RAYMOND LIMITED Amount (Rs. crore) 1 Remarks Long-term Bank 1,585 CARE AA- Short-term Bank 475 (enhanced from Rs.370.95) Total 2,060 CARE A1+ [A One Plus] Non Convertible Debentures 175 CARE AA- Commercial Paper/Short-term Debt* 250 CARE A1+ [A One Plus] Non Convertible Debentures 100 CARE AA- Assigned *The CP/STD outstanding of the company should not exceed the liquid investments held by the company at any point of time. Based on the unconditional and irrevocable corporate guarantee provided by Raymond Ltd to Celebrations Apparel Ltd and Everblue Apparel Ltd, CARE has reaffirmed the following ratings: Name of the Company Celebrations Apparel Ltd Long-term Bank Short-term Bank Amount (Rs. crore) Total 13.33 12.33 CARE AA- (SO) [Double A Minus (Structured Obligation)] 1 CARE A1+ (SO) [A One Plus (Structured Obligation)] Remarks Name of the Company Everblue Apparel Ltd Long-term Bank Short-term Bank Amount (Rs. crore) Total 17.99 12.99 CARE AA- (SO) [Double A Minus (Structured Obligation)] 5 CARE A1+ (SO) [A One Plus (Structured Obligation)] Remarks Rating Rationale The ratings continue to draw strength from the resourceful and experienced promoter group and management, dominant position of the company in the worsted suiting fabrics industry, diversified revenue stream supported by established brands and integration in the operations. The ratings also draw comfort from the widespread distribution network supplemented by assetlight retail strategy. Consistently maintained sizeable liquid investments and strong fixed asset base of the company add further strength to the ratings. The ratings, however, are constrained due to the commodity price risk and foreign exchange fluctuation risk. 1 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1
The company s ability to improve its profitability margins and debt coverage indicators amidst current fragile economic scenario and intense competition in the industry are the key rating sensitivities. Background Incorporated in 1925, Raymond Ltd (RL) is one of the leading integrated producers of worsted suiting fabric in the world. It is the flagship company of the Vijaypat Singhania group, which is a diversified conglomerate having interests in textiles, apparel retailing, toiletries, engineering files and tools and private aviation services. RL, on a standalone basis, is mainly engaged into fabric manufacturing with total production capacity of approximately 38 million meters per annum. Credit Risk Assessment Resourceful and experienced promoters and management The promoter group of RL has been in the textiles business since 1925 and has also been closely involved in the management of operations in addition to defining and monitoring the business strategy. The promoters are supported by a well-qualified and experienced management team. Diversified revenue stream along with complete vertical integration On consolidated level, the company has five major reportable segments Textiles, Garments, Denim, Tools & Hardware (T&H) and Auto Components. RL s revenue stream is fairly distributed across segments with Textiles contributing 49% to consolidated income in FY13 (refers to the period April 1 to March 31) followed by Garments with 26%, 10% by Denims and 15% by the engineering segment (includes T&H and Auto Components). Furthermore, RL s clothing business operations (comprising of Textiles, Garments and Denim) are vertically integrated across the complete value chain from fabric to garments to branded apparel to retail. This integrated setup gives RL significant operational flexibility and an ability to rationalise costs by managing dependence on outsourced vendors. Dominant position in the worsted suiting fabrics industry in India with established brands in the retail market The Raymond brand, under which, the company s worsted fabric retails, is India s largest textile brand and has a dominant market share in the worsted suiting fabrics segment in the domestic market. Furthermore, in worsted suiting fabrics segment, RL has presence across various price points. Over the years, apart from its flagship brand, RL has also developed various other successful brands like Park Avenue, Parx, ColorPlus, Makers, and Raymond Premium Apparel. Widespread distribution network supplemented by asset-light retail strategy RL has one of the largest retail networks in the textile space in the country with 922 stores [which include The Raymond Shops (TRS), The Exclusive Brand Outlets (EBO) and Made-to-Measure (MTM) stores] encompassing retail space of 1.78 million sq. feet as on March 31, 2013. RL via pan India presence retails its products through a distribution network of more than 30,000 points-of-sale. Furthermore, around 75% of its stores are on franchise basis implying that the company generally follows an assetlight franchise model, wherein, the company usually incurs only the initial capital expenditure needed to open a store. The entire stock requirement of the franchisees is bought by them from the company without any recourse i.e. there is no returns of any unsold stock. Therefore, the entire risk of investment in the inventory is borne by the franchisees. Out of the remaining stores, majority are on lease basis. Any aggressive expansion of the stores, however, may impact the credit profile of RL. Moderate debt protection indicators, coupled with consistently maintained sizeable liquid investments The company has moderate debt coverage and leverage indicators characterized by interest coverage of 2.11x for FY12, which further weakened to 1.38x in FY13 and overall gearing of 1.22x as on March 31, 2012, and 1.38x as on March 31, 2013. However, the liquidity risk of RL is considerably mitigated on account of sizeable treasury investments maintained by the company over the past many years. During October 2010, RL had reached a Voluntary Separation Scheme (VSS) settlement with the workers of its Thane textile factory aggregating Rs.260 crore, out of which around Rs.150 crore was paid in FY11 and balance is payable in October 2013.The settlement has freed up approximately 120 acres of land in the prime location of Thane, having a considerable market value. Any additional equity infusion towards development of Thane land is a key rating sensitivity. Susceptible to commodity price risk as well as foreign exchange fluctuation risk For RL, the cost of raw materials (including wool, cotton and polyester) constitutes around 33% of cost of sales. In the past, the prices of raw materials have been volatile exposing the company to commodity price risk. Furthermore, RL imports approximately 46% of its total raw material requirement from overseas markets, making it vulnerable to fluctuations in foreign 2
exchange rates. Nevertheless, the company actively manages its currency risk by hedging a considerable amount of its net exposure. Weak operational performance During FY13, RL on a standalone basis incurred a loss of Rs.48 crore on total income of Rs.2,095 crore vis-a-vis PAT of Rs.56 crore on operating income of Rs.1,939 crore during FY12. Furthermore, RL registered PBILDT of Rs.234 crore in FY13 translating into the PBILDT margin of 11.15% against the PBILDT margin of 15.78% for FY12. The drop in the PBILDT margin was on account of higher wool prices (major raw material comprising approximately one half of total raw material costs), coupled with increase in other input costs such as employee expenses, and power and fuel charges. However, RL was unable to pass on the rise in input prices to customers owing to challenging market conditions and weak consumer sentiments. Furthermore, during FY13, RL incurred Rs.45 crore towards voluntary retirement scheme (VRS). On a consolidated basis, RL reported PAT of Rs.19 crore on total income of Rs.4,117 crore in FY13 against PAT of Rs.157 crore on total income of Rs.3,685 crore in FY12. Financial Performance (Standalone) (Rs. Cr) For the period ended / as at Mar.31, 2011 2012 2013 (12m, A) (12m, A) (12m, A) Working Results Net Sales 1458 1822 1976 Total Operating income 1570 1939 2095 PBILDT 287 306 234 Interest 102 135 156 Depreciation 104 110 116 PBT -149 77-41 PAT (after deferred tax) -100 56-48 Gross Cash Accruals -45 187 75 Financial Position Equity Capital 61 61 61 Networth 1038 1096 1030 Total capital employed 2309 2435 2452 Key Ratios Growth Growth in Total income (%) 11.79 23.51 8.04 Growth in PAT (after D.Tax) (%) NM NM NM Profitability PBILDT/Total Op. income (%) 18.26 15.78 11.15 PAT (after deferred tax)/ Total income (%) -6.38 2.91-2.28 ROCE (%) -1.96 9.43 5.00 Solvency Long-term Debt Equity ratio (times) 1.02 0.95 1.00 Overall gearing ratio(times) 1.22 1.22 1.38 Interest coverage(times) 2.57 2.11 1.38 Term debt/gross cash accruals(years) NM 6.01 14.59 Liquidity Current ratio(times) 1.41 1.40 1.16 Quick ratio(times) 0.93 0.93 0.76 3
For the period ended / as at Mar.31, 2011 2012 2013 (12m, A) (12m, A) (12m, A) Turnover Average collection period (days) 78 73 81 Average creditors (days) 55 44 45 Average inventory (days) 113 106 102 Operating cycle (days) 136 135 138 Note: During October 2010, RL had reached a Voluntary Separation Scheme (VSS) settlement with the workers of its Thane textile factory aggregating Rs.260 crore, hence, profitability figures of FY11 are not comparable. Profiles of entities guaranteed by Raymond Ltd I. Celebrations Apparel Ltd Celebrations Apparel Ltd (CAL) is a wholly-owned subsidiary of RL and is into manufacturing of men s apparel, mainly formal shirts. CAL has manufacturing facilities at Hosakote (near Bengalooru), with a total production capacity of approximately 1.8 million shirts per annum. CAL predominantly does job work for other Raymond group companies and job work income contributed around 57% to the total income in FY13 (vis-à-vis 55% in FY12). RL has extended an unconditional and irrevocable corporate guarantee to meet CAL s debt repayment obligations. During FY13, CAL registered PAT of Rs.0.85 crore on total operating income of Rs.22.27 crore. II. Everblue Apparel Ltd Everblue Apparel Ltd (EBAL), established in 2001, is a 100% subsidiary of RL. EBAL, initially by way of a conducting agreement dated August 2006, executed with Raymond UCO Denim Ltd [(RUCO), a JV between Raymond Ltd (RL) and UCO NV of Belgium], had rented out its unit for manufacturing denim garments to RUCO for a fixed annual consideration of 1.1 million per annum. However, from July 1, 2012, the conducting arrangement is replaced by a job-work agreement. As per the job-work agreement, EBAL is required to manufacture, pack, label and store the garmenting products as per the specifications given by RUCO. RUCO issues production orders to EBAL from time to time and in consideration EBAL is paid job-work charges, which is decided mutually between EBAL and RUCO based on the design and style of the garments to be manufactured. RL has provided an unconditional and irrevocable corporate guarantee to meet EBAL s debt repayment obligations. In FY13, EBAL posted total operating income and PAT of Rs.35.48 crore and Rs.0.92 crore, respectively. DISCLAIMER CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. 4
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