Detailed Rationale CRISIL Ratings has removed its ratings on the long-term bank facilities amounting Rs 1,438.31 crore of Raymond Ltd (Raymond) from ‘Ratings Watch with Positive Implications’ and upgraded its rating to ‘CRISIL AA’ from ‘CRISIL AA-‘ and assigned a 'Stable' outlook. 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)’. Further, its ratings on Rs 250 crore proposed rupee term loan facilities, which will now be continued with Raymond instead of RCCL earlier, have been revised to ‘Rating Watch with Developing Implications’ from 'Rating Watch with Positive Implications’. 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+'
CRISIL Ratings has also withdrawn its rating on Rs 275 crore non-convertible debentures (NCDs). CRISIL Ratings has also upgraded, removed from ‘Watch Positive’ and withdrawn the proposed rupee term loan facilities amounting to Rs.348.69 crore (both of which were not placed) at the company's request. Besides, CRISIL Ratings has also withdrawn its rating on Rs.100 crore term loan facility on receipt of ‘no dues certificates’ (NDC) from the banker. This is in line with CRISIL Ratings’ withdrawal policy
The rating upgrade follows improvement in the business risk profile of Lifestyle business, which will be housed with RCCL, post de-merger, through fiscal 2023 and expected to be continued over the medium term. Besides, the rating is also supported by the improvement in the financial risk profile post reduction in external debt carried out during the first quarter of this fiscal using sale proceeds received post the sale of the Raymond group’s fast moving consumer goods (FMCG) business.
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. RCCL’s financials risk profile will be marked by strong debt protection metrics with only 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.
CRISIL Ratings also notes the recent news of a probe by The Directorate General of GST Intelligence on the sale of FMCG business by the Raymond group and will continue to monitor any material cash outgo in that regard.
Earlier, on April 27, 2023, Raymond had announced the slump sale of the FMCG business operated through its 47.66% held associate company, RCCL to Godrej Consumer (GCPL, rated, CRISIL A1+’) for Rs 2,825 crore with plans to use part of the net sale proceeds of ~Rs 2,200 crore for debt reduction at Raymond. Thereafter, Raymond has received the part sale proceeds from RCCL and prepaid external debt resulting in halving of external debt to ~Rs 1,071 crore on June 30, 2023 from Rs 2,101 crore on March 31, 2023. Further reduction in debt is also expected in the near term. Also, aggregate liquid surplus has improved to Rs 1,806 crore as of June 30, 2023 from Rs 1,410 crore as of March 31, 2023. CRISIL Ratings continues its engagement to monitor the de-merger progress, take business updates, and understand the complete details of assets, and liabilities post de-merger.
On April 27, 2023, the company had also 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 earnings before interest, tax, depreciation and amortization (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 is expected to have a net debt free balance sheet and a strong financial risk profile. 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 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 52 acres of development ready (excluding current development and that given to Thane Municipal Corporation) prime land in Thane, Mumbai; this rating continues to be on ‘Watch with developing implications” pending completion of the de-merger process.
The business risk profile of the continuing Raymond is expected to be moderate compared to the consolidated entity, albeit marked by healthy presence in the real estate business with diversification benefits of a healthy engineering business. In the engineering business, Raymond enjoys established market position in the tools and hardware and automotive components segments enjoying steady 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. Financial risk profile of continuing Raymond is expected to be remain healthy with net debt free status and healthy financial flexibility with healthy cash surplus and 52 acres of development ready prime land bank. 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.
CRISIL Ratings will also continue to monitor the business restructuring process which is subject to regulatory and other approvals and will take another 6-9 months to complete. CRISIL Ratings will resolve the watch following detailed discussion with management, completion of de-merger, further clarity on business and financial profile of the demerged business.
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 improved cash flow management has led to lower net debt and better debt metrics; for instance the ratio of net debt to EBITDA 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 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. Liquid surpluses have improved 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.
Further, revenue in the seasonally weak, first quarter of fiscal 2024 grew by 3% to Rs 1,771 crore with support from lifestyle segments while EBITDA margin stood at 9.5% mainly owing to reduced sale from high-margin real estate segment. Operating performance is expected to ramp in the second half of this fiscal with new project launches in the real estate segment, healthy growth in lifestyle with new store addition and engineering segments driving the improvement leading to 10-12% growth in overall sales with EBITDA margin remaining at 12-13% with 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 52 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 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 1,054 retail outlets branded as The Raymond Shop (TRS) as on June 30, 2023, 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 (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%. Also, it holds ~50% volume share in the domestic ring gears market supplying to passenger vehicle original equipment manufacturers (OEMs).
A few 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 81% 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 83% booking till June-2023. The company has also received healthy booking in its new value project (Ten X Era) launched in Feb-2023 and received 213 booking by June-2023. It has also recently launched two new premium projects viz. ‘Address by GS 2’ and ‘Invictus’ targeting sales value of ~Rs 2,400 crore spread over 4-5 years. 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 (1,054 The Raymond Store [TRS], 42 Made-to-Measure [MTM] stores, and 311 exclusive brand outlets as on Juen 30, 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. Net store closures (net addition of new stores less store closures) stood at 135 in fiscal 2022 and 58 in fiscal 2023, with the company continuing with its cost-rationalisation measures.
Strong liquidity Liquidity is strong and supported by large, unencumbered liquid investments and cash of Rs 1806 crore as on Juen 30, 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 July 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.
Healthy financial risk profile Raymond’s financial risk profile has improved during the first quarter of fiscal 2024 with repayment of external debt by utilization of FMCG business sale of proceeds. Total external debt has halved to ~Rs 1,071 crore as on June 30, 2023 from Rs 2,101 crore on March 31, 2023 with further reduction expected in the near term. Also, aggregate liquid surplus improved to Rs 1,806 crore as of June 30, 2023 from Rs 1,410 crore as of March 31, 2023. Company is expected to maintain debt metric with net debt free status and gearing (on external debt) expected to remain below ~0.2 over the medium term with sustained healthy operating performance.
Earlier, in fiscal 2023, the financial risk profile had shown a strong improvement through 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. Monetisation of the FMCG business, with proceeds being used to retire debt, has resulted in further improvement in debt metrics with gearing (on external debt) improving to ~0.3 times. Debt metrics are expected to remain strong over the medium term, supported by 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+/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 2,553 units booked as on June 30, 2023, in the 10 towers launched. During fiscal 2022, it also launched the “Address by GS” project on 6 acres (totaling 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 475 bookings on the 549 units launched as on June 30, 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. It has also recently launched two new premium projects viz. ‘Address by GS 2’ and ‘Invictus’ targeting sales value of ~Rs 2,400 crore spread over 4-5 years. 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 surpluses of Rs 1,806 crore in mutual funds, fixed deposits and cash balance as on June 30, 2023. Bank limit utilisation was 45% on average during the six months through July 2023. 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 significant portion of long-term debt and annual capital expenditure (capex) of Rs 200-250 crore. |
Outlook: Stable CRISIL Ratings expects the business risk profile of the lifestyle business of Raymond to remain healthy over the medium term 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 RCCL Upward Factors
Downward Factors
Rating sensitivity factors for facilities rated ‘CRISIL AA-/RWDI’ 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 March 31, 2022, the promoters held 49% stake and public held 51% (including financial institutions).
Consolidated operating income for the first quarter of fiscal 2024 stood at Rs 1,771 crore with net profit at Rs 1067 crore, compared with revenue of Rs 1728 crore and net profit of Rs 82 crore during the same period last fiscal. The sharp increase in net profit during the first quarter of fiscal 2024 includes Rs 983 crore profits from sale of FMCG business. |
Key Financial Indicators (Raymond Consolidated)
*excluding lease liabilities |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
@Interchangeable with letter of credit, bank guarantee, buyer’s credit and suppliers’ credit *Facilty type being Construction Finance
Annexure - Details of Rating Withdrawn
**Yet to be placed |
Annexure – List of Entities Consolidated
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@Interchangeable with letter of credit, bank guarantee, buyer’s credit and suppliers’ credit
*Facilty type being Construction Finance
Criteria Details
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