Detailed Rationale

CRISIL Ratings' ratings on the long-term bank facilities and non-convertible debentures amounting to Rs 2,412 crore of Raymond Ltd (Raymond) continues on ‘Rating Watch with Positive Implications (RWPI)’. These are the facilities which will move to Raymond Consumer Care Limited (RCCL) post the demerger of the Lifestyle business of Raymond. Also, its ratings on Rs 470 crore long-term bank facilities which will continue with Raymond, post the de-merger, continue on ‘Rating Watch with Developing Implications (RWDI)’. The ratings, on the short-term debt facilities totaling Rs.1370 crore, including Rs 550 crore of commercial paper, which will also move to RCCL, have been reaffirmed at ‘CRISIL A1+'.

 

On April 27, 2023, Raymond had announced the slump sale of the FMCG business operated through its 47.66% held associate company, Raymond Consumer Care Ltd (RCCL) to Godrej Consumer (GCPL, rated, 'CRISIL A1+’) for Rs 2,825 crore; and plans to use part of the net sale proceeds of ~Rs 2,200 crore for debt reduction at Raymond. Raymond has begun to receive the part sale proceeds from RCCL and pre-pay external debt, progress of which remains a key monitorable. CRISIL Ratings continues to monitor the progress and also engage with the company to understand the debt, cash position and business updates.

 

The company had announced the proposed demerger of its Lifestyle businesses into RCCL and convert RCCL into a listed entity by issuing 4 shares of RCCL for every 5 shares held in Raymond. RCCL hence will house the lifestyle business comprising Branded Textile, Branded Apparel, Garmenting, and HV Cotton Shirting segments (representing ~70% share of the combined reported EBITDA of Raymond for fiscal 2023), besides working capital debt, and some long-term debt. Given the sizeable receipt of proceeds from GCPL, the entity will have a net debt free balance sheet and a strong financial risk profile. The business risk profile of RCCL will continue to benefit from the strong legacy branded lifestyle B2C business run through the Branded Apparel and Branded Textile segments operated through a strong distribution network as well as a healthy B2B business run through the Garmenting and High Value Cotton Shirting segments which is expected to drive continued healthy operating performance and cash generation over the medium term. CRISIL Ratings expects the healthy traction seen in operating performance of the Lifestyle business to continue over the medium term while maintaining the net debt free status and will continue to monitor the same.

 

The continuing Raymond will house the engineering and real estate businesses (representing ~30% share of reported EBITDA during fiscal 2023), and the joint venture denim business, Raymond UCO Denim Pvt Ltd (rated ‘CRISIL BBB-/Stable/CRISIL A3’). The continuing Raymond will have nominal debt (Rs.470 crore of rated debt limits, though not all is drawn down), and will also be net debt free and will enjoy the financial flexibility with about 68 acres (excluding 20 acres being currently developed and 12 acres handed over to Thane Municipal Corporation) of prime land in Thane, Mumbai; this rating is being placed on ‘Watch with developing implications” pending completion of the separation of the Lifestyle business. The business risk profile of the continuing Raymond is expected to be moderate compared to the consolidated entity, with modest though improving presence in the real estate business, and established presence in the engineering business.

 

CRISIL Ratings continues to monitor the pre-payment of external debt which is expected to complete in the near term. CRISIL Ratings will also continue to monitor the business restructuring process which is subject to regulatory and other approvals and will take 12-18 months to complete. CRISIL Ratings will resolve the watch following detailed discussion with management, further track record of the improved operating performance and clarity on business and financial profile of the demerged business.

 

Post demerger of the lifestyle business into RCCL, promoters will hold 54.87% stake in RCCL, followed by public with 45.13%. There will be no change in the shareholding of Raymond Ltd, where promoter shareholding will continue at 49.11%, and public will hold 50.89%, post listing.

 

The rating action also reflects, continued improvement in Raymond’s operating performance across the lifestyle business, well supported by other segments, and improving profitability, driving healthy cash generation from the business, which is expected to continue going forward. Rationalised cost structure, tight control on working capital and cash flow management has led to lower net debt and strong improvement in debt metrics; for instance the ratio of net debt to earnings before interest, depreciation, tax and amortisation (EBIDTA) has improved to 0.64 times in fiscal 2023, from ~1.75 times in fiscal 2022, while other debt metrics too have witnessed strong improvement.

 

Operating income grew by 33% on-year to Rs 8,234 crore in fiscal 2023, backed by broad-based growth across all segments including lifestyle segments (both business to business and business to consumer), engineering, and real estate. Pre-IndAS 116 EBITDA (earnings before interest, tax, depreciation and amortization) improved to Rs 1,084 crore at 13.2% margin against EBITDA margin of 10.2% seen in fiscal 2022, benefitting from better revenues, improved fixed cost absorption, and ability to pass-on raw material price increases to customers. Raymond has managed its working capital efficiently and maintained gross debt (excluding lease liabilities) at Rs 2,101 crore as on March 31, 2023 versus Rs 2,067 crore as of March-2022 despite the increase in scale while strengthening its liquidity to Rs 1,410 crore as on March 31, 2022 (Rs 958 crore in March-2022). Consequently, debt metrics such as net debt to EBITDA and adjusted interest coverage ratios improved to 0.64 times and 5.20 times, respectively, as of March 31, 2023 from 1.75 times and 3.70 times in fiscal 2022.

 

Raymond is expected to continues the healthy operating performance over the medium term with healthy traction in overall sales with EBITDA margin remaining at 13% or more backed by steady growth in revenue of lifestyle segment (with new store addition), healthy growth in garmenting, engineering and real estate segments and support from price increases taken, moderation in raw material prices, a leaner cost base and improved fixed-cost absorption.

 

The ratings continue to reflect the company’s dominant position in the domestic worsted suiting business, established brands in the apparel business, diversified revenue streams and good traction in real estate project, integrated operations with a strong retail network, adequate and improving financial risk profile, and strong liquidity. Financial flexibility is also enhanced by owned land bank of 68 acres at a prime location in Thane (Maharashtra). These strengths are partially offset by exposure to volatility in raw material prices and foreign exchange (forex) rates, intense competition in the domestic apparel business, and susceptibility to demand and implementation risks associated with the real estate projects.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Raymond and its 15 subsidiaries, including Raymond Apparel Ltd, Raymond Luxury Cottons Ltd, JK Files & Engineering Ltd, Silver Spark Apparel Ltd, Ten X Realty Ltd (w.e.f. December 24, 2021). This is because the entities are part of the diversified Raymond Ltd, some have strong business linkages, there is financial fungibility and all companies are under a common management. CRISIL Ratings has also included Raymond’s share in the profits of its four associates, including JK Investo Trade (India) Ltd and Radha Krishna Films Ltd. The group is collectively referred to herein as Raymond. Raymond Consumer Care Ltd (RCCL), which spearheads the consumer care business and is 47.66% held is treated as an associate company, wherein proportionate profits/losses are included.

 

CRISIL Ratings is now moderately consolidating, Raymond UCO Denim Pvt Ltd (Raymond UCO), the 50:50 JV, by adjusting investments and net worth and allowing for prospective support required instead of full consolidation earlier. This is because Raymond and its joint venture partner, Belgian based denim major, UCO NV have been equally supporting the entity with necessary financial and managerial support.  

 

CRISIL Ratings has not included lease liabilities as recognized under IndAS116 in debt and thereby has adjusted EBITDA by excluding lease rental components in depreciation and finance costs.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Dominant position in the worsted suiting business

Established track record of over ten decades, strong brand image and large retail network helped Raymond establish healthy position in the worsted suiting business. Raymond is India’s largest manufacturer of worsted fabrics and wool blends, and enjoys a dominant market share. It had 1,053 retail outlets branded as The Raymond Shop (TRS) as on March 31, 2023, across India and abroad.

 

Diversified revenue streams, with good traction seen in real estate project

The revenue profile of the group is well diversified, with significant presence in branded textiles (39% of company’s revenue in fiscal 2023), branded apparel (16%), garmenting (13%), high value cotton shirting (9%), engineering (10%) and real estate (13%) businesses –. The company owns well-known brands such as Park Avenue, Raymond ready-to-wear, ColorPlus, and Parx, and has introduced the made to measure (MTM) store concept to offer custom-fit solutions. The company has also enhanced focus on ethnic wear in the recent past, which is seeing good traction, especially in the wedding seasons between April-May, and October -December.

 

Raymond is also present in the engineering segment (10% share of revenue in fiscal 2023); it manufactures and markets steel files and cutting tools, hand and power tool accessories (tools and hardware) and manufactures ring gears, flexplates and water pump bearings (auto components). It is the largest manufacturer of steel files, wherein the company is the market leader with a domestic market share of about 65%.

 

A couple of years ago, Raymond also forayed into real estate development on 20 acres of its own land piece in Thane, launching its value project (Ten X) on which it has sold 78% of total inventory. It also launched its premium project (Address by GS) which has successfully sold ~49% of the launched inventory within two quarters of opening reaching 79% booking till Mar-2023. The company has also received healthy booking in its new value project (Ten X Era) launched in Feb-2023 and received 141 booking by March-2023. With construction continuing at a healthy pace and delivery of 3 towers in the value project 2 years ahead of schedule as per RERA, the company recorded Rs 1115 crore in revenue during fiscal 2023 at a healthy margin of 25.7%. The company has recently entered into a joint development agreement (JDA) to develop a land parcel in Bandra East (Mumbai) having revenue potential of about Rs 2,000 crore over the next 5-6 years having peak funding requirement from Raymond of about Rs 300 crore. Contribution from real-estate to total revenue which stood at ~11% to the company in fiscal 2022 is expected to ramp-up to ~15% over next 2-3 years.

 

Strong retail network

Having one of the largest retail store networks across India and overseas (1,053 TRS, 40 MTM stores, and 316 exclusive brand outlets as on March 31, 2023) has helped the company reinforce its market position. Raymond is expanding its dealership network to Tier 3 and 4 cities and towns, and has 20,000 touch points across the country. Fiscal 2022 saw the second consecutive year of net store closures at 135 stores continuing with its cost-rationalisation measures and rental cost savings. During fiscal 2023, the company has opened 58 stores on net basis (including new less closure of old stores) 

 

Strong liquidity

Liquidity is strong and supported by large, unencumbered liquid investments and cash of Rs 1410 crore as on March 31, 2023 at Raymond. The liquid surplus has been maintained over time. Working capital bank limit utilisation was 45% on average during the six months through June 2023. Capital spend was moderate in the past two fiscals but is likely to increase to over Rs.200-250 crore annually, on new capacity additions, maintenance of plant and equipment and new store openings. With the proceeds coming from sale of FMCG business in the first quarter of fiscal 2024 itself, cash surpluses are expected to remain strong even after pre-payment of debt.

 

Adequate and improving financial risk profile

The financial risk profile has shown a strong improved during fiscal 2023 in line with strong cash generation with interest cover and net cash accrual to total debt ratios improving to 5.20 times and 0.32 times respectively from 3.70 times and 0.20 times, in fiscal 2022. Gearing and net debt-to-EBITDA ratio improved to 0.71 times and 0.64 times in fiscal 2023 versus 0.88 times and 1.75 times, respectively in fiscal 2022. Improvement in operating performance and monetisation of smaller businesses including the FMCG business, with proceeds being used to retire debt, should further improve debt metrics over the medium term.

 

Weaknesses:

Exposure to volatility in raw material prices

Volatility in cotton and wool prices led to fluctuation in profitability. Raymond imports bulk of its wool requirement from Australia and New Zealand; it maintains a hedge book for major portion of its related forex exposure. For instance, in the past, material increases in the price of wool and cotton (owing to increase in minimum support price in India) had resulted in moderation of overall operating margins in fiscal 2020 and fiscal 2019, respectively; albeit partly offset by the company’s ability to pass-on the increases to customers.

 

Intense competition in the domestic apparel business

The industry is highly fragmented with intensifying competition from organised players. Brand penetration is likely to increase in the long term among leading players such as Grasim Industries Ltd (Grasim; ‘CRISIL AAA/Stable/CRISIL A1+’; erstwhile Aditya Birla Nuvo Ltd merged with Grasim) and Aditya Birla Fashion & Retail Ltd (‘CRISIL AA+/Stable/CRISIL A1+’), with various brands, including Louis Philippe, Van Heusen, Allen Solly and Peter England; Siyaram Silk Mills Ltd (‘CRISIL AA-/Positive/CRISIL A1+’) and Arvind Ltd (Arrow). The apparel retail industry is expected to witness a healthy CAGR of 17-22% during three years through fiscal 2026, driven by strong same-store sales, new store launches, improved penetration of organized retail and higher contribution from online channels.

 

Exposure to demand and implementation risks in the residential real estate business

Raymond entered the real estate sector in fiscal 2019 by way of monetising 14 acres of prime land parcel in Phase 1 (Ten X project) comprising 10 towers having 1.7 million square feet (sq ft) of Carpet area as per RERA. With its prime location, attractive price point in the one- and two-bedroom-hall-kitchen segments and competitive pricing, the project has received healthy traction, with 2,451 units booked as on March 31, 2023, in the 10 towers launched. During fiscal 2022, it also launched the “Address by GS” project on 6 acres (totalling 20 acres) of the land comprising two towers with 0.7 million sq ft of RERA carpet area in the premium segment. It has received 434 bookings on the 549 units launched as on March 31, 2023. Construction is progressing at a healthy pace in both the projects with 3 towers in the “Ten X” project delivered two years ahead of RERA schedule. The company has recently entered into a joint development agreement (JDA) to develop a land parcel in Bandra East (Mumbai) having revenue potential of about Rs 2,000 crore over the next 5-6 years having peak funding requirement from Raymond of about Rs 300 crore.

 

Phase-wise booking, development strategy and tie-ups with reputed contractors, such as Capacite Infraprojects Ltd, reduce implementation and funding risks, leading to low reliance on external debt. However, with sizeable units remaining to be sold and new JDA project, the company will be exposed to demand and implementation risks over the medium term. The company though is expected to be better placed compared with peers due to attractive pricing of its value project and demonstration of faster execution capabilities. That said, given the vast size of the project, the pace of progress, ramp-up in operations and sales booking will be key monitorables.

Liquidity: Strong

Liquidity is supported by sizeable, unencumbered liquid investment of Rs 1,410 crore in mutual funds, fixed deposits and cash balance as on March 31, 2023. Bank limit utilisation was 45% on average during the six months through June 2023. The company is expected to undertake capital expenditure (capex) of Rs 200-250 crore annually. With the proceeds coming from sale of FMCG business in the first quarter of fiscal 2024 itself, cash surpluses are expected to remain strong even after pre-payment of debt.

Rating Sensitivity factors for facilities rated CRISIL AA-/RWPI/CRISIL A1+ and moving to RCCL

Upward Factors

• Steady improvement in business performance of lifestyle business with revenue growth of 10-12% while maintaining healthy operating profitability, benefitting cash generation
• Sustained improvement in debt metrics supported by healthy cash generation and continuing prudent working capital management and capex
• Sustenance of strong liquid surpluses, ensuring net debt free status

 

Downward Factors

• Sluggish business performance, with steep moderation in operating profitability impacting cash generation 
• Material increase in debt, due to stretched working capital cycle or larger-than-expected capex, leading to moderation in debt metrics; for instance net debt to EBITDA above 2-2.25 times
• Material decline in liquid surplus owing to higher-than-expected outflow by way of dividends, share-buy-back, or higher than anticipated capital expenditure

 

Rating Sensitivity factors for facilities rated CRISIL AA-/RWDI

Upward Factors

• Substantial increase in revenues while sustaining healthy operating profitability of 25-30% thereby strengthening the business risk profile
• Sustained improvement in debt metrics supported by healthy cash generation and continuing prudent working capital management
• Sustenance of strong liquid surpluses, and ensuring net debt free status

 

Downward Factors

• Sluggish business performance, with moderation in operating profitability impacting cash generation 
• Weakening of debt protection metrics on account of lower-than-expected cashflows or increase in debt for organic or inorganic expansion
• Sizeable unanticipated delay in execution and slower-than-expected sales pick-up in the launched residential real estate projects
• Material decline in liquid surplus owing to higher-than-expected outflow by way of dividends, share-buy-back, or higher than anticipated capital expenditure

About the Company

Incorporated in 1925, Raymond is one of the leading integrated producers of worsted suiting fabrics globally. On a standalone basis, the company manufactures 38 million metre of fabric per annum. It offers more than 20,000 designs and colours of suiting fabric, and exports to over 40 countries.

 

The company operates in two major segments: lifestyle and non-lifestyle. The lifestyle segment includes suiting, garments, apparel and shirting, while the non-lifestyle segment includes the denim, engineering (tools and hardware, and automotive components) and real estate businesses. The tools and hardware business comprises manufacturing of steel files and cutting tools, and marketing of hand and power tool accessories. Raymond has 19 plants across Maharashtra, Gujarat, Madhya Pradesh and Karnataka. As on March 31, 2022, the promoters held 49% stake and public held 51% (including financial institutions).

 

Consolidated operating income for fiscal 2023 stood at Rs 8,234 crore with net profit at Rs 537 crore, compared with revenue of Rs 6196 crore and net profit of Rs 265 crore during the same period last fiscal.

Key Financial Indicators (Raymond Consolidated)

Particulars	Unit	2023	2022
Operating income	Rs crore	8,234	6,196
Adjusted profit after tax (PAT)	Rs crore	537	265
Adjusted PAT margin	%	6.5	4.3
Adjusted debt/adjusted net worth*	Times	0.71	0.88
Adjusted interest coverage	Times	5.20	3.70

*excluding lease liabilities

Any other information: Not applicable

   Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity levels	Rating assigned with outlook
NA	Term Loan*	NA	NA	31-Mar-27	200	NA	CRISIL AA-/Watch Developing
NA	Term Loan	NA	NA	12-Mar-24	3.31	NA	CRISIL AA-/Watch Positive
NA	Term Loan	NA	NA	13-Jan-27	100	NA	CRISIL AA-/Watch Positive
NA	Term Loan*	NA	NA	30-July-27	270	NA	CRISIL AA-/Watch Developing
NA	Bill Discounting	NA	NA	NA	45	NA	CRISIL A1+
NA	Cash Credit	NA	NA	NA	1185	NA	CRISIL AA-/Watch Positive
NA	Factoring/ Forfaiting	NA	NA	NA	225	NA	CRISIL A1+
NA	Non-Fund Based Limit@	NA	NA	NA	550	NA	CRISIL A1+
NA	Proposed Rupee Term Loan	NA	NA	NA	848.69	NA	CRISIL AA-/Watch Positive
NA	Debentures**	NA	NA	NA	275	Simple	CRISIL AA-/Watch Positive
NA	Commercial paper	NA	NA	7-365 days	550	Simple	CRISIL A1+

   @Interchangeable with letter of credit, bank guarantee, buyer’s credit and suppliers’ credit

   *Facilty type being Construction Finance

    **Yet to be placed