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April 30, 2013
Madhurima
Nandy , MINT (A Wall Street Journal Partner)
Bangalore,
April 30, 2013
After
focusing on consolidation and margin improvement for a year, apparel
maker Raymond Ltd intends to return its sights to growth and higher
profitability in the current fiscal year.
Top Raymond executives sent out the signal in a conference call
with analysts on Monday in which Raymond’s newly appointed
chief financial officer M. Shivkumar indicated that the company’s
net debt may go up by Rs.150-200 crore this financial year owing
to the company’s capital expenditure plans.
Around Rs.342 crore of debt is due for repayment in the third
and fourth quarters of 2013-14 which will be replaced by long-term
debt, or other loans, he said.
Raymond appointed consultancy Accenture Plc last year for a margin
improvement programme and consolidated its apparel business structure
to improve cost efficiency. These measures have resulted in the
firm boosting cash flow from operations by 42% to Rs.326 crore
in the year ended March, according to brokerage PhillipCapital
(India) Pvt. Ltd.
The management indicated that 2013-14 will see a lower proportion
of discounted sales and better control over inventory levels,
two factors that analysts say typically eat into profitability
and dent cash flows.
“The company has been focusing on improving cash flows and
margin improvement. While the net debt, at Rs.1,347 crore, has
remained almost same compared to a year before, investors would
ask for reduction in debt by sale of non-core assets,” said
Ankur Agarwal, an analyst at Nomura Equity Research.
On the analysts’ call, Raymond executives said a team is
exploring options to realize value from its 120 acres of land
in Thane on the outskirts of Mumbai.
The inventory days—a measure of efficiency based on the
number of days that a company holds its inventory before selling
it—declined from 155 days to 144 days in FY13 and the improvement
is largely led by textile business as well as liquidation of inventory
in branded apparel business, said a report by PhillipCapital.
In the March quarter, Raymond opened 22 new stores and closed
14 stores.
Raymond has restructured its top management, splitting its portfolio
and separating the strategy and finance divisions in March. H.
Sunder, who was the chief financial officer and headed both finance
and strategy portfolios, will now focus on strategy, while Shivkumar,
who joined Raymond last year from Jet Airways (India) Ltd, was
made CFO.
Robert Lobo, who earlier headed the brands ColorPlus and Raymond
Premium Apparel is now president-group apparel at Raymond, and
will oversee all the four brands in the branded apparel business
segment such as Park Avenue, Parx, Raymond Premium Apparel and
ColorPlus.
“The company has initiated a restructuring process for its
apparel business structure which involves getting a distinct strategy
for each of its brands. It only helped that the company has put
one person in complete charge, instead of two people heading the
brands earlier,” said an analyst, who didn’t want to
be named.
Last Friday, Raymond posted an 80.75% drop in net profit for
the March-ended quarter from the year-ago period to Rs.61 lakh,
while revenue rose 13% to Rs.1,081.36 crore. The firm said that
the net profit falling to Rs.61 lakh was “mainly due to reversal
of deferred tax asset provisioning”. The fall in profit came
after adjusting for exceptional items and taxes.
A Nomura Equities Research report said the streamlining of Raymond’s
branded apparel business includes fine-tuning the communication
strategy for each brand and focus on sales channels that would
help in brand visibility.
One of the key measures that Raymond has taken up in branded
apparel business is the transitioning of Park Avenue from The
Raymond Shop (TRS), a retail store format, to exclusive brand
outlets (EBO). Raymond Premium Apparel, the high-end segment will
be sold through TRS.
Raymond executives mentioned on Monday that while the first phase
of transitioning Park Avenue to exclusive outlets has been completed,
the company will decide on the second phase depending on consumer
demand for the brand and Raymond Premium Apparel.
Gautam Hari Singhania, chairman and managing director, said in
a statement that the focus has been on improving the operational
efficiencies, through supply chain management initiatives, cost
rationalization and consolidation of apparel business operations,
which resulted in pull back of profitability and improvement in
cash flows.
Raymond shares rose 5.43% to close at Rs.281.3 on Monday on the BSE while the benchmark Sensex gained 0.52% to close at 19,387.5 points.
Apparel companies have been struggling to garner sales, along with high levels of inventory of unsold stock and discounted sales eating into healthy margins, said analysts.
“The key challenges for apparel brands today are to get adequate sales per outlet and maintaining an excitement about product ranges to pull (in) consumers. Discounted sales have also put the margin mix of companies and their cash flows out of balance for a while now, including promotions that are done to drive footfalls,” said Devangshu Dutta, chief executive of retail consultancy Third Eyesight.
