According to a Jefferies report, over FY16-18, the company had high capex due to the setting up of its Ethiopia and Amravati plants, store renovation and store-rollout expenses. In FY18, capex was around `400 crore, a significant portion to expand capacity in the B2B businesses.
Textile major Raymond is looking at reducing its debt by selling its Thane land and is targeting to be cash flow-positive by FY20, its chairman and managing director Gautam Hari Singhania said on Thursday.
The company has a debt of Rs 2,000 crore with an interest outgo of around `50 crore per quarter, but for Singhania that’s not a big worry. The Raymond board has approved development of a 20-acre project in Thane but most land deals have lots of issues in India, Singhania told a business news channel, adding that the company is at the end of the capital expenditure (capex) cycle and has no capex on the table. “The debt went higher owing to Amravati and Ethiopia expansions. If the company manages to sell Thane land it will be debt-free tomorrow. There is intent to monetise the land even if it takes three years or more,” he added.
To reduce debt, Singhania is also open to divestment of the auto business and hardware business. He is willing to sell all non-core assets but said it needs to see the correct amount of money. “If someone had offered me the correct price it would have been sold by now,” he said. On demerging the businesses, he said that selling is one of the options and there are other options on the table as well, adding that he is fully focused on shareholder value.
According to a Jeferries report, over FY16-18, the company had high capex due to the setting up of its Ethiopia and Amravati plants, store renovation and store-rollout expenses. In FY18, capex was around `400 crore, a significant portion to expand capacity in the B2B businesses. With major capex now behind, management has no such plans for FY19-20, and capex should taper off to `200-2,50 crore (for retail expansion, maintenance and expanding the auto-components capacity), leading to higher free cash flow generation.
In terms of cash flow and targets for FY20, Singhania assured that it will turn positive in FY20 and also, margin expansion is on the cards. Plenty of opportunities and new verticals for Raymond will grow. He said that there is big headroom in ethnic wear and believes in the Rs 5,000 crore market there is no reason why the company cannot capture 10% of it, which amounts to Rs 500 crore.
The company is looking at increasing its presence in rural markets and also plans to set up bespoke lounges. On consumption in India, Singhania said that it has not gone anywhere. Core focus continues to be on product and growing brand image. A big opportunity exists in the Indian market and the Indian consumption story hasn’t gone anywhere. He also said that GST is positive in the long run.
According to Singhania, branded products can absorb higher prices. Higher raw material costs make a company like Raymond focus more on operating efficiencies, he said. Raymond’s stock price has corrected by nearly 30% from the peak seen in May 2018. Singhania said that as a promoter, he is positive on the business and he is a buyer of his own stock at these levels. But the more important focus is on business and not on the stock price, he said.