Raymond Ltd BUY - Moneycontrol.comchats.moneycontrol.com/plus/upload_pdf_file/... · Raymond to rethink its strategy and chart a path of growth for the future. Over the period FY14-17,

Raymond Ltd BUY

- 1 - Monday, 9th April, 2018

This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

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Target Price ₹ 1535 CMP ₹ 1030

Index Details Raymond’s has undertaken a series of strategic initiatives to chart

out a course of sustained growth and improve profitability. Steered

by a recently inducted professional management at the helm, we

expect revenues to grow at a CAGR of 11.7% to Rs. 7,463.3 crore

by FY20. High growth of the branded apparel segment is the

primary driver, which in turn is supported by high advertisement &

selling expenses for brand building. As the brands sustain on their

own, we expect advertisement & promotion spends to normalize

and the EBIDTA margins of this segment to improve gradually from

the current meagre levels. We expect the consolidated EBIDTA to

grow at a CAGR of 28.4% to Rs. 644.7 crore by FY20. While

earnings growth is expected to witness a 81.2% CAGR over the

same period Rs. 212.1 crore over the same period. A turnaround of

non-core assets, viz. tools & hardware and auto components,

should be further growth drivers.

The icing on the cake is the veritable premium land bank of approx.

125 acres in the heart of Thane city (the fastest growing real estate

on the outskirts of Mumbai). We have valued this property at

Rs.3,125 crore (i.e. at a discount to the market price). This

compares favourably with the current market capital of Rs. 6,360

crores, implying significant undervaluation. Firming of strategic

monetization plans on the real estate business should lead to a

significant re-rating.

We initiate a BUY with an SOTP price objective of Rs. 1,535 which

represents an upside of 49% from the CMP of Rs. 1030 over a

period of 18 months.

Sensex 33,764

Nifty 10,380

Industry Textiles

Scrip Details

MktCap (` cr) 6360.5

BVPS (`) 272.6

O/s Shares (Cr) 6.13

AvVol 488083

52 Week H/L 1141.2/598.7

Div Yield (%) 0.14

FVPS (`) 10.0

Shareholding Pattern

Shareholders %

Promoters 43.3

Public 56.7

Total 100.0

Raymond vs. Sensex

Key Financials (` in Cr)

Y/E Mar Net

Revenue EBITDA PAT

EPS

(`)

Book Value

(`)

RONW

(%)

ROCE

(%)

P/E

(x)

EV/EBITDA

(x)

2016 5140.6 386.5 84.8 13.8 265.8 5.1 9.3 74.5 16.4 2017 5353.3 304.8 25.5 4.2 272.6 1.5 7.0 247.4 19.8 2018E 5905.4 424.4 129.2 21.1 291.2 7.2 9.6 48.9 15.4 2019E 6617.7 526.5 146.9 24.0 312.3 7.7 10.5 43.0 12.9 2020E 7463.3 644.7 212.1 34.6 342.8 10.1 11.9 29.8 10.9



Our optimism stems from the following facts:

• Branded textiles is expected to grow at a CAGR of 9.2% to Rs.

3,363 crore on the back of its three pronged strategy of product

innovation & new launches, tailoring services and network

extension.

• Repositioning initiative and concentration on 4 brands

supported by strong advertisement & promotion spends to

spear head apparel revenues at a 14% CAGR to Rs. 1,878 crore

by FY20.

• The 2.6mn-piece garment foray in Ethopia to boost overall capacity to 9.6mn pieces. Significant manufacturing incentives and FTA with Europe & USA to boost overall growth to Rs. 845 crore (CAGR of 15.4%).

• Tools & hardware and auto components business identified as non-core. Scripting a turnaround and EBIDTA expansion on priority.

• We value the approx. 125 acres Thane land bank at Rs. 3,125 crore (i.e. at a discount to prevailing market price). Significant value unlocking potential through monetization. Further, a new vertical with Mr. Abhishek Kapoor (ex. Rustomjee) as its head should give focus to growth in this segment.



❖ Company Background

Incorporated in 1925, Raymond is one of India’s largest branded fabrics and

fashion retailers. It has a strong brand portfolio with product offerings across all

price points. The operations of the group are segregated into five main

segments, viz., branded textile, branded apparel, garmenting, high value cotton

shirting and engineering (consisting of tools & hardware and auto components).

Business segments of Raymond

Source: Ventura Research



❖ Key Investment Rationale

➢ Well thought out strategy to propel earnings

Intense competitive pressure and fast changing dynamics of the market led

Raymond to rethink its strategy and chart a path of growth for the future. Over

the period FY14-17, the management undertook a series of strategic decisions

to nurture the company on a high growth path.

a. A number of new leaders were inducted for key positions across the

management breadth. The chosen leaders have a diverse background

across retail and consumer.

b. An independent advisory board with a wide array of experience was

incorporated to provide strategic inputs.

Key Management

Name Business Segment Previous Experience

Sanjay Bahl Group CFO Hindustan Unilever Ltd, Landmark Group

Sanjay Behl CEO - Lifestyle Business Hindustan Unilever Ltd, Reliance

Communications

Vipin Agarwal President - Corporate Deepak Fertilizers, Jindal Steel

Sudhanshu Pokhriyal President - Suiting Asian Paints, Coca-Cola Beverages

Gaurav Mahajan President - Group Apparel Trent Ltd

Ashish Grover VP - International Business

& Garmenting

Niryat Sam

S K Gupta President - Corporate and

Shirting Business

Grasim Industries, Bombay Dyeing

Ganesh Kumar CEO - Tools & Hardware Arysta Life, Mosiac

Balasubramanian V CEO - Auto Bosch Chassis

Arvind Mathur CEO - Denim Coats Plc

Giriraj Bagri CEO - FMCG ITC Ltd, Castrol Ltd

Abhishek Kapoor CEO - Realty Rustomjee and CB Richard Ellis


Advisory Board

Name

Ravi Venkatesan

Rajeev Bakshi

Manish Chokani

Mihir Doshi MD of Credit Suisse

Experience

Chairman of Bank of Baroda, former chairman of Microsoft India and

Cummins India

Former Pepsico India chairman

Former CEO of Enam Securities




c. The businesses were identified as core and non-core. The non-core

businesses viz. auto components and tools & hardware were put on the path

of revival to unlock value at an opportune time.

d. Re-haul of branding and retail network

A revitalizing exercise was undertaken to replace the umbrella branding

strategy and product positioning was sharpened to make it more product

centric. This was supported by high advertisement and selling expenses to

strengthen its brands and core proposition as a wardrobe solution provider.

• Raymond Ready-To-Wear (RTW)

• Park Avenue

• ColorPlus

• Parx

The retail network was refurbished and refreshed to give it a contemporary

look, to improve the appeal to the power demographic of the youth and other

segments.

e. Critical but non-core functions viz. IT, payroll, security and facility

management (FMS) were outsourced to make the organization more lean

and business focused.

f. A plan for monetization of land bank has been undertaken. Appointment of a

CEO for this vertical shows the seriousness of the management

Driven by these measures, despite a challenging economic period, Raymond

grew its topline by 9.5% CAGR to Rs. 5,353.2 crore over the period FY14-17.

➢ Raymond’s performance now at an inflection point

With the base having been created, we believe that Raymond is at inflection

point in its growth path and expect profitability to improve significantly while

growth in the revenue is expected to be sustained. We expect sales to grow at a

CAGR of 11.7% to Rs. 7,463 crore by FY20, while EBIDTA (28.4% CAGR to

Rs.644.7 crore in FY20) and PAT (to Rs 212 crore) [PBT (before exceptional

item – VRS/Termination payments) (48.3% CAGR to Rs. 285.9 crore in FY20)]

are expected to grow at a faster clip.



This growth is driven by:

• Refurbishing of the branded textile business through new product

innovations and refreshing retail stores and deeper penetration of store

network. We expect this segment to grow at a CAGR of 9.2% to Rs. 3,363

crore and the EBIDTA to grow to Rs. 587 crore in FY20.

• Branded apparel business is expected to grow at a 14% CAGR to Rs.

1,878 crore with a jump in margins from the present negative territory in

FY17. Success of its power brands strategy and strengthening retail is at

the crux of the performance.

• Garmenting and high value shirting are expected to drive the revenues to

Rs. 1,558 crore by FY20 (~13.4% CAGR).

• Focus on turnaround in the non-core assets to improve the profitability and

operational efficiency.

Revenue to grow at a CAGR of 11.7%




➢ Integrated operations across the value chain

Raymond has integrated operations across the value chain and offers products

from branded fabrics to branded readymade apparel under its various brands

viz., Made To Measure, Raymond Ready-To-Wear, Park Avenue, Parx and

ColorPlus

Integrated Operations across the value chain

Source: Company, Ventura Research



• Branded Textile – A significant contributor to revenue

The textile sector plays a major role in the Indian economy by contributing ~4%

to the GDP. The Indian textile sector also enjoys ~5% share in the global textile

market and its share is expected to increase to ~7% by 2027. The domestic

menswear fabric market is ~$ 3.5 billon with the organized segment having

~42% market share and the unorganized having ~58% share. The overall fabric

market is expected to grow at mid-single digit with the share of organized

segment increasing on the back of implementation of GST.

Raymond is one of the world’s largest manufacturers of worsted suiting fabrics,

having a leadership position in the domestic market with over 20,000 touch

points in 600 cities and towns all over the country. The textile segment, which

offers branded Raymond fabrics is the mainstay segment of the company,

contributing ~48% to the overall sales in FY17. The suiting and shirting fabrics

are sold through three channels namely:

• wholesalers

• multi-brand outlets (MBOs)

• The Raymond Shop (TRS) outlets.

In order to boost growth of the branded textile segment, the company has

undertaken a 3 pronged strategy.

a. Product innovation

• The company had introduced innovative new products like

Technosmart, in 2016, which commands ~1.5 times the Average Selling

Price (ASP) of the fabric portfolio. Technosmart is a new age fabric

having unique qualities such as UV protection, wrinkle resistance,

India’s share in the Global Textile & Apparel Export Share of Organized players in the domestic market

723

858

1021

34 47 68

0%

1%

2%

3%

4%

5%

6%

7%

0

200

400

600

800

1000

1200

2017 2022 2027

Global India Indian share in Global Trade(%)

(in USD bn) (in %)

42%

58%

Organised Unorganised

Source: Ventura Research, Company




breathability and a silky smooth finish. The company had registered

sales of one million metres in the first year of launch.

• The company has collaborated with Khadi Village Industries (KVIC) and

is introducing a new line of clothing under the brand “Khadi by

Raymond”. The products will be available at KVIC and Raymond outlets

across the country. This collaboration will enable the company to expand

its product portfolio in the emerging, fast growing Khadi segment.

• Raymond, in FY15, introduced B2C shirting fabric to leverage its strong

brand and distribution network in suiting fabrics. Since shirting fabric is a

product that complements suiting fabrics, every suiting customer would

need the product thereby providing for easy cross-sell of the shirting

fabric.

• There has been a steady growth in the premium couture space,

comprising of designers and luxury segments. Customers in this luxury

segment are willing to pay a premium to get custom fit clothing. Taking

advantage of this trend, the company launched Made-To-Measure

(MTM). MTM currently is a small business as the service is offered only

in exclusive stores, however, we expect this service to expand quickly

across its store network and start contributing positively.

b. Tailoring

• The company in 2016 had undertaken a trouser exchange program in

association with Goonj, a national level voluntary organization where

customers exchanging old trousers were given free stitching service on

the purchase of fabric. This initiative elicited a good response from

customers and the program has been extended to shirts as well in the

current year. Further, in FY17, the garment exchange program was also

undertaken.

• The company, to enhance the customer’s experience, also introduced

online custom tailoring service (in Mumbai and Pune) in which the

customer at his convenient time and place can book an appointment and

get the stitched product delivered at his doorstep.

• Further, to enhance the tailoring ecosystem, the company under the Skill

India Initiative of the government has trained ~13,000 tailors and has

opened 25 franchise tailoring hubs till date. The intent of the company is

to create a tailoring ecosystem.



• Tailoring provides Raymond with an opportunity to offer value addition to

its customers, thereby increasing retention and repeat purchases.

c. Network refurbishing & extension

• Approximately 170 Raymond stores (including those owned by

franchises) have been refurbished to give them a new, trendy look, to

attract new age customers. This has worked well and the improvement in

sales is extremely encouraging. Further, the company plans to open

~300 mini-TRS stores in Tier 2-5 towns.

Based on the above, we expect this segment to grow at a CAGR of 9.3% to

Rs. 3,363 crore in FY20 and the EBITDA to grow at a CAGR of 15.2% to

Rs.587 crore in FY20.

• Branded Apparel – Tapping the latent opportunity

a. Apparel market presents a gargantuan growth opportunity

The Indian apparel market is currently of ~$50 billion, in which the menswear

segment constitutes ~42% (i.e. the menswear segment is ~$21 billion). The

menswear segment is largely dominated by shirting and trousers which together

constitute ~50% of the menswear segment. Going forward, the Indian apparel

Revenue to grow at a CAGR of 9.3%

0%

5%

10%

15%

20%

25%

0

500

1000

1500

2000

2500

3000

3500

4000

FY14 FY15 FY16 FY 17 FY 18E FY 19E FY 20E

Revenue EBITDA EBITDA margin

(Rs. in crore)




market is expected to grow at 7.7% CAGR to ~$104 billion with the share of

branded market increasing from 25% presently.

b. Sharpening of brand positioning along with a core proposition of

wardrobe solution provider

The branded apparel segment is the second biggest segment of the company,

contributing ~22% to the overall revenue in FY17. This segment houses the four

power brands of the company, namely Raymond Ready-To-Wear (RTW), Park

Avenue, ColorPlus and Parx. Each brand has a clear positioning in the market

and caters to all the different segments of the market.

India’s Apparel market size projection - 2027 Largely dominated by unbranded segment

0

20

40

60

80

100

120

2017 2027E

(in US$ bn) USD104 bn

USD 50 bn

Branded,USD 12.5bn

Unbranded,USD 37.5bn



Share of Menswear in the Apparel market Menswear segment dominated by shirts & trousers

10

192122

39

43

0

5

10

15

20

25

30

35

40

45

50

Kids Female Male

2017 2027

(in USD bn)

5.8

4.7

3

1.5 1.5 1.4

0.9

2.2

0

1

2

3

4

5

6

7

Shirts Trousers Denim T-Shirts Innerwear Ethnic Suits/Coats Others

(in USD bn)Together constitutes ~50% of menswear segment





c. Aggressive advertising and promotion to support brand building

Raymond has incurred ~7-8% of the segment revenue towards advertisement &

sales promotion in FY17 (higher than industry average of 4-5%). The brands

Brand-wise revenue break-up in FY17 (in Rs crs)


Raymond’s stalwart brand portfolio


Each brand defines a unique personality which caters to customers’ requirements with unique designs at different price points.



enjoy a high consumer acceptance and recall on account of brand trust and

product quality.

Based on the above, we expect the Branded Apparel segment to grow at a

CAGR of 14% to Rs. 1,878 crore in FY20 and the EBITDA margin to

improve to 5% to Rs. 93.9 crore in FY20. The EBITDA margin is expected

to improve, as the management aims to optimize advertisement & sales

promotion expense from ~7-8% currently to 4-5% by FY20 in line with the

industry standard.

Thrust on retail to improve access to brands

Raymond operates one of the largest exclusive retail networks in the textile and

apparels space in India, with 1,161 retail outlets spread in tier-I, tier-II, tier-III,

tier-IV and tier V cities (encompassing ~2.09 million sq. feet). There are 811 The

Raymond Shop (TRS) and 66 MTM stores outlets, which cater to the textile

segment’s suiting and shirting as well as branded apparel segment. The

remaining are exclusive brand outlets (EBOs) of various apparel brands.

Revenue to grow at a CAGR of 14%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

(500)

-

500

1,000

1,500

2,000



(Rs. in crore)




Future expansion of its retail network entails:

• Renovating existing old format stores: The company had initiated

renovation of the old format stores and completed renovation of ~170

stores. ~70% of the stores are franchisee led and hence there is limited

need for capex. The renovated stores have, on an average, witnessed a

same store sales growth of above 20% in FY17. (Currently, 33 stores are

under renovation)

• Closure of loss making stores: The company, along with adding stores

continuously to its retail network, has been closing down loss making

stores, thereby focusing on profitability. During Q3FY18, the company not

only added 34 stores but also closed 15 stores across various formats.

• Opening of mini-TRS stores: The company to strengthen its retail

footprint further, has undertaken opening of new small format mini-TRS

stores based on franchise model in Tier 2-5 towns. The company has

opened 53 stores in the course of the year and has set an aggressive

target to take this tally to ~300 stores in 2 years. The expansion is through

an asset-light franchise model.

• Unified loyalty program: The company in FY16 has unified its various

loyalty programs - Premium Circle, ColorPlus Spectrum, Park Avenue

Loyalty and Parx Loyalty - under a single umbrella, Raymond Rewards,

with an intent to provide holistic engagement to the customers across the

Retail store network growth Consistent growth in retail space

684 726 767 819 816 823 877

169208

189225 235 257

284

0

200

400

600

800

1000

1200

FY12 FY13 FY14 FY15 FY16 FY17 Q3FY18

TRS & MTM EBOs Total no. of stores

1.671.79 1.84

1.92 1.93 1.992.09

0.00

0.50

1.00

1.50

2.00

2.50

FY 12 FY 13 FY 14 FY 15 FY 16 FY17 Q3FY18

Retail Space

(in mn sq. ft.)



To open 300 mini-TRS stores in next two years.



various brands. Raymond Rewards has a base of over 5 million members

and contributed ~75% of the retail revenues across the company’s stores.

Further, the ATV (Average Transaction Value) of members is 90% higher

than that of non-members ATV.

The company is not only strengthening its retail store network but is tapping the

online retail space by revamping its online retail portal RaymondNext.com.

Under the revamped portal, all brands are available on a single portal with 3500

SKUs available across brands. Further, the company is also present across all

major portals like Myntra, Jabong, Amazon, Flipkart and Paytm.

• Garmenting – Growth on back of capacity expansion

The garmenting segment manufactures high-end suits, jackets, shirts and

trousers, which caters to the export demand for brands in US, Europe and

Japan. This segment has witnessed a healthy revenue growth of CAGR 15%

over FY14-17. We expect this healthy growth to continue on the back of the

following:

• Addition of capacity in Ethopia: The company currently has an annual

capacity of ~7 mn pieces and is adding capacity of 2.6 mn pieces at a capex

of ~Rs.100-120 crores in Ethopia, given that a number of sops are being

provided by the Ethopian government.

➢ The facility is given by the local government of Ethopia, thereby virtually

not requiring any investment in land and building. Plant & Machinery is

setup by the company.

➢ Ethopia enjoys a significant cost advantage over India in terms of labour

and power costs.

The labour cost in Ethopia is ~70 dollars per month, whereas the

average cost in India is ~135 dollars - implying a cost advantage of

approximately 50%.

In the case of power, the average cost in Ethopia is Rs. 2 per unit

whereas in India the average cost ranges between Rs. 7 to 8 per unit,

thereby giving a significant cost advantage.

➢ Export from Ethopia to Europe and USA have no duty and the

transportation cost & time is reduced.



• Sharpening in product line: The company has, over the past few years,

sharpened its product line of trousers and shirts to suits and full & half

canvass jackets, thereby being the only Indian manufacturer with the

expertise of craft full-canvas jackets. This introduction of high-value products

will enable it to grow and improve its margins.

Based on the above we expect this segment to grow at a CAGR of 15.4%

to Rs. 845 crore in FY20 and the EBITDA to grow at a CAGR of 18.3% to

Rs. 89.5 crore in FY20.

• High Value Cotton Shirting – B2B business

The High Value Cotton Shirting segment is primarily a B2B business

manufacturing high value cotton and linen shirting fabrics for domestic and

international brands. This segment also provides shirting fabric for captive

requirements.

The company has an installed capacity of ~31mn meters of manufacturing high

value cotton & linen fabrics which includes recent Greenfield capacity expansion

of 4.8mn metres of linen fabrics at Amravati, at a capex of Rs. 180-200 crore.

This additional capacity of linen fabric became operational in December 2017

and is expected to benefit the company in the form of savings on high cost

import.

Garmenting revenues to grow at a CAGR of 15.4%

0%

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6%

8%

10%

12%

14%

16%

18%

-

100

200

300

400

500

600

700

800

900



(Rs. in crore)

So Source: Ventura Research



Based on the above capacity expansion of linen, we expect the segment to

grow at a CAGR of 14.7% to Rs.713 crore in FY20. Further, we also expect

the EBIDTA margins to improve to 13% as linen shirting enjoys a higher

margin compared to its existing cotton shirting.

• Engineering: Tools & hardware and Auto Components – Identified as non-

core segment

Both the auto and tools & hardware businesses have been identified as non-

core. Here, the strategy is to revive the business and script a turnaround to

stabilize operations. Already the intent is on display and margins are expected

to get a bump up, given the strong showing of the auto business. Going forward,

the focus of the company in the auto components segment will be to enhance

realizations of low-margin products and strengthen footprint of bearings in OEM

applications.

We expect the tools & hardware segment to grow at a CAGR of 5% to Rs. 405

crore in FY20 and the EBITDA margin to improve to 10% as it is expected to

gain traction in the domestic and export markets. Further, with the company’s

strategy to build operational efficiency through realignment of manufacturing

facilities and product rationalization will improve margins.

Further, we expect the auto components segment to grow at a CAGR of 15% to

Rs. 249 crore in FY20 and the EBITDA margins to stabilize at ~18-20%.

High Value Cotton Shirting revenues to grow at a CAGR of 14.7%

0%

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8%

10%

12%

14%

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(Rs. in crore)




• Denim – Present through a JV

Raymond is into the denim business through a joint venture with UCO NV of

Belgium under Raymond UCO Denim Private Limited (“Raymond UCO Denim”).

Raymond UCO Denim manufactures and markets a wide range of denim fabrics

catering to customers across America, Europe, Asia and domestic markets. The

business reported revenues of Rs 875.3 crore in FY17. The company believes

catering to the new age customers with new and innovative products will be the

key growth drivers.

• FMCG – Present through its associates

The company, through its associates, JK Helene Curtis (47.7%) and JK Ansell

(23.8%) is present in the FMCG business. The company has strong brands such

as Park Avenue and Kama Sutra across various products. The products are

distributed through a wide distribution network of ~2.75 lac retail outlets and

~90,000 pharmacies in Inidia. The company plans to expand its market in West

Asia and SAARC countries.

Tools & Hardware Auto Components

0%

2%

4%

6%

8%

10%

12%

-

50

100

150

200

250

300

350

400

450

500

FY14 FY15 FY16 FY17 FY 18E FY 19E FY 20E


(Rs. in crore)

0%

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25%

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100

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200

250

300



(Rs. in crore)Drop in revenues in FY15 & FY16was on account of sale of loss making pulleys and forging business





Land bank – At Thane west

• Raymond has a land bank of approx. 125 acres in Thane West.

• Recent transactions in the nearby location have closed at 35-40 crore per acre.

• The company appointed a real estate team, headed by Mr. Abhishek Kapoor (ex. Rustomjee), to monetize this land bank

• The various options being evaluated by the company to monetize the land bank are:

✓ Development

✓ Strategic partnership (i.e JV)

✓ Outright sale



❖ Financial Performance

Raymond’s consolidated revenue in Q3FY18 at Rs.1484.2 crore rose by 14%

YoY from Rs 1,307 crore in Q4FY16. The growth in the topline was mainly

driven by the branded textiles segment, which grew by 14% YoY, driven by a

16% YoY growth in the suiting and 28% YoY growth in the shirting business.

Further, in the branded apparel segment, early onset of end-of-season sale

(EOSS) and wedding season helped boost the revenue growth. The EBITDA

increased by 73.8% YoY and the EBITDA margin expanded by 240 bps to 6.8%

in Q3FY18. The margin expansion was aided by operating leverage in the textile

business and improved cost controls.

During FY17, Raymond’s net sales stood at Rs. 5,391.3 crore, registering a

growth of 4.1% YoY. However, the EBIDTA margin declined by 210 bps YoY to

5.9%. The consolidated PAT in FY17 stood at Rs. 25.5 crore. (the decline was

mainly on account of demonetisation)

Financial Performance (Rs in crores)

DESCRIPTION Q3FY18 Q3FY17 Mar-17 Mar-16

Net Sales 1484.2 1306.9 5391.3 5176.8

Other operating income 0.0 0.0 12.4 26.7

Net Sales & Other Operating Income 1484.2 1306.9 5403.7 5203.6

Growth % 14% 4%

Total Expenditure 1382.7 1248.5 5086.5 4789.6

EBITDA 101.5 58.4 317.2 414.0

EBITDA Margin 7% 4% 6% 8%

Depreciation 43.0 38.9 156.9 158.9

EBIT (Excl. OI) 58.6 19.5 474.0 572.9

Other Income 29.3 23.8 105.6 92.3

EBIT 87.9 43.4 422.7 506.3

Interest 45.7 45.3 178.0 189.7

Exceptional Items -3.9 -10.1 -35.2

PBT 42.2 -5.8 234.6 281.4

PBT Margin% 3% 0% 4% 5%

Tax 12.7 0.3 21.8 46.5

Profit After Tax 29.4 -6.1 55.9 75.9

Profit Margin 2% 0% 1% 1%

Net Profit (after Extrodinary Items) 29.4 -6.1 55.9 75.9

Minority Interest -1.9 -1.2 -4.5 -0.7

Shares of Associates 1.3 -8.6 -25.9 9.6

Consolidated Net Profit 28.8 -15.8 25.5 84.8

So Source: Company, Ventura Research



❖ Financial Outlook

As outlined elsewhere in the report, net revenues are expected to grow at a

CAGR of 11.7% to Rs. 7,463.3 crore by FY20. Improving profitability and growth

of the branded apparel segment is expected to lead to a +295 bps improvement

in EBIDTA margins to ~8.6% by FY20.

Further, the return ratios ROE & ROCE are also set to improve to ~10.1% (+855

bps) & ~11.9% (+490 bps), respectively, by FY20.

Improving Revenues, EBIDTA and PAT margins

0%

2%

4%

6%

8%

10%

12%

0

1000

2000

3000

4000

5000

6000

7000

8000

FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E

Net Revenue EBIDTA margin PAT margin

(Rs. in crore)




Improving financials to boost ROE and ROCE

0%

2%

4%

6%

8%

10%

12%

14%


ROE ROCE


Debtors and Creditors days

-

10

20

30

40

50

60

70

80

90

100

FY 14 FY 15 FY 16 FY 17E FY 18E FY 19E FY 20ETrade Receivable days Inventory days Trade Payable days

(in days)

Sour Source: Ventura Research

Improving interest coverage ratio

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6


Interest coverage ratio Debt to EBIDTA


Improving Debt to Equity ratio

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35


Debt to Equity




❖ Key Risk & Threats

• Raw material is a significant cost in the textile business, with worsted wool, poly

viscose and cotton being the key raw materials of Raymond. Any increase in the

prices of these raw materials would impact profitability.

• Weak economic growth could impact the consumption levels, thereby impacting

the discretionary spending in the economy.

❖ Valuation

We initiate coverage on Raymond as a BUY, with a SOTP based price objective

of Rs. 1,535, representing an upside of 49% over a period of 18 months from

the CMP of Rs.1030.

We have valued the company using the Sum of The Parts (SOTP) methodology.

We have valued the Branded Textile segment at an EV/EBITDA of 13X, the

Branded Apparel segment at an EV/EBITDA of 14X FY20, Garmenting at an

EV/EBITDA of 13X, High Value Cotton Shirting at an EV/EBIDTA of 13X and

Engineering segment at an EV/EBITDA of 9X FY20.

Raymond SOTP valuation

SOTP Valuation FY20E EBITDA Multiple (x) EV ( Rs in cr)

Branded Textile 587.3 13.0 7634.5

Branded Apparel 93.9 14.0 1314.9

Garmenting 89.5 13.0 1163.0

High Value Cotton Shirting 92.1 13.0 1197.2

Engineering 85.4 9.0 768.7

Total 948.2 12.7 12078.4

Elimination (due to inter-segment) 303.4 12.7 3865.1

Add: Land Bank-Thane West 125 acres at Rs.25 crore per acre 3125.0

Total EV 11,338.3

Less: FY20 Debt (2,635.7)

Add: FY20 Cash 717.5

Shareholders value 9,420.1

Total Shareholders value 9,420

No of shares outstanding 6.1

Total value per share 1,535

CMP 1,030

Potential upside 49.0%




Raymond PE trend


Raymond P/B trend


Raymond EV/EBIDTA trend

Source: CMI Source: Ventura Research



Peer comparision on financial parameters

Y/E March Sales EBITDA PAT EBITDA

Margin (%)

PAT Margin

(%)

ROE(%) ROCE(%) P/E P/BV EV/

EBITDA

Arvind Ltd (CMP: Rs. 384, Mrkt Cap: Rs. 9900 cr)

2016 8431.5 1065.1 370.7 12.6% 4.4% 13.6 17.6 22.5 2.7 12.8

2017 9235.5 928.2 331.9 10.1% 3.6% 10.2 13.5 31.8 2.9 14.7

2018E 10579.9 968.2 331.0 9.2% 3.1% 9.2 9.8 30.8 2.7 14.1

2019E 11953.2 1219.7 486.1 10.2% 4.1% 11.9 11.6 20.9 2.4 11.2

Raymond (CMP: Rs. 1030, Mrkt Cap: 6360 cr)

2016 5140.6 386.5 84.8 7.5% 1.6% 5.1 9.3 74.5 3.9 16.4

2017 5353.3 304.8 25.5 5.7% 0.5% 1.5 7.0 247.4 3.8 19.8

2018E 5905.4 424.4 129.2 7.2% 2.2% 7.2 9.6 48.9 3.5 15.4

2019E 6617.7 526.5 146.9 8.0% 2.2% 7.7 10.5 43.0 3.3 12.9

KKCL (CMP: Rs. 1528, Mrkt Cap: Rs. 1880 cr)

2016 453.1 104.1 67.9 23.0% 15.0% 22.0 31.6 32.0 7.3 17.0

2017 488.4 99.6 85.3 20.4% 17.5% 26.0 25.4 25.1 6.0 17.7

2018E 498.1 121.1 90.7 24.3% 18.2% 22.6 25.6 20.5 4.4 14.6

2019E 557.1 142.8 106.2 25.6% 19.1% 22.6 26.6 18.1 3.8 12.4

Nandan Denim (CMP: Rs. 122, Mrkt Cap: Rs. 590 cr)

2016 1156.7 191.1 63.3 16.5% 5.5% 21.2 18.2 8.6 1.6 5.7

2017 1220.4 189.9 56.7 15.6% 4.6% 23.6 14.9 10.1 1.4 5.8

2018E 1610.7 248.3 67.9 15.4% 4.2% 15.0 7.5 8.8 1.2 4.4

2019E 1784.6 281.2 87.5 15.8% 4.9% 16.0 7.9 6.8 1.1 3.9

Aditya Birla Fashion and Retail Ltd (CMP: Rs. 150, Mrkt Cap: Rs.11600 cr)

2016 6017.8 396.8 -104.1 6.6% -1.7% -16.2 12.4 32.9

2017 6453.3 437.5 53.5 6.8% 0.8% 5.6 8.2 222.3 12.4 29.8

2018E 7422.9 510.1 91.8 6.9% 1.2% 9.1 7.2 123.0 10.4 25.6

2019E 8644.9 676.9 207.2 7.8% 2.4% 17.9 10.7 56.5 8.7 19.3




Financials & Projections

Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E Y/E March, Fig in ` Cr FY16 FY17 FY18E FY19E FY20E

Profit & Loss Statement Per Share Data (Rs)

Net Sales 5140.6 5353.3 5905.4 6617.7 7463.3 Adj. EPS 13.8 4.2 21.1 24.0 34.6

% Chg. 4% 10% 12% 13% Cash EPS 39.8 29.8 47.8 55.3 65.7

Total Expenditure 4754.0 5048.5 5481.0 6091.2 6818.6 DPS 0.0 0.4 2.1 2.4 3.5

% Chg. 6% 9% 11% 12% Book Value 265.8 272.6 291.2 312.3 342.8

EBITDA 386.5 304.8 424.4 526.5 644.7 Capital, Liquidity, Returns Ratio

Other Income 119.7 117.9 104.4 106.3 108.3 Debt / Equity (x) 1.2 1.3 1.1 1.2 1.3

EBIDTA (incl. OI) 506.3 422.7 528.8 632.8 753.1 Current Ratio (x) 1.3 1.1 1.1 1.1 1.1

EBIDTA margin% 10% 8% 9% 10% 10% ROE (%) 5% 2% 7% 8% 10%

Depreciation 158.9 156.9 163.7 192.2 190.4 ROCE (%) 9% 7% 10% 11% 12%

Interest 189.7 178.0 221.0 250.6 276.8 Dividend Yield (%) 0% 0% 0% 0% 0%

Exceptional items -35.2 -10.1 21.0 0.0 0.0 Valuation Ratio (x)

PBT 122.4 77.8 165.1 190.0 285.9 P/E 74.5 247.4 48.9 43.0 29.8

Tax Provisions 46.5 21.8 54.5 62.7 94.3 P/BV 3.9 3.8 3.5 3.3 3.0

Reported PAT 75.9 55.9 110.6 127.3 191.6 EV/Sales 1.6 1.6 1.4 1.2 1.1

Minority Interest 0.7 4.5 4.7 5.0 5.2 EV/EBIDTA 16.4 19.8 15.4 12.9 10.9

Share of Associate 9.6 -25.9 23.3 24.5 25.7 Efficiency Ratio (x)

Consolidated PAT 84.8 25.5 129.2 146.9 212.1 Inventory (days) 83 88 83 83 82

PAT Margin (%) 2% 0% 2% 2% 3% Debtors (days) 74 72 65 64 64

RM / Sales (%) 43% 44% 46% 46% 46% Creditors (days) 42 53 60 60 59

Tax Rate (%) 38% 28% 33% 33% 33%

Balance Sheet Cash Flow Statement

Share Capital 61.4 61.4 61.4 61.4 61.4 Profit Before Tax 167.3 61.9 144.1 190.0 285.9

Reserves & Surplus 1611.0 1611.7 1725.9 1855.5 2042.8 Depreciation 164.3 156.9 163.7 192.2 190.4

Minority Interest 64.81 69.31 74.03 78.99 84.19 Working Capital Changes (48.9) 63.8 91.6 74.9 218.0

Long Term Borrowings 955.2 634.9 520.7 442.0 377.8 Others 34.6 61.7 (84.5) (21.8) 123.1

Short Term Borrowings 1131.9 1519.6 1524.3 1869.8 2290.0 Operating Cash Flow 317.2 344.3 314.9 435.3 817.3

Other Non Current Liabilities 51.2 54.5 57.4 60.4 63.6 Capital Expenditure (222.2) (277.9) (320.0) (180.0) (190.0)

Total Liabilities 3875.4 3951.5 3963.7 4368.1 4919.8 Other Investment Activities 11.4 58.3 462.2 336.5 35.0

Gross Block (incl.CWIP) 1569.5 1890.8 1998.7 2028.7 2218.7 Cash Flow from Investing (210.8) (219.6) 142.2 156.5 (155.0)

Less: Acc. Depreciation 155.0 309.7 473.4 665.5 855.9 Changes in Share Capital - - - - -

Net Block 1414.5 1581.1 1525.3 1363.1 1362.7 Changes in Borrowings 91.6 98.2 (114.2) (78.7) (64.2)

Deferred Tax Assets (Net) -22.1 -18.0 -18.0 -18.0 -18.0 Dividend and Interest (209.6) (219.9) (236.2) (267.8) (301.6)

Non Current Investments 245.7 252.3 275.7 300.2 325.9 Cash Flow from Financing (117.9) (121.6) (350.4) (346.4) (365.7)

Long term Loans & Advances 401.4 457.5 474.7 492.9 512.1 Net Change in Cash (11.5) 3.1 140.4 245.4 296.6

Net Current Assets 1835.9 1678.6 1706.0 2229.9 2737.1 Opening Cash Balance 43.7 32.2 35.2 175.6 421.0

Total Assets 3875.4 3951.5 3963.7 4368.1 4919.8 Closing Cash Balance 32.2 35.2 175.6 421.0 717.5



Disclosures and Disclaimer

Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. RA involved in the preparation of this research report discloses that he / she has not served as an officer, director or employee of the subject company. RA involved in the preparation of this research report and VSL discloses that they have not been engaged in the market making activity for the subject company. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. 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Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. And such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 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Documents

Raymond Ltd BUY - Moneycontrol.comchats.moneycontrol.com/plus/upload_pdf_file/... · Raymond to rethink its strategy and chart a path of growth for the future. Over the period FY14-17,