RAYMOND APPAREL LTD.
Commercial Paper/Short Term Debentures
Rating
The 'PR1+' rating assigned to the Commercial Paper/
Short-term debt programme of Raymond Apparel Ltd.
(RAL) for an amount of Rs.30 crore for a maturity upto
one year has been reaffirmed. Aggregate of CP/STD
and other working capital borrowings should be within
the sanctioned fund based working capital limits. The
rating draws strength from strong parentage (Raymond
Ltd.), continuous operational as well as financial support
from the parent and synergistic operations with the
business profile of the parent. The rating also reflects
RAL's dominant position in the domestic branded
apparel industry, wide distribution network, opening of
own brand stores, improved financial performance and
low overall gearing levels.
Background
Raymond Apparel Ltd. (RAL), incorporated in 1948, is
a wholly owned subsidiary of Raymond Ltd. (Raymond).
Raymond is India's largest producer of worsted suiting
fabrics and 'Raymond' brand is the market leader, with
about 40% market share in the men's suiting segment.
Raymond is currently rated 'PR1+' for its CP/Short-term
debt programme upto Rs.200 crore.
Initial operations of RAL involved fabrication work for
exports for its parent company. RAL's plant at Thane
was set-up in 1966 with technical help from Anderson
& Co. of Norway. In 1986, the company entered the
domestic market with readymade garments for men
under the brand name 'Park Avenue'. Its product range
mainly includes suits, jackets, trousers, shirts as well
as other accessories.
'Park Avenue' is a men's formal wear brand and is one
of the largest brand of men's apparel in India. It also
has 'Parx' & 'Manzoni' brands under its fold. Under
'Parx', it covers casual wear for men, which includes
cotton trousers, shirts, denim tops, jeans, T-shirts and
other accessories. 'Manzoni', caters to the super
premium segment of men's formal wear. RAL has
recently launched 'ZAPP', a premium kids wear brand.
CREDIT ANALYSIS & RESEARCH LIMITED
PR1+
In FY'06, shareholding in Colourplus Fashions Private
Ltd. was transferred from Raymond to RAL, so as to
bring all the branded apparel business of the group
under one roof. 'Colourplus' is a well known premium
brand in casual wear for men. It has come up
significantly in recent years.
Operations of the company
RAL's operations include own manufacturing as well as
outsourcing. RAL has its own manufacturing plant at
Thane, where it manufactures premium products like
'Manzoni' and 'Park Avenue' suits, jackets and trousers,
whereas other garments such as 'Park Avenue' and
'Parx' shirts, 'Parx' trousers and jeans are outsourced
from various vendors located all over the country. In
FY'06 it also acquired the shareholdings of Colourplus
Fashions Private Ltd from Raymond Ltd. Colourplus is
a well known premium brand in casual wear for men. It
has come up significantly in recent years.
During FY'06, 'Park Avenue' accounted for 66% of total
sales & witnessed growth of 13% from FY'05. 'Manzoni'
witnessed a sales growth of 23% during the year, which
was the highest among the three brands. Product wise,
trousers and shirts contributed 26% and 34%,
respectively to total sales of RAL. RAL's focus has been
on new and trendier styling in each of their brand
categories. RAL's overall sale volume declined in FY'06
mainly because of loss of fabric during flood at Bhiwandi
godown which resulted in non fulfilment of orders.
However average realisation per garment has increased
for all the three brands during FY'06.
RAL's major raw materials comprise fabrics and
embellishments (viz. zippers, buttons, threads, fusible
lining etc.). Fabric for suits, jackets and woollen trousers
is sourced exclusively from Raymond and it formed
37.62% of total fabric costs. Fabric for shirts, T-shirts
and non-woollen trousers was procured from domestic
suppliers (Arvind Mills, Ashima etc.).
43
In recent years RAL has opened 10 exclusive stand Indian Rayon (brands include Van Heusen, Loius
alone brand stores where it sells its garments and Phillipe, San Frisco, Peter England, Allen Solly) Arvind
accessories. In FY'07, the company plans to open Mills (brands include Arrow, Lee, Newport, Excalibur),
another 25 -30 stores all over the country in prime Zodiac, Pantaloon, Trent, Provogue and Bombay Dyeing
localities. It has also entered kidswear, by launching (Vivaldi).
'ZAPP" brand and recently one exclusive kidswear store
RAL expects to capitalise on the current shift in
has been opened in Ahemdabad. In the next two years
consumer preferences towards readymade garments.
it wants to increase these outlets further so as to provide
The growth in income and profits will critically depend
a higher visibility to its products. It has planned an
on company's ability to design its products as per the
expenditure of over Rs.14 cr. in the next two years for
latest fashion trends and tight cost control. Recently it
stand alone brand stores.
has embarked on a plan to open stand alone brand
RAL markets its products mainly through the retail stores to provide better visibility to its products.
distribution network of Raymond, which has an exclusive
Financial Results
network of over 800 Raymond Retail Shops (including
(Rs .crore)
franchisee and Raymond owned shops) which sell only
Raymond and RAL products. In addition, products are As on 31st March, 2004 2005 2006
also sold through a network of about 350 retail outlets, Operating Results
including select multi-brand outlets and leading Net sales 161.80 179.34 201.51
departmental stores like Shoppers Stop, Globus, and
Total Operating Income 154.51 173.79 215.22
Crossroads.
PBILDT 6.51 14.21 14.56
Industry & Prospects Depreciation 1.41 1.36 2.09
Apparel industry accounts for nearly 16% of the country's Interest & Finance Charges 2.42 1.20 1.05
total exports with readymade garments accounting for PAT 2.20 7.90 14.82*
46% of the country's textile export. Garment Gross Cash Accruals 3.88 10.09 16.92
manufacturing industry is highly fragmented due to
Financial Position
reservation for small-scale sector in the past which has
Equity Capital 2.00 2.00 2.00
been done away with in Union Budget 2005-06. It is
estimated that the organised sector accounts for only Tangible Net Worth 43.28 51.23 64.89
25% of the total output. However, the share of the Total Capital Employed 64.34 61.83 119.58
organised sector has been increasing over the past few Key Ratios
years. India has a share of over 23% in world trade of
Profitability (%)
cotton yarn but less than 4%t in garments. This fact itself
PBILDT Margin 4.21 8.18 6.77
speaks of necessity of vertical integration to garment
manufacturing to improve the value addition. PAT Margin 1.43 4.55 6.92
ROCE (avg. total cap employed) 8.06 21.49 26.60
As per estimates, the domestic market for branded
apparel has been growing at a CARG of over 20% in Solvency (Times)
the last few years. With the improvement in the living Overall Gearing Ratio 0.49 0.21 0.84
standards and change in consumer preferences, the Debt Equity Ratio 0.03 0.03 0.57
industry expects the growth rate to increase to 25-30%. Interest Coverage 2.10 10.71 11.86
Shirts form the biggest segment in the readymade Current Ratio 1.72 2.10 1.96
garments for men, wherein, RAL has an estimated Turnover (Days)
market share of about 7% with its three brands. At
Average Collection Period 63.05 51.22 44.13
present, 'Peter England (Indian Rayon)' is estimated to
Average Inventory 8.13 8.41 5.54
be the largest shirt brand in the country. Competition in
Average Creditors 173.77 142.60 121.36
the branded apparel segment is expected to intensify
with the regular entry of new and trendier brands. The Net working capital cycle 229.00 185.00 159.94
major players in the organised sector, besides RAL, are * Includes insurance claim received

44 CAREVIEW
Financial Performance
Despite 12.4% increase in net sales, PBILDT in FY'06
increased very marginally due to loss of fabric in flood
at Bhiwandi plant resulting in non fulfilment of orders,
jump in employee cost and increase in material &
embellishment cost. RAL received an insurance claim
of Rs 10.46 cr against the loss at Bhiwandi plant.
Net working capital cycle of RAL reduced to 160 days
during FY'06 from 185 days during FY'05 mainly due to
better collections from debtors resulting in lower average
fund based working capital utilisation. As a result, there
is decline in interest cost. Increase in PBILDT coupled
with lower interest cost, has further improved interest
coverage to 11.86 times during FY'06.
Debt of the company comprises bank borrowings for
working capital and preference shares issued to parent
company in return for stake in 'Colourplus'. As a result
of issuance of preference shares, gearing ratio
increased from 0.21 times as on March 31, 2005 to 0.84
times as on March 31, 2006. Short-term liquidity position,
as reflected by its current ratio of 1.96x as on March
31, 2006 was comfortable.

For Further details please contact at : May 2006

CREDIT ANALYSIS & RESEARCH LIMITED

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CREDIT ANALYSIS & RESEARCH LIMITED 45