Raymond Result Update: Provisioning Impacted EBITDA; Better Times Ahead - Karvy

Raymond Q4FY13 revenue and EBITDA grew 13% & 23% to Rs. 10,814 mn & Rs. 980 mn respectively while net profit declined 81% to Rs. 6 mn on deferred tax payments. During Q4FY13, Raymond has done a provisioning of Rs. 110 mn each in Shirting division on JV partner's receivables & textile division on demerged unit, with another Rs. 150 mn inventory provisioning in Branded Apparel business for FY13. Adjusting for provisioning, EBITDA for the quarter stood at Rs. 1,145 mn, up 44% YoY with margin expansion of 225bps.

Textile Segment (Raymond Standalone): Raymond's textile business grew 9% YoY to Rs. 5,550 mn in Q4FY13. Higher domestic sales and Makers brand aided revenue growth. 'Makers' brand contributed Rs. 900 mn to the top-line. EBITDA margin declined by 200bps to 18% due to full year losses (Rs. 110 mn) of demerged unit RWOL accounted in Q4FY13, thus EBITDA declined 1% to Rs. 1,000 mn. Adjusted EBITDA grew 8.8% YoY to Rs. 1,145 mn.

Branded Apparel: Branded Apparel sales grew 9% to Rs. 1,790 mn, EBITDA margins were reported at -7% compared with -9% in the corresponding quarter. EBITDA losses reduced by 12% YoY to Rs. 130 mn. The segment has significantly reduced its inventory to Rs. 290mn compared to Rs. 1,050 mn a year ago. We expect Branded Apparel to notably improve its EBITDA margin in FY14 on account of low inventory and excise duty removal benefits.

Denim & Cotton Shirting: Revenue from Denim and Cotton Shirting business grew -2% and 25% to Rs. 915 mn and Rs. 350 mn respectively. Denim EBITDA grew 14% to Rs. 120 mn on higher realizations and lower inventory costs while Shirting JV reported EBITDA loss of Rs. 15mn with margin at -5% compared to 14% in corresponding quarter due to Rs. 110 mn provisions created towards receivables from JV partner in liquidation. Adjusted EBITDA was flat YoY at Rs. 40 mn.

Files and Auto Component: Files reported revenue growth of 8% at Rs. 1,070 mn with 200bps margin expansion while Auto Component revenue declined 10% to Rs. 350mn with 600bps margin contraction on challenging business.

Outlook & Valuation: We marginally upgrade revenue & EBITDA forecasts on margin recovery signs post provisioning. At CMP of Rs.290, the stock trades at 8.9x and 4.7x of FY15E EPS and EV/EBITDA respectively. We reiterate our "BUY" recommendation and target price of Rs. 384 based on 5.8x FY15E EV/EBITDA, having a potential upside of 32%.

Source : Equity Bulls

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