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Articles: Stock Market | Raymond
- Prof. 00782 Maverick
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Denim division saw sluggish growth. This has been hived into a JV with an installed capacity of 80 mn meters in which 40 mn is in India and rest in USA, Belgium and Romania,. This was 22% of the total revenues. Its high quality ring denims realisation is around Rs 110 per m when others are struggling at around Rs 80 /m in the current market scenario. The products are exported to over 30 countries in the world. This Raymond UCO Denim Private Limited, the 50:50 Joint Venture between Raymond Ltd and UCO NV, Belgium we believe is a smart thing to do to shift manufacturing under a management which can get much higher realisations. As far as outlook is concerned for the segment, organic growth is unlikely. There is excess capacity already and increased competition and pricing pressure too. Denim division witnessed sharp growth in topline at 32% stood at Rs.294Cr on y-o-y basis. However the margins in this division slightly declined owing to pricing pressures and lower realizations in the domestic market. However as a JV this is a fantastic story as UCO relationships would help it get higher realisations and keep margins intact.
The Files and Tools business is a slow growing business. It contributed around 12% to revenues. It manufactures files, cutting tools and Auto components in the name of JK files and tools and covers 30% market share in this segment and 50% of the products are for exports growing by 19%. The Company is adopting modern technology in manufacturing and taking initiatives in product designing to sustain in the market. Revenues at Rs.158 Cr were up 9% on y-o-y basis and mainly backed by sharp increase in sales of Drills. Growth was profitable driven by improved exports sales and gains from restructuring of operations in its Thane Plant.
The growth in profitability was largely driven on the back of the strong performance of the textile division and the branded apparel subsidiaries. Subsidiaries like Raymond Apparel Limited, ColorPlus Fashions Limited and JK files and tools ltd posted good growth in profitability driven by product innovation and enhanced brand image. While Raymond Apparel fared well on the back of expansion of the retail network. Raymond fully owned subsidiary silver spark Apparel has new suits and trousers factory built on the out skirts of Bangalore which can churn out 1500 suits and 4000 trousers a day. It is not profitable as it goes through the learning curve. Celebration apparel Ltd too is expected to turn around in the near future. Raymond expects these subsidiaries to be the engines of growth. A turnaround by FY2008 will bring in the benefits of these investments to the company.
Overall performance for the quarter was good. Topline grew by 17% and margins were good as well registering a good jump on the back of margins product mix. Profitability was maintained and that is expected to sustain ahead. The company has Rs 600 cr cash in books and that means over Rs 100 cash per share.
The stock at Rs 435 with PE multiple of around 26 times the trailing earnings appears expensive. However better operational performance from its investments will bring in the numbers. Raymond is a complete textile story placed to capture the domestic garments and global export demand. The company's brand name is top of mind which helps its presence in the market and gives pricing power. We are positive on this business. One could invest with a long term perspective.
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