Raymond looks at growth via exports amid slowdown

Aims to grow exports four-fold in five years; plans to unlock Rs 3,000-cr land value for future investments

Raymond, the company best known for selling branded textile for men’s suits, plans to increase its exports four-fold in the next five years to seek growth as the domestic market faces a relative slowdown. Having settled workers’ liability at its Thane plant, the firm is now looking at unlocking the value of the 125-acre plot where the plant was located.

“We are facing a relative slowdown to branded textile business, so the task for a leader like us is to expand and revive the market,” says Sanjay Behl, chief executive officer.

In the past couple of years, the Gautam Hari Singhania-promoted company has been doing so by launching new products such as low-cost poly-viscose fabric for consumers in tier-3 to tier-5 towns under Makers brand and innovative products such as ultraviolet-resistant fabric Royal Magic for high-end consumers in metros and big cities. While it continues such effort for growing the domestic market, it also plans to focus on exporting men’s suits and jackets in the US, Europe and Japan to grow rapidly.

“If I look at global manufacturing destinations for sourcing, India has improved its competitive position dramatically especially in relation to China,” says Behl, referring to China’s wage rates growing faster than that of India.

The eight-decade old company believes that today, trade policies for import in its targeted markets are getting structured more in favour of India than China. According to the company’s estimates, India now exports $40 billion worth of textile (about Rs 2 lakh crore) in a year. Raymond’s export revenue in 2012-13 from businesses including garment, textile and denim was just about Rs 250 crore.

Bangalore based Gokaldas Exports is the largest Indian players exporting men's suits and jackets along with other garments. Raymond plans to compete with it.

Raymond reported a 10 per cent annual growth in its consolidated net sales to Rs 1,224 crore in the quarter ended September. This included the core textile, branded apparel, garmenting, retailing and denim businesses along with the subsidiaries for tools and auto component operations. However, the company’s mainstay of branded textile business, which constitutes nearly half of the company’s revenue, grew at a mere seven per cent to Rs 559 crore in the quarter.

In FY13, Raymond recorded net profit of Rs 28.7 crore on the back of Rs 4,069 crore in revenue. With a target of Rs 1,000 crore annual export over the next five years, the company looks at a 10-15 per cent year-on-year.

The firm plans to invest about Rs 1,000 crore in the next five years to augment its garmenting capacities. The investment also includes the company’s plan to expand its retail footprint by 30 to 50 stores in a year.

According to Behl, the capacity scale-up will help the company emerge as a dominant global player for export in men's wear and worsted textile segment.

Raymond is already present across India through its 1,000 stores spread across brands such as Raymond, Color Plus and Park Avenue in tier-1 to tier-5 towns. However, it will need to continue investing to ensure its presence in upcoming shopping malls to get captive customers. At the end of September quarter, the company’s net debt to equity ratio was at a comfortable 1.08, giving it room for raising further debt for investments.

But its biggest boost for growth is expected to come from unlocking the value of its 125 acre plot in Thane. It is estimated to be worth Rs 3000 crore. Raymond had its textile factory at Thane which was relocated at Vapi in Gujarat in 2006. The VRS settlement was reached with Thane workers for Rs 260 crore and Thane factory was closed in 2010.

“The second and final tranche of Rs 110 crore of VRS due to the workers has been fully discharged last week,” informed M Shivakumar, chief financial officer, Raymond. “We are now actively pursuing various options to unlock the value of real estate in about a year’s time,” he said.

The company has also shown operational improvements in the one year with starting to integrate the supply chain of its various businesses. In the quarter ending September the company’s earnings before interest, depreciation and amortization (Ebitda) improved by a 21 per cent annually. The Ebitda margin improved by 200 basis points to 17 per cent in the quarter.

“It (Raymond) is optimistic on higher operational efficiencies and further leveraging its brand equity in apparel business. Its management has also indicated its seriousness about unlocking land value although there are no proposals in advance stage,” said Rahul Singh, analyst at Karvy Stock Broking in his recent note. “We remain cautious on strong earnings growth sustainability going forward,” he said.