Margins have been maintained in the textile business and with major gains in cement as well as the shift to higher value-added products in its silicon steel business have pushed up profitability. The cement business is now considered to be among the more efficient in the industry, being amongst the lowest cost producers. Despite the increase in contribution from the division the topline growth from the division was negative. The imposition of a floor price on silicon steel in the last quarter of the financial year proved to be very beneficial as realisations and margins improved. The silicon steel industry has no demand constraints vis a vis locally available capacity;hence the strong position here. With the textile business also being in value-added products, there was an over all improvement in margins from 16 per cent to 20 per cent. However, the steel business is the weak link in the company's area of operation. Last year Raymonds could not escape the threat of dumping of steel on its margins. The improvement in operating margins, the reduction in net working capital needs (excluding loans & advances and other current assets) as well as lower interest costs led to a huge improvement in the free cash flows. The improvement was such that the company could repay Rs 67 crore worth of loans as compared to a net inflow of Rs 177 crore from borrowings during the previous year.

This was achieved despite gross revenues increasing only marginally over the previous year.

A major blemish that the company carries is with regard to its subsidiary companies. Cumulatively, these subsidiaries carry investments and outstanding loans to the extent of Rs 153 crore, which earns nothingfor Raymonds, which is against the interest of its shareholders. There are improvements taking place and the changes being effected by a number of corporate groups vis-a-vis their inter-group investments, which Raymonds could emulate. Groups such as the Kirloskars have been consolidating investments out of group companies. The AV Birla group has restructured their corporate investments in Birla Global Finance, releasing group companies' funds. Raymonds could utilise funds flow from such restructuring to repay its still large outstanding debt. Servicing debt alone consumed almost half the annual operating profit. However, the stock market's basic perception of Raymonds has not really improved. The valuations are still at roughly seven times its historical earnings, and the stock still is subject to wild swings in price.

In this context, sale of steel business, will lead to a reduction in debt as well as an improvement in profitability and return on capital. In addition, the reorganisation of its investmentand advances portfolio will make all the difference to the market perception and the valuation of Raymonds. The dithering over the sale of the steel division has led to a significant downward rating of the stock, considering that the sale was mentioned in the 1997-98 annual report at Rs 400 crore, but nothing concrete has materialised for over a year now, amid reports that the Thyssen the German buyer found the asking price too steep.

--Aaron Chaze