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Research
Raymond - Textiles Improved while Apparel & Engineering Dragged Profitability; Reiterate BUY - Karvy
Posted On : 2013-07-31 10:55:13( TIMEZONE : IST )
Raymond Q1FY14 revenue grew 4.3% YoY to Rs. 8,739mn, EBITDA declined marginally by 1.4% YoY to Rs. 305mn while Adj. net loss widens to Rs. 39.6 mn. Exceptional outflow against VRS payments was Rs. 101mn. Reported net loss was Rs. 497mn against net loss of Rs. 350mn in Q1FY13.
Textile Segment: Raymond's textile business grew 12.8% YoY to Rs. 3,825 mn in Q1FY14. Higher exports coupled with Makers & Combo packs aided revenue growth. 'Makers' grew 40% YoY to Rs. 230 mn. Realizations growth was at 4.5% while rest is attributable to volume. EBITDA margin improved by 400bps YoY to 9%, thus EBITDA grew 106% to Rs. 340 mn.
Branded Apparel: Branded Apparel sales declined 14% to Rs. 1,580 mn. EBITDA margins were reported at -6% compared with 3% in the corresponding quarter. EBITDA losses stood at Rs. 100mn compared to Rs. 50 mn in Q1FY13. The segment has significantly reduced its inventory to Rs. 200mn compared to Rs. 1,200 mn a year ago. We expect Branded Apparel to become EBITDA positive in FY14 on account of low inventory and excise duty removal benefits. Gross margins improved 250bps on excise benefits.
Denim & Cotton Shirting: Revenue from Denim and Cotton Shirting grew 4% each to Rs. 116 mn and Rs. 365 mn respectively. Denim EBITDA margin remained flat at 12% YoY while Cotton Shirting margin declined by 300bps to 11% in Q1FY14 on higher input costs and lower exports.
Garmenting: Revenue from garmenting business grew 59% to Rs. 830 mn driven by higher exports while EBITDA margin declined 500bps YoY to 9% on account of forex loss (Rs. 97mn) booked on the orders for coming quarters. However, FY14 looks promising with strong order-book.
Engineering divisions: Tools & Hardware revenue grew 5% YoY to Rs. 940 mn while EBITDA margin declined 400bps to 9% while Auto Component division revenue grew 3% to Rs. 650 mn with 500bps margin contraction on challenging auto industry.
Outlook & Valuation: We revise down expected EBITDA & net income on slower margin recovery amid challenging apparel & engineering business. At CMP of Rs.205, the stock trades at 6.3x and 4.7x of FY15E EPS and EV/EBITDA respectively. We reiterate our "BUY" recommendation and revise down our target price by 18% to Rs. 316 based on 6.0x FY15E EV/EBITDA, having a potential upside of 55%.
