CFO explains why Raymond is extremely bullish on textile, realty & other business segments

“A very large retailer who has never looked at India, has given orders for suits to us. Maybe it is just 2% of their requirement but it is very large and it can offset some of the other large customers,” says Amit Agarwal, Group CFO, Raymond

A recent brokerage report says how they met the CFO Amit Agarwal at the Raymond premise and the management was extremely bullish on all the businesses – textile, realty, tools and auto ancillary. Where are you super bullish on out of the four businesses and why?
Post the pandemic, people are coming out and spending money and in the last three quarters, we have seen a very significant boost in demand. People have started to celebrate, going out on Diwali, Dussehra and based on our bookings for the textile business, we are looking at what they have booked and not booked in the last few years.

What do you mean when you say booking?
The textile, the fabrics because we have the dealer franchise, wholesalers.

The dealers have done booking in anticipation of how much they will be able to sell in Diwali and Dussehra. Is that booking at an all-time high?
All-time high.

I will give you an example; we just launched Champion’s collection at our Thane location the day before yesterday. We were anticipating a booking to the tune of Rs 10-11 crore. We have seen Rs 22 crore booking for that product, one suiting fabric. So, we are seeing that kind of bullishness.

Second, in the real estate market, out of the total inventory, whether launched or non-launched, we have sold 65% of the inventory and from the launched inventory, we have close to 80%. To give you a perspective, in our second project, which is a three-four BHK project that we launched in November of last year, out of 560 odd flats, we have sold 350 flats. That is kind of a bullishness as it is a five-year project. Traction is very strong on the project.

Coming to auto and engineering, globally these are not doing so well, but India is doing phenomenally. In this quarter, a million cars will be sold and we are seeing the benefit with the kind of market share which we enjoy with the top OEMs in the country and we are seeing very good demand.

Real estate business is the new entry. This business was not the original business of Raymond. What could be the segmental breakup, the contribution to top line and bottom line from these four segments in FY23 and FY24?
Based on percentage of completion you book the revenues and in FY24, realty and engineering put together should be doing anything between 20% and 25% of the total revenues.

In terms of EBITDA, we should consider 35% of the EBITDA coming from these businesses but our mainstay is the lifestyle business and we see very good trends coming in.

We are adding new lines in export because as we speak, today we are booked all the way till March, though we are seeing a slowdown in global markets but because of China plus one policy being followed globally, we have got some new customers coming our way. I will give you a very large fashion player. He has recently given 10% of his total demand to us for the shirting business. Next week or in ten days, we are launching a new theme at our flagship store in Thane. Suppose you come to our store, buy the fabric, give your measurements, go for a meal and picture or something and we will deliver your shirt and a suit when you come back. That is the kind of revolution which we are bringing into the market.

But I am guessing that will be across the….?
We are launching this service at Thane first, but then it will spread across all our stores and we are present in 600 cities with 1,000 plus stores.

Also talk about your exports.It is quite different from the commentary that we are hearing from other corporates wherein on account of the Europe slowdown, there is a slowdown in demand itself. A bit of manufacturing is coming India’s way but there is a slowdown in demand and that is quite visible with what is happening with Walmart, Bed Bath & Beyond, etc. How much scaling up is possible with respect to exports?
While the existing customers have created the demand and account for 65-70%, we have added new customers and because of the China plus one policy, some of the customers who were destined to go to China, have started to look at India.

A very large retailer who has never looked at India, has given orders for suits to us. Maybe it is just 2% of their requirement but it is very large and it can offset some of the other large customers plus we are selling the suits at let us say $300 and at that price, it is not worn by common men in those parts.

I always say that at Raymond, there is a want customer and a need customer. We cater to the want customer and not really to the need customers. Food inflation and everything which is impacting globally affects the need customers more.

Looking at the financials, in terms of where your margins could be headed, what could give a big fillip would be the fact that cotton prices have corrected about 11%. The availability of cotton is expected to improve from October onwards. What would be your outlook in terms of margins?
This year, I will not give specific guidance but I can tell you this will be a record year for the Raymond Group. In terms of profitability, in terms of revenue, if you look at three quarters, third quarter of last year, fourth quarter and first quarter, all respective quarters, considering seasonality, have shown record profitability and revenues. So, I am very bullish.

It was about 27% EBITDA margin in Q1 if I am not mistaken?
No, it would not be 27% EBITDA margin, it is 14% EBITDA. But we are very strong in branded textiles, which we are famous for. There we are comfortably seeing 17-18% EBITDA margins. In a cotton shirt, 20% of the selling price is the value. Of that 20%, even if the Rs 32,000 candy has moved to Rs 100,000 a candy, I need to do a price increase of 16-17-18%. Over the years, with our branded product, we have been able to increase the price.

Our consumers should not start saying that we have increased the prices slowly and since it is not a daily buy, people can absorb it.

One of the triggers for the stock has also been the business reorganisation with the entire demerger and subsidiarisation of your business. How has that been progressing and is there any value unlocking on the cards?
The pandemic showed us the need to restructure and overhaul the business. One, we took out almost Rs 400 crore cost on a sustainable basis and that is adding to the profitability. Second, we used to run with close to 97-98 days of working capital. We brought it down to sub 45 days. Considering these two big factors, we have deleveraged our balance sheet and as we talked about that over the next three years we will become a zero debt company.

In terms of restructure, in September, we put the apparel business from a subsidiary into Raymond Ltd because we have consolidated all B2C businesses under Raymond Ltd. Otherwise, we had a store TRS which was managed by the suiting business, we had an EBO which was managed by Raymond Apparel and so double costs were being managed. We consolidated and saved a lot of cost.

Then we went to the next item. We said engineering is a very attractive, mature business with high ROCE. It is a good margin growth business. We have put into a subsidiary, filed the DRHP and are in the process of doing an IPO.

Third, real estate initially started as a monetisation of the land. Now we have progressed and it is one of the core businesses.

Will there be a separate IPO for this as well eventually?
Eventually, we will consider because we are putting it into a subsidiary; we want to see what would be the best way because that is the only business in the group which would require capital. The rest is a significant cash flow generating business.

Will the current Raymond become more of a holding company which is incubating different businesses?
Not really, because today the largest piece, which is the textile business, will sit at Raymonds. So it is an operating entity, it is not at all a holding company. But it has the businesses which are not directly connected to the textile business and it has different kinds of players. We need to provide a separate focus on engineering.

We talked about the professionalization of the boards. Our engineering business is a completely independent board and the chairman is Mr Ravi Uppal. In the FMCG business, we have got Rajiv Bakshi and now we have Vice Chairman Mr Atul Singh also joining the board. We want focussed companies with their growth aspirations, boards and professional management, so that everybody can drive individual growth.

You are developing a land parcel in Thane that is your own land. My understanding is you are planning to make the real estate business bigger. Somewhere the real estate business will be growing on the balance sheet of Raymonds which means Raymonds the existing company will be giving guarantees and loan guarantees for the real estate business. Is that risk worth taking?
It is a standard practice. Today with four million square feet, we are constructing. We are sitting on a net cash positive. At the end of the day, we have a slightly different mindset when we are working on real estate. The mindset is very simple that I have to construct fast. When people cast a slab in 15 days, we do it in seven days.

At the end of December 2022, we are delivering 900 apartments which we were supposed to deliver in December 2024. In this business, one has to construct fast because we have milestones coming in and we get the cash and the sales velocity. I may not be the highest priced in the market and even 1% lower could work well for me because the cash flow rotation is very fast.

So what is happening is on the JDA route, we are not going and buying the land. These are joint developments and we enter only after every possible approval is done. That way, we can get into a project and can construct it faster.

ET now has repeatedly asked Mr Singhania about his plan for the FMCG business. Economic Times did report that the FMCG deal has not gone through. What is the update there?
We will evaluate the options; however, we are very bullish on the FMCG business. We have iconic brands in Park Avenue, KS on the deo side and Kamasutra on the sexual wellness space. Now between these three brands, we see a very good growth opportunity as demand is strongly coming back.

Second, the commodity prices are easing off. We have seen margin improvement in this business of going over 10% now in the FMCG business. So with the distribution network of over 600,000 points of sale, in the next three years, this business will do at least 2x to 2.5x.

So it is no longer on the block?
No.

It is going to stay with the entity and you are quite bullish on it?
Yes, because we see there is a good growth opportunity in this business.