Raymond Limited Rating Action
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale CRISIL Ratings has withdrawn its ‘CRISIL AA/Stable’ rating on the long-term bank facilities amounting to Rs 1438.31 crore and short-term debt facilities totaling Rs 820 crore of Raymond Ltd (Raymond), as these are the facilities that have moved to Raymond Lifestyle Ltd (RLL; erstwhile Raymond Consumer Care Ltd) post the demerger of the Lifestyle business of Raymond. The ‘CRISIL A1+’ rating on Rs 550 crore of commercial paper, have also been withdrawn on request of the company. The rating on Rs 520 crore long-term bank facilities with Raymond have been withdrawn post request of no dues certificate and on request of the company. The balance Rs. 200 crore long-term bank facilities with Raymond continues on ‘Watch Developing’ and has been subsequently withdrawn at the request of the company and on receipt of no objection certificate from lenders. The withdrawals are in line with the CRISIL Ratings policy on withdrawal of ratings.
The rating action on the facilities that have moved to RLL follows completion of the demerger process of RLL, and receipt of the required documents from the management and lenders. The scheme has become effective on filing certified copy of the order of the National Company Law Tribunal (NCLT) dated June 21, 2024, with the Registrar of Companies on June 30, 2024. Vide order dated June 21, 2024, the NCLT has approved the scheme of arrangement between Raymond and RLL and Ray Global Consumer Trading Ltd and their respective shareholders with appointed date of April 1, 2023. Hence these ratings have been withdrawn from Raymond.
Further, the Rs. 200 crore long-term bank facilities of Raymond continue on watch developing on account of the vertical demerger of the real estate business of Raymond into its wholly owned subsidiary, Raymond Realty Ltd (RRL). Post this de-merger, Raymond will then house the engineering business and the denim joint venture (JV).. These demergers align with the 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, the promoters will hold 48.87% stake in RRL, with public holding the remaining (51.13%). There will be no change in the shareholding of Raymond.. This rating continues to be on ‘Watch developing’, led by pending completion of the demerger process of real estate business along with requisite approvals, clarity on balance sheet and profit and loss post-demerger.
Post lifestyle demerger, Raymond reported consolidated revenue of Rs, 1982 crore in the first half of fiscal 2025, (110% on-year growth; Rs 943 crore in the first half of fiscal 2024). The engineering segment posted revenue of Rs 864 crore (111% on-year growth; Rs 410 crore in the first half of fiscal 2024). The engineering segment witnessed growth driven by consolidation of Maini Precision Products Ltd (MPPL) post-acquisition (acquisition of 59.25% stake in MPPL for Rs 682 crore on March 28, 2024), while other segments remained flattish amidst subdued exports markets. Real estate business (revenue of Rs 1,059 crore, 122% on-year growth) witnessed particularly high demand for residential projects in Thane and Bandra joint development agreement (JDA; launched in February, 2024). The company achieved an earnings before interest, taxes, depreciation, and amortisation (Ebitda) of Rs 217 crore for the first half of fiscal 2025 (113% on-year growth; Rs 102 crore in the first half of fiscal 2024). The Ebitda margin stood at 11.0%, slightly lower than anticipated due to marketing and initial costs associated with new real estate projects in Bandra.
The ratings continue to reflect the company’s diversified revenue streams, strong market share in key engineering products (files and ring gears), increasing presence in sunrise electric vehicle and aerospace segments and good traction in the real estate project with integrated operations. Rationalised cost structure, tight control on working capital, improved cash flow management and healthy debt and cash surplus position after deleveraging using fast moving consumer goods (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 intense competition and susceptibility to demand and implementation risks associated with the real estate projects.
The board of directors of subsidiaries doing the engineering business viz. JK Files & Engineering Ltd, JKFEL Tools and Technologies Ltd (JKTTL), Ring Plus Acqua (RPAL), MPPL, and associate company Ray Global Consumer Enterprise Ltd (RGCEL), 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 (completed in March, 2024) and the reorganisation 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. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Raymond and its various subsidiaries. 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. Subsidiaries pertaining to the demerged lifestyle business are no longer consolidated, post successful completion of demerger.
Besides, CRISIL Ratings has also included Raymond’s share in the profits of its various associates. Associates pertaining to demerged lifestyle business are no longer included, post successful completion of demerger.
CRISIL Ratings is moderately consolidating, Raymond UCO Denim Pvt Ltd (Raymond UCO), the 50:50 JV, by adjusting investments and networth and allowing for prospective support required. This is because Raymond and its JV partner, Belgian-based denim major, UCO NV have been equally supporting the entity with necessary financial and managerial support. Other JVs have also been moderately consolidated.
Goodwill and other intangibles arising on consolidation of MPPL with effect from March 28, 2024, have been amortised over a period of 5 years and 10 years, respectively .
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: Diversified revenue streams, with good traction seen in real estate project Raymond operates in the engineering segment (45% share of revenue in the first half of fiscal 2025); 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 (automotive 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. The engineering segment has been further bolstered by MPPL acquisition, building scale and enhancing capabilities in precision engineering products for automotive and aerospace sectors, with a significant presence across international as well as domestic markets.
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 ~95% of total inventory till September 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 million square feet (mn sqft) valued at ~Rs 16,000 crore. With construction continuing at a healthy pace and delivery of three towers in the value (Ten X) project two years ahead of the RERA schedule, the company recorded revenue of Rs 1,593 crore and Rs 1,115 crore during fiscals 2024 and 2023, respectively. The company is also focused on expanding in the residential real estate market in MMR through the JDA, wherein has entered into four agreements to develop land parcels in Bandra, Mahim west and Sion having revenue potential totaling 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 (23% units sold till September 2024). Contribution from real-estate to total revenue, which stood at ~55% to the company in the first half of fiscal 2025, is expected to ramp up over the years.
The business risk profile of continuing Raymond is moderate compared to the consolidated entity, albeit having a healthy engineering business. In the engineering business, Raymond enjoys established market position in the tools and hardware, automotive components and aerospace and defense segments enjoying improving and healthy Ebitda margins. Also, while Raymond is a relatively newer entrant in Mumbai Metropolitan Region (MMR), it has demonstrated strong sales, collection and construction traction by delivering three towers in the value Ten X project two years ahead of Real Estate (Regulation and Development) Act, 2016 (RERA) schedule. Raymond is committed to grow in MMR only via the asset-light JDA route and not resort to land purchases. It will continue to maintain a healthy liquid surplus.
Strong liquid surplus levels maintained over time Raymond has maintained strong liquid surplus over the years that helped 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 the FMCG business in April 2023. Post lifestyle demerger, Raymond had cash and cash equivalents of over Rs 1,500 crore as of September 2024. Cash surpluses are expected to remain strong even over the medium term after meeting capital expenditure (capex) and working capital requirements.
Healthy financial risk profile Raymond’s financial risk profile has improved with repayment of external debt by utilisation of FMCG business sale of proceeds in fiscal 2024. Total debt stood at Rs 906 crore as of September 2024 while the entity continued to be net-debt free, with cash surplus of over Rs 1,500 crore. The company is expected to maintain healthy debt protection metrics, with net debt free status and gearing (on external debt) is expected to remain at healthy levels over the medium term with sustained healthy operating performance.
Ex-lifestyle Raymond houses the engineering business that is strengthened post MPPL’s acquisition, and the JV denim business, Raymond UCO Denim Pvt Ltd (‘CRISIL BBB-/Stable/CRISIL A3’). It has 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 financial flexibility with about 52 acres of development ready (excluding current development and that given to Thane Municipal Corporation) prime land in Thane, while having low real estate related debt (Rs 219 crore as of March 2024). Any large debt-funded inorganic acquisition shall remain a key monitorable.
Weaknesses: Intense competition in the engineering business The group operates in a market where most of the demand is met by large, organised players, and the balance by small local players. Large domestic and international players have high technical expertise and a strong market position in all product offerings. The extent of value addition differs between the products and hence, profitability tends to vary with any change in the product mix. In the unorganised segment, the group faces competition from several small players offering products with lesser technological expertise. A slowdown in the capex cycle or growth of end-user industries exerts additional pricing pressure. However, longstanding presence and strong brand helps the Raymond group to compete in the market.
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 mn sqft 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 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. 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 remain monitorable. |
Liquidity: Strong Liquidity is supported by sizeable, unencumbered liquid surpluses of over Rs 1,500 crore in mutual funds, fixed deposits and cash balance as on September 30, 2024. Bank limit utilisation was ~70% during the July & August 2024 (post-demerger). Cash surpluses are expected to remain strong even after annual capex and term-debt repayments. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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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 September 30, 2024, the promoters held 49% stake and public held 51% (including financial institutions). |
Key Financial Indicators (Raymond consolidated)
#post demerger of lifestyle business; not comparable with fiscal 2023 numbers. Estimates applied to arrive at key numbers. *excluding lease liabilities |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Facility type being construction finance |
Annexure - List of Entities Consolidated
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@Interchangeable with letter of credit, bank guarantee, buyer’s credit and suppliers’ credit
Criteria Details
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