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Rejuvenating the Brand

Rebranding a legacy with financial discipline! | Initiate coverage with a BUY Raymond is an established apparel brand in India that resonates with consumers seeking premium apparel wear. However, despite its rich heritage, the brand’s market penetration has remained significantly underexplored. Over the last two to three years, the company has revitalized its standing through strategic initiatives such as: a) strengthening the senior leadership team across various management tiers (see exhibit 1); b) committing to technological advancements and instilling financial prudence with a healthy 21% reduction in Net Working Capital (NWC) over FY19-23 and turning net cash from peak net debt of INR16b; c) undertaking a comprehensive restructuring of the group’s structure by divesting the FMCG business and announcing the demerger of lifestyle business and real estate; and d) leveraging the brand and scale in each category to drive the quality of growth. These efforts are likely to be the key growth drivers going forward. We expect consolidated revenue/PAT growth of 10%/19% over FY23-25.

Demerger and promoter’s capital infusion are the key drivers

Raymond announced three key steps to restructure the group and reinforce promoter’s focus on the business. Firstly, it sold the FMCG business operated by Raymond Consumer Care Ltd (RCCL; owned 48% by Raymond and 50% by promoter) in an all cash deal of INR28b to GCPL (4.5x EV/Sales). Secondly, it announced the hive off of its Lifestyle business into RCCL; separating the consumer apparel business from the rest of the unrelated businesses viz., real estate and engineering. Thirdly, it infused cash of INR22b (adjusted for Tax), including the promoter’s stake in RCCL, into the Group. All these steps have helped in: a) deleveraging the balance sheet and creating healthy cash to drive growth, b) cleaning up the operating structure of respective businesses and c) reinforcing promoter’s confidence through its cash infusion of INR11b at a price of ~INR1,500/share.

Multiple growth levers in place

Raymond has a legacy collection of well-established brands, but yet it has remained under penetrated. It has now laid out a comprehensive strategy to leverage the full potential of brands within its portfolio: a) the branded apparel segment has undergone a restructuring process, with the company downsizing its loss-making EBOs and implementing tighter control over MBO channel sales. At a revenue base of INR13b (16% of revenue), we expect 20% revenue CAGR over FY23-27 by adding net 150 EBOs annually (currently, at 311 stores) with a focus on capex-light franchisee model for Raymond, Park Avenue, ColorPlus, Ethnix, and product extensions (such as Park Avenue casual and athleisure wear); b) the cash cow ‘branded textile business’ is expected to register a revenue/EBITDA CAGR at a moderate 7%/6% over FY23-27. The business demonstrates significant potential as the company addresses pricing gaps in the shirting segment through innovative designs; and c) the garment segment holds a strategic advantage with China+1 strategy, as most apparel brands seek to diversify. We expect 10% revenue CAGR over FY23-27, supported by new capacity expansion.

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