Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the long-term bank facilities amounting to Rs 1438.31 crore of Raymond Ltd (Raymond) at ‘CRISIL AA/Stable’. These are the facilities which will move to Raymond Lifestyle Limited (RLL) (erstwhile Raymond Consumer Care Limited (RCCL)) post the demerger of the Lifestyle business of Raymond. Also, its ratings on Rs 720 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 RLL, have been reaffirmed at ‘CRISIL A1+'.

 

CRISIL Ratings has taken note of the announcement made by Raymond on July 4, 2024 regarding the vertical demerger of its real estate business (17% of the company’s revenue in fiscal 2024) into its wholly owned subsidiary, Raymond Realty Limited (RRL). Raymond Limited will then house the engineering business (9% of company’s revenue in fiscal 2024) and the denim JV, with the lifestyle business (73% of company’s revenue in fiscal 2024) recently de-merged to Raymond Lifestyle Limited. These demergers align with Raymond Group's stated objectives of simplifying its corporate structure and enhancing shareholder value for operational and structural benefits. Post demerger of the real-estate business into RRL, promoters will hold 49.11% stake in RLL, with public holding the remaining 50.89%. There will be no change in the shareholding of Raymond, where promoter shareholding will continue at 49.11%, and public will hold 50.89%, post listing (shareholding basis March 31, 2024 holding pattern).

 

CRISIL Ratings has also taken note of the recent NCLT order dated June 21, 2024 wherein the NCLT has approved the scheme of arrangement between Raymond and RLL and Ray Global Consumer Trading Limited and their respective shareholders with appointed date of April 1, 2023. With this, the Scheme has been approved by all the requisite authorities and the Scheme has become effective on filing certified copy of the order of the NCLT with the Registrar of Companies on June 30, 2024. The facilities pertaining to the demerged lifestyle business continue to be rated as a part of Raymond, pending receipt of required documents from lenders.

 

Operating income in fiscal 2024 grew by 10% to Rs 9,020 crore with support from lifestyle and real estate segments while pre-Ind AS 116 adjusted EBITDA margin was steady at 13.1% (Fiscal 2023: 13.2%) with continuing operating efficiencies across segments. Operating performance is expected to remain healthy over the medium term with steady real estate segment sales, healthy growth in lifestyle business with new store addition and acquisition of Maini Precision Products Ltd (MPPL). This will support 10-15% growth in overall sales with EBITDA margin remaining at 12-13% with support from 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 with integrated operations and a strong retail network. Rationalised cost structure, tight control on working capital, improved cash flow management and healthy debt and cash surplus position after de-leveraging using FMCG business sale proceeds has led to net debt free status, healthy financial risk profile, and strong liquidity. Financial flexibility is also enhanced by owned land bank of 52 acres (excluding current development and that given to Thane Municipal Corporation) 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.

 

Raymond completed the acquisition of 59.25% stake in MPPL for Rs 682 crores on March 28, 2024 and will be included under the engineering segment. Further, the Board of directors of subsidiaries doing the engineering business viz. JK Files & Engineering Ltd (JKFEL),  JKFEL Tools and Technologies Ltd (JKTTL), Ring Plus Acqua (RPAL), MPPL, and associate company Ray Global Consumer Enterprise Limited (RGCEL, has become a wholly owned subsidiary), at their meeting held on May 01 through May 03, 2024 have approved consolidation of the engineering business under a single entity and segregation of the aerospace and defence business into a separate entity. Post the arrangement, JKTTL and RGCEL will become 66.3% subsidiary of Raymond holding the engineering and aerospace & defence businesses, respectively and RPAL and MPPL will cease to exist. The remaining 28.5% stake in these two entities will be held by the promoters of MPPL, and the balance by the minority shareholders.

 

The MPPL acquisition and the re-organisation is expected to strengthen the business risk profile of Raymond’s engineering business, building scale and would enhance capabilities in precision engineering products for automotive and aerospace sectors, with a significant presence across international as well as domestic markets. The purchase of stake in MPPL was funded through a mix of external debt (~Rs.300 crores) and internal accruals, and even after factoring additional debt including working capital debt of MPPL (~Rs. 300 crore), Raymond group has continued to remain net cash positive as of March 31, 2024 with gross external debt of Rs 1,726 crore and cash surplus of Rs 1,758 crore.

 

Earlier, on April 27, 2023, the company had announced the demerger of its Lifestyle businesses into RLL and convert RLL into a listed entity by issuing 4 shares of RLL for every 5 shares held in Raymond. RLL hence will house the lifestyle business comprising Branded Textile, Branded Apparel, Garmenting, and HV Cotton Shirting segments (representing ~70% share of the combined reported earnings before interest, tax, depreciation and amortization (EBITDA) of Raymond for fiscal 2024), besides working capital debt, and some long-term debt. Given net proceeds of ~Rs 2,200 crore (net of taxes and expenses) received from the sale of FMCG business by the associate company, RLL, being fully re-invested into the group and used for de-leveraging, the group now has a net debt free balance sheet and a strong financial risk profile. Post demerger of the lifestyle business into RLL, promoters will hold 54.87% stake in RLL, with public holding the remaining 45.13%. There will be no change in the shareholding of Raymond, where promoter shareholding will continue at 49.11%, and public will hold 50.89%, post listing.

 

The business risk profile of RLL will continue to benefit from the strong legacy of 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. RLL’s financial risk profile will be marked by strong debt protection metrics with mainly working capital debt, and healthy liquidity surplus thereby resulting in net debt free status. CRISIL Ratings expects the healthy traction seen in operating performance of the Lifestyle business to continue over the medium term while maintaining the healthy financials risk profile, post de-merger.

 

The continuing Raymond will house the engineering business which is strengthened post MPPL’s acquisition (representing ~8% share of reported EBITDA during fiscal 2024), and the joint venture denim business, Raymond UCO Denim Pvt Ltd (rated ‘CRISIL BBB-/Stable/CRISIL A3’). It will have acquisition debt of Rs 300 crore and MPPL’s working capital debt. The real estate business (representing ~23% of the reported EBITDA during fiscal 2024) will enjoy the financial flexibility with about 52 acres of development ready (excluding current development and that given to Thane Municipal Corporation) prime land in Thane, Mumbai, while having low real estate related debt (Rs.219 crore as of March-2024). This rating continues to be on ‘Watch with developing implications” pending completion of the de-merger process of real estate business along with requisite approvals, along with receipt of required documents from management and lenders. Further, the facilities pertaining to recently demerged lifestyle business continue to be rated as a part of Raymond, pending receipt of required documents from lenders.

 

The business risk profile of continuing Raymond is expected to be moderate compared to the consolidated entity, albeit having a healthy engineering business. In the engineering business, Raymond enjoys established market position in the tools & hardware, automotive components and aerospace & defense segments enjoying improving and healthy EBITDA margins. Also, while Raymond is a relatively newer entrant in the MMR region, it has demonstrated strong sales, collection, and construction traction by delivering 3 towers in the value “Ten X” project 2 years ahead of RERA schedule. Company is committed to grow in the MMR region only via asset-light JDA route and not resort to land purchases. It will continue to maintain a healthy liquid surplus.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Raymond and its 14 subsidiaries, including Raymond Luxury Cottons Ltd, JK Files & Engineering Ltd, Silver Spark Apparel Ltd, Ultrashore Realty Ltd, and Raymond Realty Ltd. CRISIL Ratings has also consolidated the newly acquired entity, MPPL, w.e.f. the fourth quarter of fiscal 2024 post receipt of regulatory and other approvals. This is because the entities are part of the diversified Raymond, some have strong business linkages, there is financial fungibility and all companies are under common management. Besides, CRISIL Ratings has also included Raymond’s share in the profits of its seven associates, including P.T. Jaykay Files Indonesia, JK Investo Trade (India) Ltd, Ray Global Consumer Trading Limited and Radha Krishna Films Ltd. The group is collectively referred to herein as RLL, 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 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 that was followed 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 1,065 retail outlets branded as The Raymond Shop (TRS) as on March 31, 2024, across India and abroad.

 

Diversified revenue streams, with good traction seen in real estate project: The group’s revenue profile is well diversified, with significant presence in branded textiles (36% of company’s revenue in fiscal 2024), branded apparel (17%), garmenting (11%), high value cotton shirting (9%), engineering (9%) and real estate (17%) 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 (9% share of revenue in fiscal 2024); 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%. Also, it holds ~50% volume share in the domestic ring gears market supplying passenger vehicle original equipment manufacturers (OEMs).

 

Raymond also forayed into real estate development on 20 acres of its own land piece in Thane in fiscal 2019, launching its value project (Ten X) on which it has sold ~91% of total inventory by March-2024. Subsequently, it launched more new projects in the value (Ten x Era) and premium categories (Address by GS, Address by GS2, and Invictus by GS) making healthy sales booking in each of them. In total, it targets to achieve ~Rs 9,000 crore sales on the 36 acres of own land bank on which it has already launched projects. Besides it continues to hold another 52 acres land having development potential of 7.4 mn sqft valued at ~Rs 16,000 crore.  With construction continuing at a healthy pace and delivery of 3 towers in the value (Ten X) project 2 years ahead of schedule as per RERA, the company recorded Rs 1,593 crore and Rs 1,115 crore in revenue during fiscal 2024 and fiscal 2023, respectively. The company is also focused on expanding in the residential real estate market in the Mumbai metropolitan (MMR) region through the joint development agreements (JDA), wherein has entered into four agreements to develop land parcels in Bandra, Mahim west and Sion having revenue potential totalling to about Rs 7,100 crore over the next 5-6 years and has successfully launched its Bandra JDA achieving bookings for 96 units within 40 days of launch. Contribution from real-estate to total revenue which stood at ~11% to the company in fiscal 2022 is expected to ramp-up to 16-17% over next 2-3 years.

 

Strong retail network: Having one of the largest retail store networks across India and overseas (1,065 The Raymond Store [TRS], 44 Made-to-Measure [MTM] stores, and 409 exclusive brand outlets as on March 31, 2024) 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. Company is enhancing its distribution reach and has opened 200+ stores in last 12 months on asset-light model and looking to expand further over the medium term.

 

Strong liquid surplus levels maintained over time: Raymond has maintained strong liquid surplus over the years which has helped them maintain sufficient cushion to meet any unforeseen needs. The company has kept liquid surplus in excess of Rs 500 crore even during the pandemic years. The liquid surplus has been bolstered over time as seen during October-2019 when 20 acres of legacy land parcel was sold as well as recent sale of FMCG business in April-2023. Liquid surplus levels improved to Rs 1,758 crore as of March 31, 2024 from Rs 958 crore as of March 31, 2022 (Rs 569 crore as of March 31, 2020). Cash surpluses are expected to remain strong even over the medium term after meeting capex and working capital requirements.

 

Healthy financial risk profile: Raymond’s financial risk profile has improved during the first six months of fiscal 2024 with repayment of external debt by utilization of FMCG business sale of proceeds. Total external debt halved to ~Rs 1,151 crore on September 30, 2023 from Rs 2,101 Thcrore on March 31, 2023 but increased to Rs 1,726 crore by March 31, 2024 owing to MPPL acquisition. Also, aggregate liquid surplus improved to Rs 1,758 crore as of March 31, 2024 from Rs 1,410 crore as of March 31, 2023. Company is expected to maintain healthy debt metrics with net debt free status and gearing (on external debt) is expected to remain below ~0.2 over the medium term with sustained healthy operating performance.

 

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 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 profitability 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 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+’), with various brands, including Louis Philippe, Van Heusen, Allen Solly and Peter England; Siyaram Silk Mills Ltd (‘CRISIL AA-/Stable/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 2,810 units booked as on March 31, 2024, in the 10 towers launched. Thereafter, it launched the “Address by GS, Adress by GS 2, and Invictus by GS” projects in the premium segment and “Ten X Era” project in the value segment. These launched projects on the 36 acres land, in total, are targeted to achieve ~Rs 9,000 crore sales over the medium term. Besides it continues to hold another 52 acres land having development potential of 7.4 mn sqft valued at ~Rs 16,000 crore. 

 

With construction continuing at a healthy pace and delivery of 3 towers in the value (Ten X) project 2 years ahead of schedule as per RERA, the company recorded Rs 1,593 crore and Rs 1,115 crore in revenue during fiscal 2024 and fiscal 2023, respectively. The company is also focused on expanding in the residential real estate market in the Mumbai metropolitan (MMR) region through the joint development agreements (JDA), wherein has entered into four agreements to develop land parcels in Bandra, Mahim west and Sion having revenue potential totalling to about Rs 7,100 crore over the next 5-6 years and has successfully launched its Bandra JDA achieving bookings for 96 units within 40 days of launch.. A project portfolio of a large size coupled with strong development plans, exposes the company to demand and implementation risks which are inherent in the residential real estate business.

 

Phase-wise booking, development strategy and tie-ups with reputed contractors reduce implementation and funding risks, leading to low reliance on external debt. However, with sizeable units being launched on owned land banks apart from new JDA projects, 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 surpluses of Rs 1,758 crore in mutual funds, fixed deposits and cash balance as on March 31, 2024. Bank limit utilisation was 32% on average during the six months through March 2024. 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 annual capital expenditure (capex) of Rs 200-250 crore, and term-debt repayments

Outlook: Stable

CRISIL Ratings expects the business risk profile of the lifestyle business of Raymond to remain strong over the medium term while maintaining the healthy financials risk profile, post de-merger.

Rating Sensitivity factors

Rating Sensitivity factors for facilities rated CRISIL AA/Stable/CRISIL A1+ and moving to RLL

Upward factors:

• Sustained substantial revenue growth in lifestyle business along with operating profitability of 13-14%
• 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

 

Rating sensitivity factors for facilities rated CRISIL AA-/RWDI

Upward factors:

• Strengthening of business risk profile through substantial increases in revenues with operating profitability of 25-30%
• Maintaining strong financial risk profile by sustenance of strong liquid surpluses ensuring net debt free status

 

Downward factors:

• Sluggish business performance, with moderation in operating profitability (below 16-18%)
• Slower-than-expected real estate sales pick-up or construction delays, or substantial moderation in engineering business margins
• Substantial increase in debt or reduction in liquid surplus due to organic or inorganic expansion, land purchases, dividends etc.

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, 2024, the promoters held 49% stake and public held 51% (including financial institutions).

 

Consolidated operating income for fiscal 2024 stood at Rs 9,020 crore with net profit at Rs 1643 crore, compared with revenue of Rs 8,234 crore and net profit of Rs 537 crore during last fiscal. The sharp increase in net profit during fiscal 2024 includes Rs 983 crore profits from sale of FMCG business.

Key Financial Indicators (Raymond Consolidated)

Particulars	Unit	2024	2023
Operating income	Rs crore	9,020	8,234
Adjusted profit after tax (PAT)	Rs crore	1,643	537
Adjusted PAT margin	%	18.2	6.5
Adjusted debt/adjusted networth*	Times	0.34	0.71
Adjusted interest coverage	Times	5.30	5.20

*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-2027	200	NA	CRISIL AA-/Watch Developing
NA	Term Loan*	NA	NA	30-Jul-2027	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/Stable
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	253.31	NA	CRISIL AA/Stable
NA	Proposed Rupee Term Loan	NA	NA	NA	250	NA	CRISIL AA-/Watch Developing
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

*facility type being Construction Finance