Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA/Stable/CRISIL A1+’ ratings to the bank facilities of Raymond Lifestyle Ltd (RLL). These facilities have been moved from Raymond Ltd (Raymond), after the lifestyle business was demerged.

 

The ratings reflect the company’s robust business risk profile supported by the dominant position in the domestic worsted suiting business, established brands in the apparel business, diversified revenue streams and strong retail network. The ratings further takes into account the strong financial risk profile of the company supported by healthy capital structure, minimal net debt levels and strong liquidity position. These strengths are partially offset by exposure to risks posed by various factors, including volatility in raw material prices and foreign exchange (forex) rates, intense competition, large addition of stores and macroeconomic factors such as downturns and inflationary pressure.

 

Business risk profile of RLL benefits from the strong legacy of the branded lifestyle B2C business run through the branded apparel and textile segments which comprises majority of the revenues (72% of RLL revenue for fiscal 2024, operated through a strong distribution network, and the healthy B2B business run through the garmenting and high-value cotton shirting segments (28% of RLL revenue for fiscal 2024). These segments provide diverse revenue streams to RLL across apparel and textiles. RLL reported a healthy performance in fiscal 2024, with consolidated operating income of Rs 6,535 crore. While, the business witnessed a on-year degrowth of 6% to Rs 2,928 crore in the first half of fiscal 2025 (Rs 3,124 crore for the first half of fiscal 2024), due to fewer wedding dates, lower footfall in retail outlets due to heatwaves, and impact of prolonged elections on consumer spending, CRISIL Ratings expect revenue growth to be better in second half of the fiscal driven by demand coming in from festive sales with large number of wedding dates. Over the medium term, RLL is expected to achieve high single digit to low double digit growth in revenues supported by over 650 stores to be added over the next three years undertaken as well as scaling up of its garmenting business, with geopolitical shifts in neighboring regions, particularly Bangladesh, presenting a potential opportunity.

 

The operating profitability of the business remains healthy at ~12-14% over the last three fiscals ended fiscal 2024, driven by strong operational profitability in the branded textile segments of over 20%, while other segments continued to register healthy operating profitability at around 10-12%. In fiscal 2024, consolidated Post-Ind AS EBITDA margin stood at 14.3% (pre-IndAS adjusted EBITDA margin of around 12%). With revenue de-growth in first half of fiscal 2025, operating margin post IndAS was muted (9.4% in the first half of fiscal 2025 against 13.0% in the first half of fiscal 2024). Lease outflow for the first six months of fiscal 2025, was around Rs 86 crore, resulting in pre-IndAS margin of 6.4% in the first half of fiscal 2025 (11.1% in the first half of fiscal 2024). Over the medium term, operating profitability is expected to sustain at healthy levels. Working capital requirements for the company stood moderate at 80 days (in terms of revenue) for fiscal 2024.

 

Financial risk profile is marked by strong debt protection metrics with total borrowings of Rs 825 crore (mainly working capital debt), and a healthy cash surplus of Rs. 915 crore at March 31, 2024, resulting in net debt-free status. RLL also has a strong capital structure, with healthy gearing of less than 0.2x time. Debt protection metrics were also healthy, with adjusted interest coverage of 6.5x times. While total debt stood higher at Rs 1,306 crore as on September 30, 2024, primarily on account of higher working capital owing to forthcoming festive season, RLL continued have a cash surplus of around Rs 900 crore as on the same date. With expected recovery in operational performance in second half of the fiscal and continued healthy operational performance thereafter, financial risk profile shall remain healthy with adjusted interest coverage of over 6x times and NCAAD of over 0.7-1x over the medium term. Debt/EBITDA also stood at under 1x times, and company is expected to re-achieve its net-debt free status by the fiscal end and sustain it over the medium term.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of RLL and its various subsidiaries. This is because the entities are part of the diversified Raymond group, have strong business linkages, financial fungibility and a common management.

 

Goodwill arising from valuation adjustments on the demerger from Raymond has been directly adjusted against networth, as it represents valuation adjustments and has not arisen on payment of any consideration.

 

CRISIL Ratings has not considered lease liabilities recognised under IndAS116 as part of debt and has adjusted EBITDA by excluding lease rental components in depreciation and finance cost.

 

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: Strong track record of over ten decades, healthy brand image and large retail network have helped Raymond establish a healthy market 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 1,083 retail outlets branded as The Raymond Shop (TRS) as on September 30, 2024, across India and abroad. It holds a significant market share of 50-55% in the suiting segment.

 

• Diversified revenue streams across apparel and textiles: RLL has a well-diversified revenue profile, with significant presence in branded textiles (49% of revenue in fiscal 2024), branded apparel (23%), garmenting (16%), and high-value cotton shirting (12%). 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 its focus on ethnic wear in the recent past under brand name “ Ethnix by Raymond”, which is seeing good traction, especially during the wedding season between April and May and October to December.

 

Raymond's branded textile business (Revenues of Rs. 3,450 crore in fiscal 2024; EBITDA margin of 20.9%), is poised for further growth driven by its premiumization strategy. The company is introducing higher-value products, such as wool-rich and all-wool fabrics, under its Exotic and Regio Italia brands, to capitalize on the growing demand for premium suiting fabrics.  In the branded apparel segment (Revenues of Rs. 1,587 crore in fiscal 2024; EBITDA margin of 11.9%), Raymond is focusing on premiumization and casualization to drive growth. Notably, the company has made a significant investment in Ethnix by Raymond, a brand that caters to the growing demand for ethnic wear in India. This strategic move taps into the cultural and traditional apparel market, which is experiencing robust growth.

 

The garmenting segment (Revenues of Rs. 1,139 crore in fiscal 2024; EBITDA margin of 9.6%), which serves both domestic and international markets, is expected to benefit from the current geopolitical situation in Bangladesh. The company is planning to invest Rs. 200 crores (Rs. 140 crore in phase 1 & balance Rs. 60 crore in phase 2) in expanding its garmenting capacity, enabling it to respond to increased demand. Out of the same, currently company has invested ~Rs. 100 crore. In the high-value cotton shirting business (Revenues of Rs. 830 crore in fiscal 2024; EBITDA margin of 11.4%), where Raymond has a smaller market share, the company is employing a dual strategy that focuses on both premiumization and volume growth.

 

• Strong retail network: Having one of the largest retail store networks across India and overseas (1,0 83TRS outlets, 46 MTM stores, and 463 exclusive brand outlets as on September 30, 2024) has helped the company reinforce its market position. RLL is expanding its dealership network to tier-3 and 4 cities and towns and has 20,000 touch points across the country. The company is enhancing its distribution reach and has opened more than 200 stores in the last 12 months based on an asset-light model and is looking to expand further over the medium term.

 

• Healthy financial risk profile: Financial risk profile remains healthy as proceeds from sale of the FMCG business sale were used to repay external debt in fiscal 2024. Total debt stood at Rs 1,306 crore as on September 30, 2024 (Rs 825 crore as on March 31, 2024), while the entity continued have a cash surplus of over Rs 900 crore as on the same date. Debt protection metrics should be healthy with limited borrowings and gearing (on external debt) is expected to remain healthy over the medium term, with sustained healthy operating performance. Cash surplus is likely to remain adequate over the medium term after meeting capital expenditure (capex) and working capital requirement. Any large debt-funded inorganic acquisition is a key monitorable.

 

Weaknesses:

• Exposure to volatility in raw material prices: Volatility in cotton and wool prices led to fluctuation in operating profitability. Raymond imports bulk of its wool requirement from Australia and New Zealand; it maintains a hedge book for bulk of the related forex exposure. For instance, material increases in prices of wool and cotton (owing to increase in minimum support price in India) led to moderation of overall operating profitability in fiscals 2020 and 2019, respectively. The impact was partly offset by the company’s ability to pass-on the hike in cost to its customers.

 

• Moderate susceptibility of operating performance to economic downturns, inflationary pressure and large annual addition of stores: Revenue and profitability remain susceptible to economic downturns, given the discretionary nature of products. In a cautious spending scenario, discretionary segments such as gems, jewellery and apparel are impacted the most, while non-discretionary segments such as food, grocery and pharmacy are less affected. For instance, temporary store closures, restricted mobility and curtailed discretionary spending during the first and second waves of the Covid-19 pandemic restricted growth during fiscal 2021 as well as the first quarter of fiscal 2022. Also, revenue growth slowed down considerably from the fourth quarter of fiscal 2023, due to muted discretionary demand, over a large base of the previous fiscal. Furthermore, large expansion by retailers can exert pressure on their operating margin as earnings from existing stores may not adequately offset losses from high proportion of new stores.

 

• Intense competition in the domestic apparel business: The domestic apparel business is highly fragmented with competition intensifying among 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+/Watch Negative/CRISIL A1+’), Siyaram Silk Mills Ltd (‘CRISIL AA-/Stable/CRISIL A1+’) and Arvind Ltd (Arrow), with various brands such as Louis Philippe, Van Heusen, Allen Solly and Peter England. The apparel retail industry is expected to record a high single-digit compound annual growth rate for the three fiscals through March 2027, driven by strong same-store sales, new store launches, improved penetration of organised retail, and higher contribution from online channels.

Liquidity: Strong

Liquidity is supported by sizeable, unencumbered surplus of over Rs 900 crore, held in mutual funds, fixed deposits and as cash balance as on September 30, 2024. Bank limit utilisation averaged 40% during the six months through September 2024. Cash surplus is likely to remain high, despite annual capex of Rs 200-250 crore and term-debt repayment.

Outlook: Stable

CRISIL Ratings expects RLL to maintain a healthy business and financial risk profiles over the medium term.

Rating sensitivity factors

Upward factors:

• Sustained substantial revenue growth of over 15% annually, over the medium term while maintaining healthy operating profitability
• Sustained strong liquid surpluses and strong debt metrics supported by healthy cash generation

 

Downward factors:

• Sluggish business performance with steep moderation in operating profitability to below 8-9% on a sustained basis
• Substantial increase in debt or reduction in liquid surplus due to larger-than-expected capex, dividend payments, share-buy-back, or acquisitions

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 lifestyle segment under RLL 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 under Raymond Limited. As on September 30, 2024, the promoters held 54.67% stake and public held the rest (including financial institutions) in RLL. 

 

Earlier, the demerger process of RLL was completed and the scheme became effective on June 30, 2024. Through its order, the NCLT has approved the scheme of arrangement between Raymond, RLL and Ray Global Consumer Trading Ltd and their respective shareholders, with appointed date of April 1, 2023.

Key Financial Indicators (RLL Consolidated)

Particulars	Unit	2024	2023
Operating income	Rs crore	6,535	NM
Adjusted profit after tax (PAT)	Rs crore	2,645	NM
Adjusted PAT margin	%	40.5	NM
Adjusted debt/adjusted networth*	Times	0.19	NM
Adjusted interest coverage	Times	6.50	NM

*excluding lease liabilities

NM: Not meaningful as lifestyle business was de-merged with appointed date of April 1, 2024

Any other information: Not Applicable