Raymond Limited (RAYMOND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Raymond Limited Earnings Conference Call for Q2 FY '22 results hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijeet Kundu from Antique Stockbroking Limited. Thank you, and over to you, sir.

Thanks. On behalf of Antique Stockbroking, I would like to welcome all the participants in the Q2 FY '22 earnings call of Raymond Limited. I have with me Mr. J. Mukund, who is the Head of Investor Relations of Raymond Limited. Without taking further time, I would like to hand over the call to Mr. Mukund. Over to you, Mukund.

Thank you, Abhijeet. Good evening, everyone, and thank you for joining us for our Q2 FY '22 earnings conference call of Raymond Limited. I hope all of you would have received a copy of our results presentation. I would like to urge you to go through this along with the disclaimer slides. Today, we have with us Mr. S.L. Pokharna, Director, Raymond Limited; Mr. Amit Agarwal, Group CFO; and Mr. Ganesh Kumar, Chief Operating Officer, Lifestyle Business. I will now hand over the call to our Group CFO, Amit Agarwal, who will give you the summary of the company's quarterly performance before we open up the floor for our Q&A session. Over to you, Amit.

Thank you, Mukund. Good evening, ladies and gentlemen. Thank you for joining us today on this earnings call to discuss our results of second quarter for fiscal '22. Let me give you an overview of the market. The market saw an upward momentum post July, with gradual lifting of COVID-related restriction, such as limited hours of local market operations on weekdays, closure on weekends across regions in a phased manner. Accelerated pace of vaccination across country triggered the right trust that brought back the confidence amongst trade and consumers. Post unlocking and opening up of the market from second half of August, we witnessed a healthy recovery in our B2C businesses due to increased demand in retail space, clocking in higher footfalls. As far as large-format stores located in malls in key markets, the consumer traction was witnessed from September month onwards as mall entry was allowed to fully vaccinated customers only before September in metros Tier 1 and Tier 2. This trend was observed as the vaccination rates for the 18-to 45-year-old category, which is the key consumer category visiting malls, started progressively from May, June onwards for whom the second dose eligibility was applicable largely only in August and September month. The kickstart to the festivities began in the month of September that led to the increased customers visiting our stores. This provided confidence boost to the brick-and-mortar formats as the trade witnessed the consumer indulging in physical shopping experience. Let me now give you key financial highlights for the quarter 2 of fiscal '22. We reported strong revenue driven by increased consumer demand for our products, both in the domestic as well as export markets, across all our business segments, with continued focus in optimizing costs, leading to strong profitable growth for the quarter. As far as our revenues are concerned, the consolidated revenue doubled to INR 1,583 crores from INR 732 crores in second quarter fiscal '21. The growth is driven by strong increase in sales in our B2C businesses in the domestic market, with unlocking and related improvement in consumer sentiment and continued strong momentum in export businesses of garmenting and engineering businesses. Also on a preceding-quarter basis, if we compare revenue with first quarter fiscal '22, which was impacted by second wave of COVID, the consolidated revenue was up by 1.8x or higher by 84%. Similar trend was witnessed in second half of the previous year when with unlocking and related opening up of markets led to strong growth in our sales progressively in third quarter and fourth quarter of fiscal '21. Continued focused approach on optimizing operating expenses during the quarter continued. During the quarter, revenues increased by 116%, while the operating expense increased only by 39% over previous year from INR 304 crores in second quarter of fiscal '21 to INR 424 crores in second quarter of fiscal '22. We reported a consolidated EBITDA of INR 213 crores for the quarter as compared to an EBITDA loss of INR 52 crores in second quarter of fiscal '21. The EBITDA margin of 13.4% is higher than the pre-COVID levels achieved in second quarter of fiscal '20. Also, the EBITDA margin is the highest in the last 5 years in the second quarter in a fiscal year. The net profit stood at INR 53 crores for the quarter as compared to a net loss of INR 133 crores in the previous year. Now let me talk about the operational performance in more detail. In the second quarter fiscal '22, strong growth was witnessed across all of our businesses. In our core Branded Textile segment, there was gradual pickup in primary sales during initial period for the quarter, and there was a gradual pickup from August onwards catering to upcoming festive demand and wedding season. In our Branded Apparel segment, strong growth was witnessed across all channels. As far as our B2B segments are concerned, the Garmenting business, as the export market remained very buoyant, we witnessed strong growth in revenues, led by customers in U.S., U.K. and Europe. In our Engineering business, which is comprising of Tools and Hardware and Auto Components, we achieved significant milestone of highest sales in the history in a quarter, driven by high growth in export markets. Our High Value Cotton Shirting business witnessed strong growth driven by higher fabric and yarn demand. As far as our Real Estate business is concerned, the momentum of sale of new units and construction on all 10 towers was maintained, resulting in higher revenue recorded during the quarter. As far as EBITDA is concerned, we reported an EBITDA of INR 213 crores for the quarter as compared to an EBITDA loss of INR 52 crores in second quarter in fiscal '21. The overall strong performance was led by Branded Textile segment, well contributed by Garmenting and High Value Cotton Shirting segment and strongly supported by the continued profitable performance by both of the Engineering as well as Real Estate businesses. At the operating cost, I am happy to share that with continued strong focus on optimizing operating expenses, as mentioned, in Q2 fiscal '22, while the revenues increased by 116% to INR 1,583 crores, however, the increase in operating expense was only by 39% higher as compared to previous year. Also, on a pre-COVID level, if compared with second quarter of fiscal '20, the cost is lower by about 38% basis on an H1-to-H1 basis as well as 14% -- lower by about 14%. Additionally, even from an interest cost perspective, due to OpEx cost reduction and net working capital optimization, driven free cash flow generation, leading to net debt reduction, there was net interest cost savings of approximately INR 25 crores in first half of '22 as compared to first half of '20. On the working capital front, we continued our focus on efficient working capital management to cater to the upcoming festive and wedding season from October onwards. Primary sales to trade channels started late August onwards. Accordingly, the receivables as on 30th September increased. However, with continued effort across all our businesses, our collections have been encouraging throughout the quarter. As far as net working capital is concerned, it has marginally increased by INR 54 crores to INR 1,263 crores as on 30th September 2021 from INR 1,209 crores as on 30th June 2021. From a cash flow perspective, driven by strong profitable performance, we reported strong operating cash flow of INR 88 crores and free cash flow of INR 53 crores for the second quarter fiscal '22. Our net debt reduced by INR 53 crores from INR 1,617 crores as on 30th June 2021 to INR 1,564 crores as on 30th September 2021. The average interest rate level was maintained at September '21 level at 8.1% compared to in June '21 at 8.3%. We continue to maintain adequate liquidity levels around INR 650 crores, and our liquidity stood at INR 643 crores as on 30th September 2021. Now let me talk about the business segment-wise performance. The Branded Textile segment sales reported strong growth of over 214% to INR 722 crores versus INR 230 crores in the previous year. This growth was driven due to improvement in both prime retail as well as second retail. As mentioned earlier, I would like to reiterate that the quarter gone by was a true reflection of a pre-COVID time, with physical shopping superseded primarily due to the joy of visiting retail stores and malls. We also witnessed the signs of growth with an increased average bill value. The vaccination drive provided enough impetus to trade along with the onset of festive and wedding season. Anticipating improved customer sentiment, coupled with demand revival, we introduced vibrant shirting fabric under our [ Vice ] collection. The latest introduction is addressing the need of casualization and also caters to a target group that seeks bold athletic fashion of print and color. Also did the trade booking for our Champion collection, a premium range of suiting fabric for which we received very encouraging response from our customers. The buoyancy in the market was leveraged through strong supply chain and our go-to-market strategy. We initiated our annual social garment exchange program in association with Goonj, an NGO, and received an overwhelming response. The country-wide drive encourage customers to donate their old garment to the lesser-privileged sections of the society. And customers were offered free tailoring services on Raymond fabric purchase. Under this program, in exchange of a garment, complementary tailoring services were provided for fabric purchase. Close to 0.5 million garments were exchanged under this initiative, and 40% were new customers. The suiting business grew by higher volumes in wholesale and trade channels. There was highest growth in the premium gifting solutions introduced at attractive price points. The segment reported healthy EBITDA margin of 16.8% driven by operating efficiency. Let me talk about the Branded Apparel segment, which recorded a sales growth of 211% to INR 221 crores versus INR 71 crores during Q2 of previous year. The strong growth for business across all channels and our EBO and LFS channels observed higher traction with opening of the mall, aided by vaccination drive across the country. Keeping up with the demand, we strategized and reduced our discounting to our partners. But this quarter, we have been able to invigorate freshness in our stores by launching our latest autumn/winter collection across all brands. The newly launched collection offers latest trends and is available across cotton, linen and various blends. We have also introduced garment crafted with sustainable fabrics and have received an encouraging response from the trade and the consumers for the sales. Physical retail was well aided, with much improved growth of our online channel that recorded a growth of 70% compared to previous year. We curated special lines for e-commerce marketplaces, and our products received an overwhelming response, especially during the big sale days. The segment reported an EBITDA margin of 3.4%, mainly due to lower discounting and continued operational efficiencies. As far as our retail network is concerned, as on 30th September 2021, we had 1,420 stores spread across 600 towns in India. With opening up of market and revival in consumer sentiment, we witnessed strong traction in secondary sales. Our -- The Raymond Shop, TRS, network recorded 90%-plus like-to-like recovery and 20% growth in average transaction value as compared to pre-COVID levels, so second quarter of fiscal '20. Our EBO network witnessed recovery driven by strong pent-up demand and increasing footfall with opening up of malls. We are strongly focused on making our EBO portfolio healthy, and during the quarter, we closed [ 28 ] stores. We are in the last phase of the store rationalization process, while at the same time, we are continuously evaluating opportunities which strengthen our retail footprint. Now let me talk about the Garmenting segment, where the sales grew by 13% to INR 212 crores compared to INR 187 crores in previous year. We are witnessing strong momentum in export post opening up of global economies in the U.S. and U.K. regions. There was high demand from customers as their existing inventory depleted. There has been higher demand from our customers, and with China plus one adoption by some global brands, it has helped us in driving customer acquisition. Also, the Europe markets are gradually opening up. The EBITDA margin for the quarter in this segment improved to 10.3% due to improved product mix. As far as High Value Cotton Shirting is concerned, the segment sales grew by 350% to INR 148 crores compared to INR 33 crores in previous year, driven by higher fabric sales in domestic market and yarn sales. The segment reported strong EBITDA margin of 17.4% for the quarter at 16.5% due to -- as compared to 16.5% due to product mix, and there has been better sales contribution from high-margin yarn business. Tools and Hardware segment achieved a significant milestone of highest sales in the history in a quarter. The sales grew to -- by 38% to INR 138 crores as compared to INR 100 crores in previous year. Overall, the global market has opened up with steady growth in demand. Our sales growth was driven by strong export businesses, mainly in Lat Am markets in 5 categories. In the domestic market, there was progressive improvement in sentiment and demand post gradual unlocking. Our domestic sale is driven by growth in cutting tools category. The segment reported healthy EBITDA margin of 13.4% for the quarter despite increase in steel prices and partly offset by improvement in product and geography mix as well as operational efficiency. Auto Components segment achieved the significant milestone of highest sales as well in the history in the quarter. The sales reported strong growth of 66% to INR 81 crores as compared to INR 49 crores in previous years. In the global market, with the opening up of U.S. and U.K. market, there has been an increase in orders. Our export business reported strong growth, mainly in the U.S. region, in ring gears category. The domestic market for auto sector was upbeat with easing of lockdown, phasing resumption of production at the industry level. Our domestic business reported growth, mainly in ring gears category, driven by significant increase in demand for automotive. The segment also reported very strong EBITDA margin for the quarter of 19% despite increase in steel price and which was partly offset by higher productivity and efficiency gains. Our youngest business, the Real Estate business, also saw a sales growth by 327% to INR 81 crores from INR 19 crores in previous year. There has been a strong demand in the overall real estate sector in the key areas of India. Including our [ MAP ] region, the sales have improved with increase in demand. The construction has also picked up due to the return of migratory labor. Our Real Estate business witnessed encouraging demand and maintained good momentum in the bookings, driven by continued fast-paced construction activity in all 10 towers of the project and sustained lower home loan interest rates. We received 107 bookings in second quarter of fiscal '22, resulting in total of 1,555 units booked, which is approximately 74% of the total inventory launched until September 2021, with a booking value of INR 1,494 crores. The tower-wise construction status is as follows: Tower 1, 2 and 3, [indiscernible] work in progress; tower 4, 41st flat, work is in progress; tower 5, 6 slabs work in progress; tower 6, 9 slabs work in progress; tower 7, 8 slabs work in progress; tower 8, fifth slab in -- casting is in progress; tower 9 and 10, [ call of above ] foundation, work in progress. Now let me give you the view of how we are seeing the current status of our operations and the near-term outlook. We expect consumer sentiment to continue to scale upwards in the domestic market, led by festive and wedding season buoyancy in the second half of this fiscal year. We are optimistic that the industry is well on track for a strong revival. There has been a pickup in primary sales, driven by a rise in confidence amongst trade channels as the fear of third wave is waning, and secondary sales is an increasing trajectory due to resumption of offices and festivity of wedding season. We expect continued demand boost in lower-tier markets where we have large and deeply penetrated 1,000-plus strong TRS network spread across 600 towns. With increasing footfalls in malls, trends of faster recovery in metros and Tier 1 is coming up, and we expect the retail channels of EBOs and LFS to have a faster revival. As far as export is concerned, we see a strong continued growth momentum. In our Garmenting business, in U.S., with catch-up of retail demand and overall optimism in the business, we are witnessing pickup in orders. In U.K., there has been signs of growth and optimism in the business, with uptick in orders. The Japanese markets are now opening up as well. Overall, we expect increased adoption of China plus one strategy to benefit the Indian exporters like us. In our Engineering business, most of the consuming sectors have shown good signs of recovery in most of the markets where we supply our products. However, higher steel prices and freight costs continue to remain areas for close monitoring and continue to work with our customers to pass on such increases. In the real estate market, despite the growth -- besides the growth momentum in residential market, we are seeing the commercial and real -- retail market are also expected to improve. With the return of migratory labor post monsoon season, the construction activity is in full swing. From a cost reduction perspective, we began our cost rationalization program in first quarter of fiscal 2021, immediately after lockdown. And for ease of reference, in the last financial year, fiscal '21, we were able to achieve a cost reduction of approximately 40% as compared to fiscal '20. We have given a guidance of cost savings of around INR 300 crores for fiscal '22 compared to fiscal '20. In second half of fiscal '22, with strong revival in sales, the operating cost may increase on an absolute basis. However, on a full year basis, we are on the road map to achieve such kind of savings. From a liquidity perspective, we would maintain continued focus on liquidity management through cost-reduction initiatives, net working capital optimization and need-based CapEx for maintenance of plant and other assets and addressing the increased demand in our Engineering business funded through internal accrual. Thank you very much. Now we will be taking questions.

[Operator Instructions] We have a first question from the line of Aliasgar from Motilal Oswal.

I have a quick follow-up on your comments on outlook. I just want to know, by when do we expect as to reach pre-COVID revenue profitability? If I benchmark your FY '20 numbers then as a pre-COVID year, then by when should we probably reach pre-COVID numbers in terms of quarterly run rate? And in terms of expansion, if you could share some specifics in terms of what is the store addition, footprint addition that we are looking to do over the course of next 2, 3 years.

Sure. Thanks, Ali. And look, as far as -- in terms of pre-COVID levels, as we talked about, the margins which we have achieved is one of the highest in the last 5 years. As far as the absolute terms, we saw that in the second quarter, it was partly impacted because we have certain restrictions as far as lockdowns were concerned because some were the weekends were not operational, some were you had to get double vaccinated in the malls to enter in the West, in Maharashtra and so on. So that impacted. I think we are absolutely on the close verge that a few points here and there, you will see. But we are achieving very, very close to the pre-COVID level, both in terms of revenue as well as in profitability. As far as what we call store expansion is concerned, look, we are very clear that we want to operate on a model. We will be careful how do we expand. We will make sure that when we open a store through a franchisee route, it is going to perform because we have gone through enough big store rationalization. So we just don't want to jump into expanding stores and then closing down after 2, 3, 4 years.

Okay. Can you give me any definitive number in terms of the store addition?

Yes. Ganesh is here. Ganesh, why don't you...

See, first of all, I think Raymond operates with over 1,400 stores in 600 towns. So what we are also trying to look at is to make sure that the catchment areas are very clearly defined and we do not overlap and cannibalize our own consumers. Second, what we are also embarking upon is an omnichannel approach, whereby we give the flexibility to the consumers. And we will be opening stores only in areas where the catchment areas are still remote and we are not able to service. So that's the broad update. But we will be looking at anywhere between 200, 250 stores in the 3-year horizon, mostly focusing on gap areas in the markets that we are operating in.

Okay. Is it 200, 300, right, in the next 3 years?

200, 250. It's still a number which we are toying with. But we are building up our own competencies and evaluating between digital omnichannel and physical store, what is the right mix. I think that's -- going forward, that's going to be the norm of the day.

Okay. See, the reason of just emphasizing more on this point is 200, 250 stores on basically 1,400 base is something close to about maybe around 15% growth over the 3-year period. So an average of about 5% open -- addition. When I look -- compare yourselves with other retailers in the space, somebody like, I mean, other guys in the apparel space, I see most of them are adding easily about close to around, on an average, 15%, 20% new stores. So any reason why we see not enough opportunity in terms of store addition?

So a couple of points here. I think let's look at it this way, the type of stores that we operate in. If you look at between The Raymond Shop and the exclusive brand outlets, we have pretty large-format stores. For example, we just, in the last month, opened a 6,000 square feet store for Raymond products, all the brands put together, in Surat. Now idea is more than number of stores, how do we service the customer? And we would -- we are actually gearing up to build our own omnichannel capabilities. I think that should be more than enough. See, 6,000 towns, which have -- 600 towns, which are covered in the country, if I look at broadly 730-odd districts of the country, we are there in 80% of the districts and which is where broad market coverage happens. So that's the scale at which we are operating. And from a gross sales, merchandise value perspective, we are talking of already having a retail footprint of over 3,000 -- close to INR 3,000 crores, that's the space of operation for us.

Okay. And S.L., you want to add something?

Yes. I would like to add some perspective for Kumar, and I would like to add [indiscernible] study our channel mix. We operate with The Raymond Shop, we operate with EBOs, we operate with MBOs, we operate with wholesale channels. With this kind of 4 different kind of distribution models, and we cover almost about 8 lakh stores, 8 lakh outlets in the country. And we need to figure it out that we do not cannibalize one channel by opening another one. So we believe in coexistence and growing together, and we want to create win-win for everybody. Wherever there is a gap and we see that neither MBO is willing to do the business there or they don't have capital enough to put in there, we are looking into that. So we are open for opening. But we would like to open with a win-win situation and with a profitable store. Our profitable stores revenue, we would like to go ahead with that. So currently, our presence in almost about in 8 lakhs outlets in the country, which is good enough, and we need to protect everybody's interest. Thank you.

The next question is from the line of Kunal Shah from Jefferies.

I have a slightly basic question, and pardon my ignorance for that. So when we look at our 2 big B2C segmented, Branded Apparels and Branded Textile, and compare our number -- revenue numbers at pre-COVID levels, why is it that our Branded Apparel segment typically lags materially in terms of recovery versus Branded Apparel? Is it mainly to do with this channel mix or the customer profile? Or is there something which I'm missing?

There are 3 -- 2, 3 issues [indiscernible] the markets. Our Branded Apparel, our outlets are also in the mall format and in large-format stores. So if you observe it, quite a lot, the mall formats opened with a delayed time line. And also when [ the doors are opened, ] again, the 2-vaccination formula and allowing them only if the person has -- did 2 vaccination has also restricted entries. So those limitations of pandemic-related has also impacted our sales. Otherwise, there is a good demand, and we are servicing our outlets. And now almost like in certain brands, like ColorPlus and [ all, ] we have already [ touched ] 103% of pre-COVID levels.

Okay. Okay. And any rough range of what share of our EBOs in Branded Apparels would be in malls? And what would be stand-alone?

In [indiscernible], you'll have to understand, in malls, generally, franchisees do not go into malls because here, we need to go with the brand representation and all. So almost like, say, as far as EBOs are concerned, about out of 300 EBOs, we are about having about 100, 125 EBOs in the mall format. And as far as large-format stores are concerned, like superstores or lifestyle and all those, we are operating in about 300-plus doors in the country. So almost about 30% of the outlets are in the mall and mall-format stores.

Okay. Okay. And my next question is on your omnichannel initiatives, which you mentioned. So currently, what share of our revenues in, let's say, Branded Apparels would be coming online? And as we increase our focus here, do you see that as being slightly margin-dilutive to the overall segment?

So look, as far as omnichannel or online e-commerce, what we have been able to do, that we have created some special products, which is suitable for the e-commerce marketplaces. And we have got these exclusive merchandise, which is helping to grow the sales. As we speak today, approximately 22% to 23% of our sales comes from the e-comm channel. And we have registered a significant growth compared to the previous year of -- almost 70% growth has been seen compared to the previous year. But let me also tell you that in the apparel segment, it is also the feedback, which we are getting especially now in the month of August and September, that a lot of customers would like to come to the store to have this experience of trying it out, the fabric or the apparel, and see whether it fits them or not. So that is something which we are seeing in a very, very big manner. And the kind of choices, if you see on the store compared to the e-comm channel, because then you get, I don't know, I get confused. And that was the kind of feedback which we are getting from our customers. So the physical retail is going to be very, very strong, especially in a premium segment and where we operate.

Got it. Got it. And overall, it's not materially margin-dilutive for us to do omnichannel?

No. So that's the reason, what we have done is, as I mentioned, that we have created an exclusive merchandise for online so that we are not going to give the same product, and it will have the margins more or less managed in both the channels, very similar levels.

The next question is from the line of Mohit Agrawal from IIFL.

So my question is on Real Estate business. Now you have put out a press release some time back talking about expanding the Real Estate business outside of Thane to Mumbai Metropolitan Region. So can you share some color on what kind of projects you're looking at? Like are these redevelopments, long projects? You mentioned that you're evaluating some proposals. And what is the kind of scale that you plan to achieve over the next 3 to 5 years? Any numbers there would be great. And lastly, what would also be the investment that will go into it?

Sure. So look, what we have mentioned, that we are putting Real Estate business into a subsidiary. And for that, we are saying very clearly, we want to develop this business in a larger manner. Now when we talk about it into a larger manner, that means you are going beyond the Thane land, which is owned by us, where the development is happening as we speak today. Now as far as that outline is concerned, we are very, very clear that we are not going to purchase any land and put investment behind the land. So what we will be considering is a joint development agreement, any form of joint development agreement, where the investment is not significantly large by virtue of not buying the land. So it would be mostly on the approval costs and the start-up costs. And therefore, we believe that over the next 3 to 5 years, our revenue from the JV model or such kind of model could be in the range of 32%, 35%.

Okay. Okay. And sir, quickly on Thane, I had just a couple of clarifications. So one is, have you been able to take any price increases in the Thane project in the last 1 or 2 quarters? If you could clarify that. And the second part of my question on Thane is, you have mentioned that you're going to do some commercial. So will it be -- you're looking to lease that commercial space? And if yes, then what is the CapEx on that plan?

So look -- yes. So actually, you see, our projects, as I mentioned in my opening remarks, we have been very, very successful in selling our project. Almost 75% of the launch inventory has been already sold. And the product which we have is that 1BHK and 2BHK which is an inherent user is buying. It is not an investor is getting into it and buying it. So we have been -- and the location is phenomenal. So to that extent, we have been comfortably able to take sort of 2 price increases amounting to almost 5% to 6%, depending upon the configuration which you're talking about. So that's one on the price increase. Second thing, as far as the commercial project is concerned, we have put that we are getting into this. It is a long way to go in terms of the approval process and other things. And then we will figure it out, what is the way in terms of the CapEx which will be required. However, as you see, that our current project, the Aspirational project or the Ten X project is Q3 cash flow-positive project, and it is already sitting with the cash. So therefore, we do not see any significant investments to be made because, again, we will be able to sell the project faster and get the realization so that it can be cash flow-positive project.

So this will be for sale, right? This is the strata sale and not for lease. Is that correct?

Yes. That combination, we are working out still. It is not that close that which is the strata sale or it will be a mix between leasing and strata sale. So these are the final details which we are working out as we speak. And once we do it all finalized, when we properly launch it, announce it, then we will give all those details.

[Operator Instructions] The next question is from the line of Amit Jain from LKP Securities.

My first question is regarding the Real Estate business, like we have an improvement in our number of bookings this quarter. And when I look at the revenue part, sequentially, it has been declined. So what is the main reason for that?

Yes. So look, what happens is -- yes. It depends also because we have our own land, which goes for development. And you know that during -- in this whole Thane big land, we are giving certain land for development to the state -- to the city. And for that, you recover certain development rights. And when you account, because of the percentage of completion in the third accounting, which is being followed, the time you recognize that development right, so you get that right, the same point of time, the revenue and the cost gets recognized. And therefore, the revenue was higher in that particular quarter when we got certain development right, which was already considered as an extraordinary item in our financials in the first quarter.

Okay. So the last quarter, INR 130 crores, included these rights we received?

Yes. A portion of that was included, yes.

Got it. Got it. And the next thing is on the margin side. Like we have seen an improvement across all our segments in the margin front. And currently, as you know the scenario impact, all the raw material cost prices are increasing at an all-time high. So are you passing any cost pressures -- like we have a very good like margin this quarter. So have we -- like we are still passing on? And so can you throw some color on that?

Sure. No, absolutely, I think all of us are under this inflationary pressure. However, if you look at it, I think this is where the Raymond differentiates itself from many. Because of the strength of the brand and the distribution network which we enjoy and the kind of quality products which you deliver, you have the ability to still take certain price increases. And the cost of raw material, which goes into the product, and the final selling price, the way it is structured, that whatever is the price increase we are able to take, takes care of it. Well in the Lifestyle business, absolutely not an issue. In wool, practically, if you see as a commodity, there has not been a significant change. What has been changed is practically in the cotton. And we buy cotton yarn. And the cotton yarn has not moved exactly in the same manner, and we have got some contractual quantities with the cotton players -- yarn players. So therefore, what we are seeing is the price increase we have taken on our cotton shirtings is adequate enough to take care of the increase in the cotton yarn prices. Now as far as our Engineering business is concerned, the price of steel has gone up so much that we have been able very successfully to pass on the steel price increase. And not just steel, it is also the freight. Because we operate almost 50% in the export market in the Engineering business, we have been able to pass on also the freight costs. Maybe there is a small lag. But eventually, we are able to pass on all the price increases with our customers. So therefore, we are not seeing any immediate pressure of margin diluting due to the inflationary pressure.

Okay. And just a follow-up on that. Like in the Lifestyle Business, you said that you've taken up price there. Can you mention -- tell me what kind of quantum it was, like a price -- like percentage?

In which business you said? I couldn't get your question.

In the apparels and textile business.

So in shirtings where you have the price pressure, you have got an increase between the summer and winter close to 5.5% to 6%, which is good enough to take care of the cost increase.

Okay. Okay. And in the Engineering business, what is the time lag for the passing of the raw materials [indiscernible] price increase?

So again, between domestic and international customers, anything between 3 to 6 months.

The next question is from the line of Priyanka Trivedi from Antique Stockbroking.

My first question is on how has the recovery been in like the smaller cities? So [indiscernible] understand that the recovery in the metros and urban areas have been much faster than the Tier 2, Tier 3 cities, which is contrary to what happened last year. So are we witnessing a similar trend?

Yes. Okay. I'll ask Ganesh to...

So if you look at the last, say starting from mid-August or rather even July onwards, the Tier 3, 4, 5 and 6 cities have recovered pretty well. In fact, today, as I speak, we are sitting on about 8% to 10% more than similar period of Diwali minus 15, 20 days in the Tier 3, 4, 5, 6. Over the last 1 week, Tier 1 and 2 has also caught up into the [indiscernible]. And today, we see all towns, all -- most of the stores crossing their FY '19 performance.

I'll tell you the basic fundamental is, in tier -- metros and Tier 1, you had always the fear in the quarter of a third wave. So people were very apprehensive. With 1 billion vaccines there, people are clear that maybe the third wave is not coming or at least the fear has subsided. So therefore, people are coming back and shopping. And the big-ticket purchases, if you see, happens mostly in the metros and Tier 1. However, if you see the recovery, you have 3, 4, 5, 6 cities have seen right from the July month onwards. However, in the bigger cities, metros and Tier 1, you are seeing it now in the last couple of weeks because the fear of third wave is waning away and people are more vaccinated.

Okay. Okay. Got it. Yes. And my second question is on the Real Estate business. So in last 3 quarters, we have witnessed that the EBITDA margins continue to be about 20%, 21%. So are we expecting this range to continue? Or are we expecting any further improvement in margins in our Real Estate business?

So I'll tell you that real state margin, we are expecting it to continue. The 2 things, obviously, we are seeing a good traction, as I have mentioned. There has been a certain price increase, 2 price hikes we have been able to pass on to the market. And there is a pressure on the steel and the cement prices, which we have been able to offset. Now it's a little difficult for me to say that how long this streak will continue in terms of the price increase because the steel prices practically every quarter, every week is going to -- increasing. But considering that we have been in a good spot by selling our products so well, 75% of launch inventory sold, we see that the margins will be sustainably maintained.

The next question is from the line of [indiscernible] from [ Sapphire Capital. ]

Sir, you did mention in one of the previous participant question that we are on verge of maybe crossing the pre-COVID level of revenue and profitability. So are we like 1 or 2 quarters away? Or maybe 3, 4 quarters? Some kind of comment on that would be helpful.

Yes. Look, you see, what will happen is on a consolidated basis, we believe that we will be very quickly there. I think it will not be very, very far that we'll be there. Whether few crores here or there, I cannot comment upon. But broadly, it looks like that Q3 so far, what we are hearing and commenting upon, looks very, very strong. So I think we are almost there. And if you see the performance level, that we should be able to achieve between H2 the levels which we have seen in the previous FY '20 level. I think H2, we are very, very confident that we should be able to achieve pre-COVID levels.

In H2, okay. Fair enough [indiscernible]. And how do you see the margins? Now you did say that INR 300 crores cost savings we have done as compared to FY '20 and FY '22. So that effectively means at the pre COVID, kind of we used to do about 11% kind of a margin on a INR 1,900 crores kind of a top line. So now, once again, if you reach pre-COVID kind of revenue, our margin profile would be better than 11%, 12%? 12% we did this quarter, and 11% as the pre-COVID kind of a margin, excluding other income, yes.

Yes. So look, our margins are accretive. As I said, we are very clear that the margins, what we have shown, is strong, is on the back of the corporate cost rationalization, which has been done. Now that should reflect and continue to reflect going forward. I cannot go beyond this in terms of giving any more guidance.

That's fine. And we have seen -- the last queries, we have seen interest and depreciation also some savings, right? You mentioned about INR 25 crores kind of a saving. So is that going to sustain, both savings and interest as well as depreciation?

Yes. So look, depreciation is that whatever has been done, we are not going any embarking upon a very large mega CapEx project. So to that extent, depreciation continues. As far as interest is concerned, over the last few quarters, we have spoken very, very clearly that the big theme for the company is the cash flow generation needs to be used for deleveraging the business. And that is clearly reflected. If I look at it, the levels of debt, let's say, compared to fiscal '20 debt of INR 1,859 crores to INR 1,564 crores. So almost like INR 300 crores, debt is down. We demonstrated very clearly. If I talk about 31st of March fiscal '19, we were almost INR 2,200 crores of debt. So INR 700 crores, INR 800 crores debt. So I think the philosophy is very clear that cash flow generation is to be used for debt reduction. Plus we have also found ways that we are taking borrowing a little cheaper so that you can reduce the interest cost as well. So combination of both 2. And the focus is clearly on the working capital management, that we want to control the working capital and push hard on the inventory, receivables. That's the way.

Okay. Understood. So naturally, you don't expect like interest cost to move away or toward from current levels, right?

That's absolutely.

The next question is from the line of Mithun from Kivah Advisors.

I just wanted to understand in terms of your -- on the textile business and the Branded Apparel business, I just wanted to understand, are you looking at areas which potentially are growing faster as a market rather than your traditional Branded Textile business where you already have good market share? But the overall market, is it growing -- it's still not growing as fast, I think, even historically. So are you looking at maybe spending more of your energies into trying to drive casual wear, ethnic wear or inner wear as categories using your brands? So I just wanted your thoughts on that.

Yes. Thank you for this question. And I think you have a very, very right question you asked. If you recently look into it, the purchasing power in town 3, 4 and 5 has gone up significantly high. And the government has also pumped in a lot of money through infrastructure and through agriculture sector [ loan. ] The aspirations of Tier 3, 4 and 5, people have also gone up to wear branded segment. Where we do see clear opportunity for meeting our -- for enhancing our demand for Raymond Branded Apparel, and we are well-established, renowned brand in these markets so the first chance comes to us. So we are seeing a significant growth in lower-tier towns, and we are feeling that effect also in our sales pattern. So we are opening up our distribution network, either through distributors or wherever possible, we are opening our own TRSs and EBOs. So that's how our strategies are there to capture the market.

And also, if you look at the collections which we have launched, it is a collection not just meeting to the office type of environment. We have this [ Vice ] collection, which has been launched, which connects with -- even on the apparel side, we have launched new collection, which goes for all the customers, which people are not using only for the office wear, for all the casual and such things. So we are seeing -- and there is enough and more opportunity in our segment itself with the kind of product which we deliver, with the fashion which we deliver. I think there is a lot of opportunity for us to grow.

Right. And just wanted to also get a sense from your last -- you had one call in between quarters talking about consolidating businesses into apparel, textile, real estate and a third entity, which could be potentially on the Engineering and Auto Components side. I just wanted to understand, I think at that point, you mentioned that you could discuss further later. Is there a thought process of potentially hiring off each of these entities into separate companies, driven by a separate management where you could unlock value in these 3 companies individually rather than being in a conglomerate as we are right now? So just wanted your thoughts on that. Any time line that you see that is happening?

Yes. So look, I think Raymond, on 27th of September, the Board took certain decisions, which is strategically organizing the business. Where we sit -- look, there are multiple businesses in the group. So we have got B2C business where you have the Branded Textile and the Branded Apparel. So first and foremost was to bring the Branded Apparel along with the Branded Textile so you get all consumer-facing business under 1 umbrella, which is under the Raymond Limited domain entity. Then you have got the Engineering businesses. And you have an Engineering, which is a Tools and Hardware business as well as you have the Auto Components business. Both are buyers of steel. Both have got -- some have got industrial customers. Some got do-it-yourself customers. But both have got some overlapping customers. So we believe that there is a lot of synergy associated when you combine the businesses under one umbrella. So that was the second piece. The third piece was the Real Estate. As I told earlier, that we are going out and expanding this business of real estate beyond Thane. And when you go beyond Thane, maybe there is a certain pool of capital which is required as a growth capital. And when you put it into a subsidiary, the certain targeted growth capital can be brought into this business. So by this, what you are trying to do is grow each of the businesses very, very strong. And see, when you grow these businesses strong and you have the deleveraging possibility as well as creating value and, maybe at some point of time, monetizing some of the businesses in order to create a larger share of the value. Operator?

[Operator Instructions]

If there are no questions, then wishing each one of you, very, very happy Diwali and a prosperous new year. And look forward to talking to you in the next quarter.

Sure. So thank you very much. On behalf of Antique Stockbroking Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.