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Raymond , a leading textile and apparel company, has witnessed remarkable success in the post-COVID era. Its share price has skyrocketed, increasing tenfold from its pandemic lows, and its net profit has more than doubled.
Behind these impressive numbers lies a compelling story of growth. Let's delve into it.
Post-COVID financial performance
Raymond's performance in the fiscal years 2021 to 2023 stands in stark contrast to the preceding years of 2018 to 2020. During FY21-23, the company's revenue more than doubled, while both operating and net profits tripled. Remarkably, its real estate segment emerged as the surprising star performer during this timeframe, while branded textiles and apparel continued to be the driving force behind the company's growth.
Company management attributes this recent surge in growth to pent-up demand and a robust brand presence. Additionally, lower raw material prices played a crucial role in bolstering profitability. In fiscal year 2023, Raymond achieved its highest operating margin in over two decades and its highest net margin since 2007.
Raymond's financial performance over the years
Operating profit has grown at a sizzling pace
| FY23 | FY22 | FY21 | FY20 | 3Y growth (% pa) | |
|---|---|---|---|---|---|
| Revenue (Rs cr) | 8215 | 6179 | 3446 | 6482 | 8.2 |
| Operating profit (Rs cr) | 948 | 470 | -380 | 176 | 75.3 |
| Operating profit margin (%) | 11.5 | 7.6 | -11 | 2.7 | |
| Net profit (Rs cr) | 529 | 260 | -297 | 196 | 39.2 |
| ROE (%) | 20.4 | 11.9 | -13.2 | 2.3 |
Business restructuring
To enhance its financial position and unlock value within its various business segments, Raymond initiated several strategic changes. Notably, the company sold its FMCG business to Godrej Consumer Products for Rs 2,850 crore, resulting in the company becoming net debt-free.
Simultaneously, Raymond announced the demerger of its consumer care business. Following the demerger, Raymond will primarily focus on its real estate segment, while Raymond Consumer Care (the resultant company) will carry forward the textiles business. This strategic move significantly boosted Raymond's stock, with the share price rising by 5.8 per cent (as of October 3, 2023) since the announcement. The consumer care business had accounted for 77 per cent of the company's revenue, while real estate and engineering contributed to the remainder.
The P/E ratio puzzle
Investors may be puzzled by Raymond's relatively low P/E ratio of just 7.9 (as of October 3, 2023) times, despite its impressive growth. The explanation lies in exceptional items. The company reported an exceptional item, a one-time gain of Rs 983 crore from the sale of its FMCG business, which skewed its valuation metrics. If we exclude this exceptional item, Raymond's P/E ratio would be a more substantial 22.6 (as of October 3, 2023) times.
What lies ahead?
Raymond anticipates an improvement in the current demand landscape with the approaching festive season. The company aims to prioritise innovation in casual wear and plans to expand its retail footprint using an asset-light franchise model. Over the next 12 to 18 months, Raymond intends to open 200 new stores. Moreover, it foresees continued growth in its real estate segment driven by sustained demand.
However, investors are cautioned to remain vigilant due to the inherent cyclicality of all its business segments. Furthermore, the management has indicated that the company may encounter potential margin contractions and volatility, as it continues to hold inventory acquired at higher costs in 2022. The duration of this impact on financials remains uncertain.
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