Raymond Ltd : Gaining In Popularity And Profits

Such is the strong status of the company that its stock has risen nearly 52 per cent in last six months while over the month it was able to deliver nearly 26 per cent returns to its shareholders  

Incorporated in 1925, Raymond Ltd. is a diversified group with interests in the textile and apparel sector as well as a strong presence across diverse segments such as real estate, engineering and fast-moving consumer goods. With exports spanning to over 55+ countries, the Raymond Group has a noteworthy presence across international markets. It operates in the USA, Europe, Japan and the Middle East. The company has a retail network of 1,638 stores, including 1,589 stores in 600 towns and cities in India and 49 overseas stores in nine countries. Its manufacturing plants are located at Vapi in Gujarat, Yavatmal in Maharashtra and Bengaluru in Karnataka.

The Vapi plant is a state-of-the-art manufacturing facility that produces some of the finest fabrics in the world, including worsted fabric. Spread over 163 acres, Raymond’s denim plant is strategically located in the heart of central India’s cotton belt, Yavatmal. High-end suits, jackets, trousers and shirts are manufactured at the Bengaluru plant. Raymond offers an exquisite range of shirting and suiting fabrics across a plethora of options such as worsted fabrics, cotton, wool blends, linen and denim. It has a strong presence in the FMCG space via Raymond Consumer Care.

The company mainly caters to the male grooming segment through pioneering brands like ‘Park Avenue’ and ‘KS’ and has a presence in the home care segment through its brand ‘Premium’. It ventured into the engineering business in 1949. J K Files and Engineering Ltd. enjoys leadership position as the world’s largest manufacturer of steel files with a share of over 25 per cent of global capacity in 2020 and a presence in over 55 countries. Recently, Raymond Group forayed into the real estate development business. With the central theme of ‘Go Beyond’, the company has undertaken a project to build quality housing for all.

Sector Overview

India’s textile sector is one of the oldest industries in the Indian economy. The textile and apparel industry in India has strengths across the entire value chain from fibre, yarn, fabric to apparel. It is highly diversified with a wide range of segments ranging from products of traditional handloom, handicrafts, wool and silk to the organised textile industry. Abundance of raw material, presence of entire value chains, availability of skilled manpower and large and growing domestic as well as international markets are the key growth drivers for the sector.

India is the largest consumer and producer of cotton with the highest acreage of 126.14 lakh hectares under cotton cultivation. It is second-largest manufacturer of polyester, silk and fibre in the world. Also, the Indian textile sector is the second-largest employment provider in India after agriculture. It supports 4.5-5 crore people in allied sectors, including 35.22 lakh handloom workers across the country. The industry faced a complete shutdown for a long period due to the pandemic. On account of uncertainty across the market, international and domestic buyers cancelled their orders.

Disrupted logistics and frozen external trade caused due to the pandemic affected the entire value chain alike. The Indian domestic textile and apparel market was estimated at USD 75 billion in 2020-21. The market fell 30 per cent from USD 106 billion in 2019-20. It is expected to recover and grow at 10 per cent CAGR from 2019-20 to reach USD 190 billion by 2025-26. India’s textile exports reached USD 33.5 billion in 2019-20. Due to the impact of the pandemic, India’s exports are expected to fall around 15 per cent to reach USD 28.4 billion in 2020-21. It is expected to grow to USD 65 billion by 2025-26, growing at a CAGR of 11 per cent.

Financial Overview

Considering the financial performance of the company recorded for the fourth quarter of FY22, on a consolidated basis Raymond Ltd. recorded net sales and other operating income of ₹1,958.10 crore, a growth of 43.38 per cent from ₹1,365.66 crore reported in Q4FY21. On the other hand, the operating profit was recorded at ₹358.04 crore in Q4FY22 as compared to ₹196.67 crore in Q4FY21. Q4FY22 recorded net profit of ₹262.96 crore in comparison with ₹45.75 crore in the same quarter the previous year, indicating a strong rise of 474.78 per cent. In terms of the yearly performance, Raymond Ltd. recorded net profit of ₹271.47 crore as against loss of ₹294.17 crore during the previous year ended March 2021.

Also, net sales surged by 79.27 per cent to ₹6,178.51 crore as against ₹3,446.47 crore during the previous year ended March 2021. Its Board of Directors has recommended payment of dividend of 30 per cent on equity share capital i.e. ₹3 per equity share of the face value of ₹10 each for the financial year ended March 31, 2022, subject to approval of the shareholders at the upcoming annual general meeting. The dividend will be paid on or after Thursday, July 14, 2022. Promoters held 49.16 per cent stake in the company as of March 31, 2022. Institutional investors have a total stake of 14.90 per cent, out of which foreign institutional investors owned 10.21 per cent.

Non-institutional investors have a total stake of 35.94 per cent. Various growth ratios like EBIT, PAT and EPS witnessed a major drop for the quarter ending June 2020 and June 2021 as the business witnessed a disruption due to the first and second wave of the pandemic. Yet, the company was able to stay afloat during this period of struggle. Its net sales and profit margins have been continuously growing through each quarter. For example, the net profit has soared by a huge margin of 474.78 per cent in Q4FY22. The shares of Raymond surged 138 per cent in just a year. Considering the last six months, the stock has risen nearly 52 per cent while over the month it was able to deliver nearly 26 per cent returns to its shareholders.

Outlook

Under the aegis of the Union Budget 2022-23, the government has allocated sum of ₹12,382 crore for the textile sector. Out of this amount, ₹133.83 crore is for the Textile Cluster Development Scheme, ₹100 crore for National Technical Textiles Mission and ₹15 crore each for PM Mega Integrated Textile Region and Apparel Parks Scheme and the Production Linked Incentive Scheme. Not only this, but the government also allocated funds of ₹17,822 crore between FY 2016 and FY 2022 for the Amended Technology Up-Gradation Fund Scheme to boost the Indian textile industry. The government has also allowed 100% foreign direct investment (FDI) in the sector under the automatic route.

The highest contributors to FDI in the textile sector of India from April 2016 to March 2021 include Japan, Mauritius, Italy and Belgium. To promote exports, the government has drafted several policies for the textile sector. For the export of handloom products, the Handloom Export Promotion Council (HEPC) is participating in various international events with handloom exporters to expand their global reach. India’s home textile exports grew at a healthy rate of 9 per cent in FY21 despite the pandemic. The PLI Scheme of ₹10,683 crore is expected to be a major booster for textile manufacturers. It proposes to incentivise manmade fibre (MMF) apparel, MMF fabrics and 10 segments of technical textile products.

Raymond has had long-term relationships with customers across 55 countries. It is now set to expand its operations and tap new markets. The company’s leading brands such as ‘Park Avenue’, ‘ColorPlus’, ‘Parx’ and ‘Ethnix’ are very popular with customers. In terms of its production setup, the company is focusing more on automation as it is the only way to scale operations. Technical service and product customisation are some of the potential opportunities that the company will tap in time to come.

Hence, considering the positive long-term outlook for the textile and apparel industry as well as the excellent prospects that lie ahead for Raymond, we recommend BUY.