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Raymond to focus on growth, profitability in current fiscal

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.

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