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Nath Balakrishnan

FRESH exposures can be considered in the Raymond stock, which now quotes at Rs 92. The stock holds potential for appreciation in the medium term.

Financials

In 2002-03 the top line growth (excluding other income) was rather sedate, at about 5 per cent. The higher level of increase in net profit after tax on a year-on-year basis was aided by an interest income of Rs 13.9 crore in the just-concluded fiscal compared to an interest outgo of Rs 25.2 crore for the year ending March 2002.

At the operational level, the denim division reeled in a sharp rise in profits. As a percentage of sales, the margins for the denim division are close to 17 per cent compared to 12.4 per cent the previous year. The company doubled its denim capacity to 20 million metres in 2002-03 and exports much its production. Growth in exports would mean improved operating margins as realisations are better compared to domestic markets.

The margins in the mainstay textile business (which contributes more than 70 per cent to the company's revenues) continue to remain at about 14 per cent. Raymond is one of the leading players in the worsted suiting fabric market (wool and wool blends) and exports its offerings to more than 50 countries.

The reduction of duties on wool imports announced in the recent Budget should benefit Raymond. The effect of the duty cut was not fully captured in the financial just past. It should manifest itself to greater effect going forward and provide a fillip to the operational profitability of the textile division.

Readymade, the growth driver

The growth driver in the time to come would come from readymade garments, where Raymond has a strong presence through brands such as Park Avenue and Parx, among others. The garments segment also carries the potential of higher growth rates compared to the more mature other businesses. The acquisition of the Chennai-based Color-Plus last year also rounds off Raymond's product offerings and gives it a strong presence in the super premium category. The impact of the acquisition will be felt fully this fiscal.

After exiting the cement and steel businesses, Raymond has the financial muscle to actively pursue acquisition plans to strengthen its position in the textiles and the readymade business.

Valuation

The stock trades at a multiple of 6.3 times its year-ended March 2003 earnings per share. The company has declared a dividend of Rs 4.5 per share that translates into a dividend yield of about 5 per cent.

Considering the company's standing in the various businesses it operates in and the prospects, it could prove to be a good medium-term bet.

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