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Jul 26, 2013, 12.20 PM IST | Source: CNBC-TV18

Inventories in place; see revival Q2 onwards: Raymond

Raymond always follows the path of hedging its exposure. So this is a temporary phenomenon of Rs 8 crore, excluding this component - then there is a healthy growth of 12 percent in EBITDA and the profit after tax (PAT) level

As a standalone entity where Raymond Textile is there, we grew by 15 percent with a significant reduction in loss at the profit before tax (PBT) level

M Shivkumar

CFO

Raymond

Textiles manufacturer Raymond Ltd yesterday posted its first quarter results. The company saw its net loss widen to Rs 49.68 crore in the quarter ended June 30.

M Shivkumar, CFO of Raymond says Rs 8 crore provision towards forex cover on an unexecuted export contract, which will get reversed in the next quarter on contract execution, had an impact on the bottomline this quarter. He expects volumes to improve in the second quarter. "Decline in official performance has bottomed out and we will be heading northwards from now onwards in the apparel segment," he told CNBC-TV18.

There has been a drop in the tools and hardware segment as the company is entering into price sensitive markets, particularly in Latin America and the African continent, he says. The inventory situation in the apparel segment has corrected adequately, he adds.

Also Read: Raymond Q1 net loss widens to Rs 49.68 cr

Below is the verbatim transcript of M Shivkumar’s interview on CNBC-TV18

Q: Your suiting and fabric business did okay but the pressure is seen in the apparel business, what is going wrong there?

A: As a standalone entity where Raymond Textile is there, we grew by 15 percent with a significant reduction in loss at the profit before tax (PBT) level. The topline was higher by 4 percent while loss is down by 10 percent. One of the important thing is this is largely due to provisioning of Rs 8 crore towards forex cover on unexecuted export contract, which will get reversed in the next quarter on contract execution.

What happens is Raymond always follows the path of hedging its exposure and we are a net earner of foreign currency. So this is a temporary phenomenon of Rs 8 crore, which we had to provide to follow the accounting standards - should we exclude this component - then there is a healthy growth of 12 percent in EBITDA and the profit after tax (PAT) level, there has been a significant decrease in the recognition of deferred tax assets over the corresponding period, hence the losses widened.

If you look at each of the segment, textile segment grew by 13 percent largely led by exports, Combo pack and the Makers brand. The sales growth in the retail outlet or The Raymond Shop (TRS) network was seen at 9 percent while the overall growth was placed at 15 percent. Domestic segment of the fabric business barring Makers and Combo pack remained at the same level as that of last year as there has been a concentrated effort to increase exports.

In the apparel segment, we are aware of the problem. Our efforts to consolidate operations continued for most of these quarters including frontend sales and distribution setup, right sizing of man power, healthy channel management with right sizing of inventory, outsourcing of in-house manufacturing activities, which we were carrying out and including the IT infrastructure.

In the distribution channel in the apparel business, the exclusive brand outlet and large format stores (LFS) registered 18 percent growth in the secondary sales outlet while underperformance was noticeable in the trade channel led by multi-brand outlets (MBO) and TRS.

Volume offtake is likely to improve in Q2. It will not be unreasonable to conclude that our decline in official performance has bottomed out and we will be heading northwards from now onwards in the apparel segment.

As far as garmenting segment is concerned, our business growth was led by exports and we held on to our profitability level. Engineering segment, there is auto segment which is affected by the automobile sector though we held on to the same levels as of last year. The tools and hardware segment, there has been a key drop because we are entering into the price sensitive market particularly in Latin America and African continent.

Our denim and shirting business improved. We continue to pursue our real estate activity.

Q: Are you confident of setting out a year-end sales target also for margins and whether your inventory situation has been corrected adequately?

A: The inventory situation in the apparel segment has corrected adequately. We have now built up inventories for the season with respect to other businesses also. So we expect better performance from Q2 onwards.

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