Gautam Singhania, 57, must be feeling a sense of déjà vu. History is repeating itself at the century-old Raymond group as it transitions into a conglomerate.
At the cusp of the millennium, India’s best known men’s clothier was teetering on the brink of disaster. Having diversified into several unrelated areas such as cement and steel, and bleeding cash, the company was being crushed under the mounting pile of debt.
This was the state of Raymond, when a young Gautam took over as the Chairman and Managing Director in 2000. Over the next 3-4 years, he effected a turnaround by divesting all the non-core businesses that were dragging the company down. The cement business was sold to Lafarge, steel to Thyssenkrupp and its polyester business to Reliance Industries. Dues were paid and Raymond became a zero-debt company. It went back to focusing on its core textiles business while retaining the FMCG portfolio.
And now, something remarkably similar is playing out in the group, though with none of that desperation. Singhania is back to restructuring, but this time, with a clear blueprint. He is giving the group a complete makeover by creating distinct lines of businesses that will be separate, independent entities. The clothier’s next phase of growth will be powered by real estate, lifestyle and engineering.
Fashioning change
Prior to Covid, and going into the pandemic, Raymond was struggling with debt, single digit EBITDA margin, and low return on capital employed, almost half of what it was more than two decades back. In 2000, the company’s ROCE was 8.5 per cent. By 2020, it came to 4.9 per cent.
“In 2020, when we had just been struck with Covid, things were very difficult,” recalls group CFO Amit Agarwal. “We thought we would create a seven-year road map till 2027.” The roadmap was to make sure of the kind of businesses the company wanted to be in, the revenue and profitability that could be achieved with a good growth. The idea was to stay in those businesses where it could be among the top three players in that segment. “If we are not in the top three, we will either find ways to get there in 18 to 24 months or we will find a way to exit that business,” says Agarwal.
The most important goal, however, was to unlock shareholder value which could only be achieved by splitting up the distinct businesses. With all businesses grouped into one entity, there was too much ‘noise’ and no clarity on capital allocation for individual businesses or on expenses.
A year before the pandemic, the company had decided to enter the real estate sector as it had vast tracts of land — of over 100 acres — in Thane. But first, it had to reduce its debt burden. “Until we could pare down the debt, we could not do the restructuring,” says Singhania.
In 2019, the company sold 20-acres of land to Xander-backed Virtuous Retail South Asia, as part of its asset monetisation programme, to improve its cash position and reduce debt. However, more was required.
In April 2023, the company sold its FMCG business — consisting of Park Avenue, Premium, KS and Kamasutra — to Godrej Consumer Products for ₹2,825 crore in an all cash deal. “We made a good deal on the FMCG business, we got the cash to pay off our debt,” noted Singhania. Raymond’s balance sheet became net cash positive with ₹1500 crore in cash balance.
Although it had good brands in its portfolio, Raymond exited the FMCG business because it did not see the ability to grow it.
However, it saw the potential for growth in the engineering business. Raymond already had a business in the segment under JK Files & Engineering — a listed entity engaged in the business of manufacturing, sale and distribution of engineered components. It bolstered this with the acquisition of a majority stake in Maini Precision, expanding its auto components range with entry into electric vehicles.
Pure-Play Pattern
The idea for the de-mergers was identified very clearly, says Agarwal, adding, “If you have to unlock a larger shareholder value, the investor community likes to see pure-play businesses.”
Having standalone pure-play entities with focused businesses would make it easier to raise capital, attract investors and talent while the cost of raising capital would also go down.
Last year the company started the process of demerging its he lifestyle business into Raymond Lifestyle, which was completed in June this year. The company is expected to list in about two weeks. This includes all the products associated with Raymond — branded apparel, suiting, shirting, garmenting and the brands Color Plus, Parx, Park Avenue, Ethnix and the flagship Raymond brand.
What the demerger achieves is to give the company the liberty to play the brand architecture and product architecture strategy in a much more aggressive and sharper way, says the CEO Sunil Kataria.
While branded fabrics are its mainstay, ready-to-wear, casuals and the recently introduced Ethnix lines are also rapidly catching up. It is experimenting with more youthful lines under its Park Avenue brand, even as it is rolling out high-end t-shirts, cargoes and making an entry into the loungewear segment as well. It also has a B2B business where it makes garments for global brands. The China-plus shift has benefited the company in a significant way as brands are coming to India for their production. The recent political upheaval in Bangladesh is another event where the company stands to gain as the neighboring country is a big player in the segment.
In the engineering business it has created two subsidiaries under Raymond Ltd — one focused on aerospace defence and the other on auto ancillaries and engineering consumables. Both will continue to remain subsidiaries until they attain a certain scale after which they may also become independent entities.
Raymond Realty
Spinning off the real estate business took more time, as Singhania and the management believed that any business to be demerged into a standalone entity had to stand on its own feet. The de-merger of the real estate business into Raymond Realty was announced in July, and the company is expected to list next year once all approvals are through.
A recent entrant in the sector, the company forayed into realty as it had the necessary raw material – acres of land – to hand. Of the 100 acres it owns, around 40 acres are already under development. From Thane, where it has the land, it is moving more inland to Mumbai where the company has around 4-5 joint development projects. The company estimates that it has a total potential to generate ₹32,000 crore from this sector.
The de-merger has given the real estate business its own identity, which can attract a potential investor, says segment CEO Harmohan Sahni. He adds that the business has grown rapidly.
Apart from residential buildings, there are plans to get into commercial development also but with an investor while it is looking to foray into the Pune market as well.
The company has neatly stitched together a transformative strategy. Will its ambitious new pattern work?