Raymond sees revival in loss making apparel biz in FY14

M Shivkumar, CFO of Raymond says a bad year for apparel business and huge inventories has resulted in huge loss for the textile manufacturer. “The increase in power and staff costs has impacted the industry,” he told CNBC-TV18 in an interview.

The textiles firm reported big drop in consolidated net profit at Rs 61 lakh for the fourth quarter ended March 31, 2013, versus a net profit of Rs 3.17 crore in the same period of previous fiscal.

The company posted a net profit of Rs 28.73 crore as against Rs 155.78 crore in the previous financial year.

Raymond has made significant investments in expansion and expects to reap benefits from the changes in channel sale mix. Net sales of the company rose to Rs 1,069.02 crore for the fourth quarter as against Rs 948.95 crore in the same period of previous fiscal.

“We expect the apparel business to see a revival in FY14,” Shivkumar said adding, Raymond continues to invest in brand promotion and retail expansion.

Commenting on the company’s plan to sell a 9.4-acre plot in Thane, which suffered a setback after the developer it was in talks with backed out, Shivkumar says the firm has put a concentrated team in place for the sale and expects the deal to fructify before 2014-end. However, he adds that no timeline has been finalized for the sale yet.

Q: Let us start with the bottom-line performance because your EBIT level performance is lower in textiles and there is an EBIT loss in the garments business. Can you take us through when you will see meaningful recovery in this bottom-line matrix?

A: Let me first summaries how the results have panned out during the quarter and for the year. In the last three years we have been pursuing the path of growth aggressively and made significant investments in infrastructure and increased the retail presence including in human resources.

However since the last one quarter Gross domestic product (GDP) has been slowing, inflation in excess of 10 percent, high interest rates. All of it resulted in discretionary spends contracting resulting in fall in consumer demand coupled with depreciating rupee and high wool prices. We were paying Rs 400 per KG two years back for the kind of microns that we were buying. Today it is Rs 700 per KG coupled with strong Australian dollar necessitated as to pull back a little from a brand investment perspective.

So, the sale in the fabric side of the business, which is Raymond Textiles, both the volume and the average sales price have more or less been stagnant in this year. Barring the two new things that we introduced, which is combo pack and the Makers brand. This has significantly increased the volume by more than 5.6 million meters.

Combo pack is about Rs 80-90 crore band and Makers is about Rs 100 crore brand, within two-three years period. We have been able to introduce this brand.

When one looks at the cost side there is a huge inflation, with inflation there is increase in power and utility cost and increase in the material cost. All of it resulted in some amount of drain from a textile perspective. Including that we had to shift certain part of our manufacturing plants as we did two years back Mumbai to Jalgaon, which is involving 7 million meters. So, the capacity could not be fully utilized. All of it resulted in decline in profitability.

If you go to the apparels segment it has been a very bad year for apparel. We had to resort to huge discount sales to liquidate excess inventory. So, it resulted in erosion of margins and that has been a complete washout during the year, but we hope that things will completely change in the coming financial year.

We also made lot of changes in the channel mix to reach the consumer, which had some effect and it had some transition issues. However, all of it has now been resolved. Raymond Premium brand, which we introduced two years back, in a matter of about three years we are now Rs 125 crore brand in terms of sales.

Going forward this brand will be positioned to take on the competing brands. Garmenting segment, which is our company called Silver Spark has been doing very well with very healthy order book. A good amount of dollar appreciation has brought in good amount of turnover and profitability as well.

Q: What about the apparel segment turnaround, do you see that happening? Any early signs of that or will that continue to be a drag this year?

A: In Financial year 2014 we expect much better period. Financial year 2013 is not comparable it is the year of consolidation for us. We concentrate because of huge inventories. One season haven't performed to our expectation is autumn 2011. This has resulted in lot of problems in terms of huge inventories.

So, we can say that this financial year 2012-13 for many of our businesses is a year of consolidation with focus on liquidity profitability and growth. That too besides improving operational efficiency through supply chain initiative, cost rationalization and consolidation of backend infrastructure across all brands. These will give our investment a brand building, which will continue now which was pulled back a little last year along with retail expansion. We also will do lot of things to enhance consumer experience. That will provide us with a platform to look for better times ahead.

Q: Any updates on the thane land sale? Do you think in FY14 you will be able to unlock any value from real estate?

A: We have initiated, now we have a full-fledged team in place. Land is one thing and when you wait for long time the gain is also immense. So, waiting is painful but all these years what we have been doing to make the entire pasture of land contiguous will give us rich dividends going forward.

If you look at 145 acres of land with some schools etc, you take it out, the value is upwards of Rs 3000-4000 crore at this juncture. When you develop certain part of the parcel of land, the value can be immense.

Q: But do you think you will be able to monetize some value in FY14?

A: It is going to be through a combination of some we will develop in-house, some we will go for joint venture, some we will go for collaboration, some we will get equity partners into it. Master plan is under preparation and it is too early for me to say whether this year we will do it or not. Certainly before next year it will happen.

One thing, which is very important for this year, while we showed a profit after tax in Q4 of about Rs 61 lakh is mainly on account of reversal of deferred tax asset provisioning. This is due to rigid accounting standards and we had to do it because it is a concept of virtual certainty. It is difficult to say next year will be profitable or not though we can always say based on the trends available that it will be better from Q2 onwards.

So, we had to follow a very prudent accounting practice and that is the reason why we have reversed about Rs 30 crore. This is why our profits had actually come down significantly in Q4.