Raymond - In line performance - PhillipCapital

Raymond Q2FY13 consolidated results were in line with expectations (adjusted for exceptional items) with top line growth of 14% exceeding estimates. Adjusted for VRS expense, PAT stood at Rs 597mn .The key takeaways of the results are:

Realisation led growth in textile business: Textile business grew by 11% at Rs 5.52bn driven by higher realization both at domestic as well as export market. However, margins were impacted on account of input cost pressures specifically power cost and higher proportion of exports (largely unbranded) in the revenuemix. Mangement indicated that the benefit of softening of wool prices will flow largely from FY14E.

Branded Apparel segment impacted by weak sentiments: As expected, poor consumer demand influenced the performance of the branded apparel segment. However, it managed to clock EBITDA of 10% as against loss in Q1FY13 despite company's focus on liquidating old inventory. We note that the company has write off inventory during the quarter to the extent of Rs 50mn.

Strong performance in B2B segment barring Denim: Denim segment registered muted growth of 2% while shirting fabric and garmenting segment continue to report accelerated growth of 41% and 64% respectively. These segments have witnessed strong margin expansion backed by correction in cotton prices and rupee depreciation.

Improved working capital: Company's consolidated inventory levels have been reduced by nearly 2 weeks; consequently its gross debt and interest costs have remained stable. Management stated that it would need one more season sale in January 2013 to reach comfortable level of inventory, till then the overhang of inventory will persist.

Management Outlook and highlights of conference call: (a) Management expects margins for FY13E to be lower than last year as in the inflationary environment it will be difficult to pass on any further price increase to the consumer. (b) During the quarter, Export market across the segments has shown healthy growth, Company has been able to strengthen its relationship and increase its business without taking any price cuts in foreign currency. (c) Management indicated that the festive season till now has been in positive direction; however puja season in the east has been pretty much average. (d) Exceptional expense of Rs 130mn will be charge in next quarter relating to VRS of employees in retail vertical.

Valuation: The stock currently trades at 13x its FY14E earnings. We have already factor in Input cost pressures and moderate wedding and festive season in our estimates (which remain unchanged) across business segments translating to 13% growth in FY13E and 11% in FY14E. We believe that at current valuations, the stock is fairly priced and hence revise our recommendation to Neutral from Buy maintaining our target price of Rs382.

Source : Equity Bulls

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