215 crores in Q4FY19. EBITDA Margin for Q4FY19 stood at 3.6% Vs 6.9% in the same quarter previous year. Also, EBITDA declined by 46% YoY. The decline in margins was due to lower utilization of Ethiopia capacity and due to the initial cost incurred in the company’s B2B Made-to-Measure services in the US.

 

High-Value Cotton Shirt: Improved yarn sales aid revenue growth

The revenue for Q4FY19 grew by 7% YoY, it stood at Rs. 156 crores. EBITDA for Q4FY19 surged by 52% YoY, it stood at Rs.20 crores. Further, LTL EBITDA Margin improved to 13.8% from 9.1% YoY. The margins grew due to the improved product mix and Revenue growth was led by the yarn sales from Amravati plant of the company.

 

Tools and Hardware: an increase in raw material cost acts as an anchor on the bottom line

The revenue growth on a YoY basis stood at 14% at Rs. 102 crores in Q4FY19. Ebitda for the quarter declined by 5% YoY from Rs. 9 crores in Q4FY18 to Rs. 8 crores in Q4FY19. Moreover, EBITDA Margins also declined from 9.8% to 8.2% YoY, driven by an increase in raw material cost during the quarter and a decline in the higher margins domestic segment.

 

Auto Components: ramp up in volumes, expansion of customer base

The revenue growth for Q4FY19 was 10% YoY at Rs. 68 crores and EBITDA stood at Rs. 15 crores, it surged by 60% on a YoY basis. LTL EBITDA Margins for the quarter improved to 22.3% inQ4FY19 from 15.1% in Q4FY18.

 

Realty Segment:

The Real Estate project started in FY19, the board of the company approved the development of a residential project on its 20-acre land (the company owns 120-acre land in Thane). The company during the quarter had a soft launch where they received 400 bookings for their apartments. Raymond Realty’s Phase 1 of the project received RERA Approval for 3 towers. The 10 towers will be of 2BHK affordable towers in the pipeline. Further, the company plans to build premium luxurious towers in future. The project is estimated to be completed in 5 years and they won’t be adding any additional debt as a large portion will be funded by the revenue accretion from this segment

 

Retail Network:

The company during the year opened 94 stores and closed 13 stores. Out of the 94 stores opened during the quarter 90 stores are based on the franchise business. Further, 4 stores of the company are under renovation. This accounts to 1,392 domestic stores of the company across various segments in India. In addition to this, the company opened 300 mini TRS stores across 190 cities in India.

 

The company opened Khadi EBO in Mumbai and an Exclusive Ceremonial store opened in Mumbai.

 

  • The debt of the company was up by 18% in FY19 at Rs 2,143 crores. The net debt expanded in Q4FY19 by Rs. 114 crores which include expansion of the real estate sector. The Debt to Equity ratio stood at 1.0x

 

  • The number of Working capital days were at 94 days from 87 days in the same quarter previous year.

 

  • The Board of the company has recommended a dividend of Rs. per share.

 

Future Outlook:

  1. Raymond aims to open a new shop exclusively for Khadi at Airport in the coming quarters

 

  1. The company will be having a public Formal launch in the first week of May 2019 for its Real Estate buildings

 

  1. The company expects a slowdown in its auto components segment mainly in passenger vehicles.

 

  1. Since the one-time cost has been settled and the price hike in the textile segment the company expects improvement in their margins going forward.

 

  1. Going forward, the company expects revenue growth of 10%-12% by FY20. They expect EBITDA Margins to expand by 70-100 bps by FY20. Further the ROCE to improve by 12%-15%. The company aims to maintain Net Debt to EBITDA at 2.5x by FY20.

 

 

Valuation:

At CMP of Rs. 760.30, the stock is quoting at a P/E multiple of 30.54x FY20E. The company’s ROE is at 8.58%. Based on the company’s initiative across its segments and an increase in growth of the company’s Branded Apparel segment, and the upcoming wedding season to boost growth in Branded Textile and Branded apparel segment, also the management’s guidance for FY20E. Further, the company’s realty segment has started garner revenue which will increase the consolidated revenue growth of the company. However, Concerns regarding the increase in debt due to the realty segment despite the asset-light model followed by the company in the Branded Textile segment is the key concern to watch out for. Considering all these factors, we maintain BUY recommendation with a target price of Rs. 919.25.

Financial Highlights –

                                                                                                                                      (In crores)

Particulars Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19
Net Revenues  1240 1616 1514 1655 1289 1876 1706 1837
EBITDA 81 158 131 176 107 214 185 195
EBITDA Margin (%) 6.6% 9.8% 8.6% 10.6% 8.3% 11.4% 10.9% 10.6%
Net Profit  -7 60 29 53 0.20 63 38 68
PAT Margins (%) -0.6 3.37% 1.9% 3.2% 0.0% 3.4% 2.2% 3.7

 

EBITDA Margin (%)

 

PAT Margins (%)

 

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