Raymond Limited (RAYMOND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Raymond Limited Q3 FY '22 Earnings Conference Call hosted by Antique Stockbroking Limited. [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.

Yes. Thanks, Adi. On behalf of Antique Stockbroking, I would like to welcome all the participants in the Q3 FY '22 Conference 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, sir.

Thank you, Abhijeet. Good evening, everyone, and thank you for joining us for Q3 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. Amit Agarwal, Group CFO; Mr. Ganesh Kumar, Chief Operating Officer of Lifestyle Business; and Mr. Harmohan Sahni, CEO of Real Estate 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 Q&A session. Over to you, Amit.

Thanks, Mukund. Good evening, ladies and gentlemen. Thank you for joining us today on this earnings call to discuss our results of third quarter for fiscal '22. Let us quickly reflect upon how the market conditions were there during the third quarter. Domestic market witnessed an upbeat sentiment that drove consumer demand in the third quarter of the fiscal, backed by higher optimism, festivity and wedding-related purchases. The sustained rebound momentum witnessed from mid-August, post-opening of the market and improved vaccination in the country got further augmented with 100% store network operations, resumptions of offices, surge in travel and overall festive moods starting from Navratri in October, followed by Diwali in November and Christmas in December, resulted in accelerated our B2 sales -- B2C sales. We witnessed the robust traction [ in increasing ] sales with higher footfalls in our stores as more consumers were able to indulge in shopping experience. The vaccination rise among the 18 to 45 year age group, which is the key customer category visiting malls, started progressively from May, June month onwards for whom the second dose eligibility was applicable largely in August and September month, which were one of the main catalysts. This provided the much required impetus to both high street and retail outlets in shopping malls, thus increasing the confidence among our trade partners that resulted in strong revival across our trade channels. In the export market, strong momentum for orders was maintained in both Garmenting and Engineering sectors. From Garment perspective, in U.S., U.K. and Europe market, where consumerism is a key factor in driving the economic growth, there was strong retail sales due to buoyant consumer demand despite high inflation and uncertainty about COVID pandemic. Before summarizing the financial highlights, we are happy to share that our third quarter fiscal '22 has been a commendable quarter in terms of overall performance of the company. The company has achieved significant number of milestones, leading to a robust performance driven by strong focus on execution. It is a testimony to the fact that with a 95-year-old strong brand, Raymond, and pan-India presence across businesses, we are a resilient organization that has been demonstrating strong grit to bounce back stronger quarter-on-quarter. Let me now give you key consolidated financial highlights for the quarter -- third quarter of fiscal '22. In terms of our consolidated revenue, this grew by 45% to INR 1,871 crores from INR 1,286 crores in third quarter fiscal '21, reaching pre-COVID levels. This growth was driven by strong increase in sales across all businesses in both domestic and export markets. Also on a preceding quarter basis, the revenues were higher by 18% from INR 1,583 crores in the second quarter of fiscal '22. Similar trend was witnessed in second half of the previous year, with -- when unlocking and opening up markets led to a strong growth in sales. This reiterates the fact that with recovery in consumer sentiment, there exists a strong demand for our products and services across the country as well as in the global market. While revenue grew by 45%, our EBITDA grew by 93% over previous year, achieving highest-ever EBITDA of INR 303 crores with an EBITDA margin of 16.2%. This was driven by strong performance across most of our businesses as compared to previous year. We also reported highest EBITDA -- PBT of INR 186 crores and highest margin thereof of 9.9% in the last 10 years, driven by strong performance and reducing the interest cost. Through a combination of strong EBITDA and efficient working capital management, we generated free cash flow of INR 320 crores, driving the net debt reduction of INR 310 crores, leading to a net debt as of 31st December 2021 to the tune of INR 1,253 crores. Our net profit was over 4.5x over the previous year, amounting to INR 100 crores in third quarter of fiscal '22 compared to INR 22 crores in third quarter of fiscal '21. Now let me discuss the operational performance in more detail. In third quarter fiscal '22, strong growth was witnessed across all businesses, resulting in 45% growth from INR 1,286 crores in second quarter fiscal '21 to INR 1,871 crores in third quarter fiscal '22. In our B2C businesses of Branded Textile and Branded Apparel, all the trade and retail channels have shown the stronger recovery, resulting in both these businesses growing by about 50% as compared to last year. In terms of our B2B businesses of High Value Cotton Shirting, we witnessed strong pickup in domestic demand, resulting in high growth of 72% compared to previous year. Even the Garmenting segment grew by 48%, driven by continued high momentum in our key export markets of U.S., U.K. and Europe. In the Engineering business, where we have already recovered and achieved pre-COVID top line in third quarter last year itself, this quarter, additionally, we have been able to grow by 28% over the previous year level, driven by growth in export markets and continued improvement in domestic demand across categories. In the Real Estate business, we witnessed also a strong growth in the number of bookings on the back of encouraging demand and fast-paced construction activity, leading to a sales of INR 175 crores, which is 177% growth compared to last year. Let me talk about the EBITDA and the operating costs. We have achieved the highest-ever EBITDA of INR 303 crores for the quarter, which reflects a growth of 93% over the previous year and EBITDA margin of 16.2%, higher by 400 basis points as compared to previous year. This was driven by strong profitable performance in our B2C business of branded textile and branded apparel and supported by other businesses as well. As far as operating cost is concerned, our operating cost stood at INR 478 crores during the quarter, which was higher by 43% as compared to previous year level of INR 334 crores, primarily due to increase in revenue. However, with such continued strong focus on optimizing operating expenses, we have been able to lower the OpEx by 18% that reflects upon a savings of INR 102 crores over pre-COVID third quarter fiscal '20 levels of INR 580 crores while revenues were at similar levels. Additionally, from an interest cost perspective, based on the deleveraging and interest rate optimization, we were further able to reduce interest costs to INR 57 crores in third quarter fiscal '22 which is lower by INR 11 crores, as compared to INR 68 crores in third quarter fiscal '21 and lower by INR 21 crores as compared to INR 78 crores in third quarter fiscal '20, pre-COVID level. The average interest rate level for the quarter was at 7.96%. On the working capital front, we continued our focus on efficient working capital management. And overall, our working capital decreased by INR 161 crores to INR 1,101 crore as of 31st of December 2021, compared to INR 1,263 crores as on 30th September 2021, mainly through a reduction in receivables driven by strong collections throughout the quarter. Our number of net working capital days, it also reduced by 19 days from 73 net working capital days in September '21, to 54 net working capital days in December '21 based on a quarterly annualized revenue basis. From a cash flow perspective, driven by strong operating performance, we reported strong operating cash flow of INR 379 crores and free cash flow of INR 320 crores for the third quarter of fiscal '22. On the debt, the gross debt stood at INR 2,125 crores as on 31 December 2021 as compared to INR 2,206 crores as on 30 September 2021. At the same time, the cash and cash equivalents was higher by INR 229 crores and stood at INR 872 crores as of 31st December 2021 as compared to INR 643 crores on 30th September 2020. We were able to reduce the net debt by INR 310 crores and the net debt stood at INR 1,253 crores as on 31st of December 2021 as compared to INR 1,564 crores as on 30th September 2021. Here, I would like to reiterate the fact that over recent times, the company has embarked on a deleveraging plan and has undertaken multiple steps in that direction with the purpose of enhancing shareholder value. In December 2019, we included INR 350 crores as a preferential issue for net proceeds from sale of land by an associate company and utilized the entire amount for reducing debt. Additionally, during FY '21 and in the current year, which was period impacted by multiple waves of pandemic, our strong focus on cost optimization and effective working capital management, our deleveraging strategy has played out well. The key achievements have been, we were able to reduce the net debt by over INR 600 crores, that is by INR 443 crores in -- during FY '21 from INR 1,859 crores in March '20 to INR 1,416 crores in March '21. And by INR 163 crores in current year from INR 1,416 crores in March '21 to INR 1,253 crores in December '21. This improved debt structure through effective refinancing, with 3- to 10-year maturities of long-term debt continuously improved the net debt-to-equity ratio from 0.75x in March '20 to 0.65x in March '21 to 0.58x in December '21. Now, allow me to take you through our business segment-wise performance. Branded Textile segment reported strong growth of 49% to INR 899 crores versus INR 603 crores in previous year. In the Suiting business, there was strong volume growth across all categories of wool, blends, poly-viscose and [ gifting ] solution. We offered collections catering to new trends and fashion. Our offerings in wool treatment has received strong response from our customers, and also there has been high demand for the premium [ gifting ] solutions catering to the wedding season. From the Shirting business, there has been a strong volume growth in the cotton shirting category. We received good response to our Vibez collection, a latest collection of vibrant shirting fabrics [indiscernible] of casualization that are available across cotton and linen blend. From a channel perspective, primary sales was mainly driven by a renewed optimism among trade channel partners towards unlocking that drove good revival in wholesale and [ retail ] channels on the back of improved buoyancy for festival demand, strong [indiscernible] demand. Even we talk about the secondary sales, which continued to reflect higher momentum in Q3 and in our TRS network, we witnessed the ATV increase of 13% compared to pre-COVID levels due to improved consumer sentiment and increased footfall. The segment reported healthy EBITDA margin of 21.2%, higher than 433 basis points compared to previous year, mainly driven due to increase in sales and realization. The growth was also driven by better product mix as there were higher sales of poly-wool blends and benefit from 2% to 4% price hike taken for -- across categories in bookings done in mid of the year and overall operating efficiency. So let me talk about the Branded Apparel segment, which recorded a sales growth by 50% to INR 316 crores vis-a-vis INR 211 crores during the third quarter of previous year, and the EBITDA margin improved to 10.7% as compared to 3% in previous year. The growth was driven with strong recovery in consumer demand with the opening up of markets as restrictions were removed and footfall increased in the retail outlet in the festive and wedding season. Over the last 2 quarters, our successful initiatives such as cost optimization, focus on consolidation of back-end processes and serviceability, store rationalization, channel-specific merchandise and online penetration helped. These initiatives have worked very, very well for us and helped us in becoming leaner, making them operationally more efficient. We continue to focus on enabling growth through widening the product portfolio, increasing online presence, network expansion through franchise model and continue to constantly work on back-end consolidation for improving efficiency. We have received overwhelming response from our customers for our new collections in our core product portfolio, casual category and category extension in [indiscernible] strategy. Our store network and LFS doors witnessed higher footfalls and observed higher traction. Keeping up with the demand of fresh collection, the quick turnaround of merchandise, we have witnessed business growth in trade channels. We have also received very good response from our curated special line for e-commerce marketplaces. Aggressive marketing campaigns in digital as well as other media in targeted cities during festivals helped to strengthen our brand and also drove the footfall across all of our stores. The segment reported a healthy EBITDA margin of 10.7%, mainly due to better sales along with higher realization, improved cost margin, better channel mix and continued operational efficiencies. Regarding our Retail network, the network as on 31st of December 2021, we had 1,411 stores spread across 600 towns. With opening up of market and revival in consumer sentiment, we witnessed strong traction in secondary sales with improved average transaction value. In our The Raymond Shop, TRS network, recorded 13% growth in average transaction value as compared to pre-COVID level. We are strongly focused on making our retail portfolio healthy. During the quarter, we closed 21 underperforming stores, and currently, we are in the last phase of store rationalization process, while at the same time, we are continuously evaluating opportunities to strengthen our retail footprint. During the quarter, we opened 12 stores across Tier 1 to 4 towns. Let me talk about the Garmenting segment, where the sales grew by 48% to INR 203 crores compared to INR 137 crores in previous year, driven by continued strong momentum in export market. Growth in bulk business was driven by higher demand from customers from U.S., U.K., Europe markets. And with the China plus one adoption by some global brands and elevation to critical supplier status has helped us in driving customer acquisitions. EBITDA margin for the quarter improved to 8.6% due to better utilization levels and operational efficiency. Let me talk about our High Value Cotton Shirting segment, where the sales grew by 1.7x to INR 148 crores compared to INR 86 crores in previous year due to higher cotton fabric sales in domestic markets and strong demand for B2B customers. At the backdrop, lower inventory levels maintained at the -- and higher segment retail during the festival and wedding season. The segment reported EBITDA margin of 8.6% in for the quarter, impacted mainly due to higher raw material prices and lower contribution from higher-margin yarn business. During the quarter, the Engineering business was consolidated under JK Files and Engineering Ltd., which is a 100% subsidiary of Raymond Limited. On an aggregate basis, the sales grew by 28% to INR 209 crores as compared to INR 163 crores in previous year. Sales growth mainly driven in export markets of U.S., Europe, Asia and Africa and in domestic market, there was continued improvement in demand across categories of products which we supply. The business reported lower EBITDA margin of 15%, mainly due to increase in raw material prices and trade costs, which was partly offset by higher productivity and efficiency. Real Estate segment grew by 177% to INR 175 crores from INR 63 crores in previous year. While there has been a strong demand in the overall real estate sector, the key drivers being affordability-driven demand, rising income levels and low mortgage rates. As the realty business witnessed strong growth due to higher number of bookings and fast-paced construction activity in all 10 towers of the Ten X Habitat project, as the revenue is recognized on percentage completion [indiscernible]. Overall, Project Ten X received 208 bookings in third quarter of fiscal '22, resulting in total of 1,763 units booked, which is 73% of the total inventory launched till 31st December 2021, with a booking value of INR 1,722 crores. During the quarter, we launched the premium residential project, The Address by GS, and received an overwhelming response with 117 bookings in third quarter fiscal '22 results, with a booking value of INR 252 crores. Now, let me update the tower-wise construction status. Tower 1, 2, 3, 4 is about [indiscernible] work in progress; Tower 5, 6, 7, 15 [ flat, ] work in progress. Tower 8 [indiscernible] work is in progress; Tower 9 and 10 [indiscernible] were completed. Restoration work is in progress for the premium residential project, The Address by GS. Let me also give you an update on the consolidation of the businesses undertaken, which was announced on 27th of September 2021. As far as the consolidation of Engineering business is concerned, during the quarter, we have done the consolidation of the Engineering business. Post-consolidation, Ring Plus Aqua Ltd. is a subsidiary of JK Files & Engineering Ltd. This consolidation is expected to help in getting -- bringing in synergies in terms of product applications, business development, sourcing of raw material, logistics services and overall administrative process. In line with the stated strategy to monetize the business, thereby deleveraging Raymond Limited, JK Files & Engineering Ltd. has filed the IPO with the regulatory body for raising INR 800 crores through offer for sale of shares held by Raymond Limited. Currently, we are awaiting the regulatory approval. The next was consolidation of B2C businesses, including Apparel, into Raymond Limited. We have received the shareholders and lenders' approval for scheme and currently, the scheme has been filed with the NCLT and are awaiting the approval thereof. In terms of subsidiarization of real estate business, the Board approved the Real Estate business division to be subsidiarized into wholly-owned subsidiary of Raymond Limited. Now, let me talk to -- about the current status of operations and the near-term outlook. We are seeing strong consumer demand led to revenue recovery to the pre-COVID levels, and with the current momentum, we expect to improve the operating performance and to be on a profitable growth path. In the domestic market, from the last week of December, there have been rising concerns over the third wave of the COVID pandemic. While there has been state-level restrictions, ban on large gatherings, however, it has been more of relaxed restrictions and limited lockdowns, including weekend lockdown and night curfew. Overall, consumer sentiments are positive with double vaccination and relaxed restrictions and expected to be progressively improving remaining of third wave while trade channel is cautiously optimistic. In the Garmenting segment, the export demand levels continue to be strong, and China plus one strategy adopted by our customers, and better sell-through due to consolidation of global brands at retail level. Also in the U.S., U.K. and Europe regions, despite price increases, the demand is expected to continue as there was no major lockdown imposed by any country. From a raw material perspective, the wool prices and poly-viscose have been stable, and we expect it to remain the same for short-term basis. As we all are aware, the cotton prices have increased by nearly 100% over the last 1 year. And given commodity prices continue to remain high, we expect that the cotton prices will remain higher during the year. In the Engineering business, we expect good domestic retail demand in our main consuming sector and higher export demand mainly driven by industrial segments. The expectation is on the steel prices to soften. However, freight costs continue to remain an area for monitoring as there is a shortage of containers, which results in delays in the shipments as well. As far as Real Estate outlook is concerned, we expect growth momentum in the residential market to continue. From Raymond's perspective, the construction activity in our real estate business is in full swing in both the projects, and we are on time to deliver the first 3 towers of Ten X Habitat ahead of the RERA timeline by almost 24 months. From an OpEx cost perspective, we are on track to achieve the stated guidance of cost savings of INR 300 crores in fiscal '22 as compared to fiscal '20. As far as our industry outlook is concerned, we are expecting the union budget to be announced shortly, and we are hopeful that there will be further impetus for improving consumerism and expect reform that increases the spending power of the consumer, which will provide opportunity for Indian economy to achieve a higher GDP growth in the coming years. We also expect government to provide an impetus on infrastructure development and capitalize on the China plus one adoption of global economy -- global companies, which would boost the employment and income level that triggers domestic demand. Government incentives and support to fuel the growth in textile and apparel sector, presenting Indian players with huge export opportunities. Government also incentivize Made in India and [indiscernible] production of textile and related products. Factors which would support the growth of textile and apparel includes increased penetration of organized retail, favorable demographics and rising income levels, triggering [ giant ] demand for textile and apparel. Increased aspirations in Tier 3, 4, 5 towns has helped to improve the spend on the branded growth, rise of omnichannel convergence and mobile-led e-commerce. Today, Raymond, with its very strong brand name and nationwide presence in 600 towns and cities, is the market leader in suiting and shirting fabric company. With continued innovation through our strong R&D capabilities, supported by vertically integrated manufacturing facilities and focused omnichannel development and capability, we are emerging stronger than ever before to capture the growth potential in the market. On the Engineering business, our focus on consolidating market leadership, particularly in the Industrial side and Automotive segment, increased wallet share with our existing customers, increased presence in non-auto exports and continue to build relationships with other [indiscernible] customers. We are expanding the existing manufacturing capacity across our product categories of cutting tools, ring gears, water pump gearing and flex plates. In the Real Estate business, in line with the company's growth plan to expand its realty horizons beyond [indiscernible], the Ten X Reality Limited, the [ step down ] wholly-owned subsidiary of the company, has recently signed a binding term sheet for joint redevelopment of a residential project in the Western [indiscernible] district of Mumbai. The project is estimated to have an aggregate revenue potential of around INR 2,000 crores over a period of next 5 years. We will provide further updates on the same as soon as there is any meaningful progress. Along with strong potential for growth, we will continue to focus on liquidity management through cost-reduction initiatives and net working capital optimization. We aim to be a net debt-free company over the next 3 years. Thank you very much. And now, we are open for questions.

[Operator Instructions] First question is from the line of [ Harish ] from Motilal Oswal.

Yes. Am I audible?

Yes, yes. You are absolutely audible.

Just wanted to ask what is our outlook on the Lifestyle business?

Okay. So as we talked about...

[indiscernible]

Sorry? We couldn't hear the last part. You asked the question about the outlook on the Lifestyle business.

Yes, yes. Yes.

Yes. Okay. Outlook, as we mentioned, that we have seen a very robust demand, so to speak, the recovery compared to the pre-COVID level has been witnessed very clearly in the third quarter, and that is backed by the strong festive and the wedding season. Now, if I look at the current quarter as well as going forward, there's still a large number of weddings which is expected to happen. And based on the strength of the weddings and people coming back out of the COVID, there is a strong vaccination drive, we see a strong demand coming on our way. And you all know that if a wedding has to happen in our country, there has to be a Raymond fabric for an apparel to be worn at any point of time. And on the other hand, we have also a lag in terms of exports, which is the export of fabrics and the garment to the mature markets, be it U.S., Europe and U.K. We have seen very, very strong demand, we are full to the tune of -- until June 2022. As we speak today, we have been seeing almost for the last 7, 8 months ahead, 6 months order book has been full. And we are looking at very clearly some of the new customers, large retailers out of Europe whom we have been longing to do the business, they have come and engaged into a detailed discussion in terms of style, collection, pattern, and this is clearly happening on the back of China plus one strategy. So we are obviously benefiting out of that as well. And our facilities, both in India and Ethiopia, are running around the 80% to 85% of capacity utilization as we speak today. So we feel very confident about this.

That was really helpful. Just a small follow-up on that. Are you seeing any slowdown in our demand which is led by this new variant coming in or an impact of the Omicron? Are you witnessing any slowness in that demand? Or what is the ground look like in the last 2 couple of months or in January?

Look -- yes. And look, you see, what happens is -- and I didn't say -- a little bit on the lighter side, this Omicron variant has not been so severe. If you see people have been getting well between 5 to 7 days, so -- and the restriction or the lockdowns has not been at all on a country-wide. There has been some lockdowns here and there, but in the late hours, so that has not really impacted the shopping hours. Maybe one or the other place, Delhi or [indiscernible] has seen some of the lockdowns during the weekends, essentially. However, by and large, we have not seen such a restriction. Maybe there's a little small in the first 2 weeks. And -- but after that, -- and the first 2 weeks till 14th of January, in any case, things are a little weaker, considering the period. And now, good strong wedding season is ahead of us, so all our dealers are demanding the product. And I can go out to say that people are asking in such a manner that they ordered last week, and they expect a delivery in this week or next week. So people are expecting a lot of fabric to be delivered to them.

The next question is from the line of Meet Jain from LKP Securities.

Congratulations on a good set of numbers. My question is regarding the textile business, like we have very good revenues in this quarter and the margins are also on the higher side. So with the current trend you're seeing like the upcoming wedding season [ and in the ] -- so we're expecting, going forward, so we can maintain this kind of run rate in both our revenue and margins?

In terms of the revenue, textile being a little bit of a seasonality plays into the way. So you have always a third quarter, a very, very strong quarter with the festivals as well as a strong wedding season. But also then you have the poly-wool blend, which is far more in that quarter vis-a-vis in the next quarters. When the summer comes -- starts to come in, the poly-wool starts to come lower as a percentage of the overall. So to that extent, on a seasonality adjusted basis, we see the robust revenue to come in higher than previously [indiscernible] as well as in terms of improving the margin. Because what we explained to you that, as a business, from fiscal '20 level, which is truly the pre-COVID time, we have been able to reduce our fixed cost, our OpEx cost by INR 400 crores. And I think that is something which we have been able to work very judiciously that where to spend money, where not to spend money and how to spend. Therefore, that is something which is going to help us in consistently improving our EBITDA margins.

Okay. So like we did around 21% EBITDA margin this quarter for the [ potential ] business and our -- sorry, the average has been in the range of 15% to 17%. So are you going to maintain that kind of range going forward or it will be a little higher than that?

So it will be higher than the margins which has been historically maintained because the OpEx cost reduction is going to help us improve the margins.

Okay. And the next question is that, in this quarter, we have a higher effective tax rate of around 45%. So any particular reason for the change?

Yes. So look, in terms of the higher tax, sir, I'll give you a simple explanation. During the quarter, what we have been able to do is we took dividends from our 2 subsidiaries of almost INR 100 crores. And when you consolidate the results, the dividend income gets netted off, eliminated, however, the tax incidence on that remains the same. So therefore, if I take out INR 100 crores of dividend income on which you pay 50%, if you knock off that 50%, then we have a standard tax rate of around 28%. So that's the reason.

Okay. Got it, got it. And the last question is on this new tower [indiscernible] projects of [ premium ]. We say that we have booked around 50-plus units in this tower in this October, December '21. And so how many units have been launched currently?

So basically, what we said to you that within the launch and 31st of December, it is practically 45 days, we have sold close to 116 units. And the total number of units is to [indiscernible] -- 180 launched, and of that, 116 we have sold.

Okay. Out of 180, 116 has been sold. And, what -- okay. Okay.

[Operator Instructions] The next question is from the line of Harsh Shah from Dimensional Securities.

[indiscernible]

Harsh Shah from Dimensional Securities, your line is unmuted.

Better now?

[indiscernible] speak a little louder.

Yes, yes. If you could speak a little louder.

Yes, sir. So sir, we have seen significant raw material inflation in last few quarters. If I look at your branded apparel and textile division, can you give us a breakup in terms of volume growth and price growth for this quarter?

So what happens is if I talk about in terms of the inflation, we have been easily able to pass on the raw material inflation on the branded textiles. Be it the cotton, be it on the wool prices, we have been able to do that. In terms of the volume, there has been a small improvement in terms of the volume because, you see, we have to be very careful that you don't want to over flood the market, but you want to be clear that the demand for your products is there. And based on the demand you supply the product, which is of a different quality. Now, what we have been also able to do, as I talked in my opening remarks, that we have improved the mix. So if you improve the mix on a poly-wool blend, you get maybe lesser mixes, but your margins get higher. So that is the whole trick that is being played on a day-to-day basis and our efforts, which is the #1 player as a hosted player in the country, your effort is to bring customers more and more to the wool segment, [indiscernible] segment, which is much more profitable vis-a-vis the falling [ risk courses ] of the world.

So when you look at the sales of around 49%, 50% in your branded textile and apparel business, [ you need to see ] that volume growth there would be negligible. Most of it would be priced high, or [indiscernible] revenue mix.

No, no. So in terms of -- compared to 50%, we have almost 22% to 23% is the volume growth because in the last year, the volume was significant [indiscernible] 28% to 29% is a volume growth. The balance -- 8% to 9% is on account of mix and the balance, 10%, is on account of a typical price increase. That is the way you should break it up.

Yes. Okay. Okay, yeah. That is what I was looking for. And sir, in your High Value Cotton Business, which is a B2B business, why is it you were not able to pass through the raw material inflation? Because in the B2B, most of it is passed through, right?

Yes. So I'll tell you B2 -- you asked about B2B, right?

Yes, High Value Cotton business. Yes.

This is Ganesh here. The High Value Cotton business primarily gets into the B2C channel, which is the branded channel, and only a small portion gets into the B2B. And there, we have been -- in the B2C channel, we have been able to recover most of the price increases that we have incurred. And in the B2B also, since high-value cotton is a very small percentage, the price increases have been passed on to the buyers.

And just to add, what is happening is there are 2 things. One is on account of technical raw material, which is the cotton or the linen flax, that price increase you have been able to pass on. However, there has been certain price increases on the dyes and chemicals. You all know the chemical industry has gone through a very different phase during the last third quarter where the prices have jumped up, even the coal prices. So in the quarter itself, such inflation has not been able to recover. But now, effective first of January, we've been able to increase the prices on our cotton fabric for the B2B, because B2B players are typically the ones who contract the price for a little longer period than on a spot basis. So those price increases, we are going to benefit in the first of January onwards.

And sir, there is stark contrast between your Textile and Apparel business that the margins have improved considerably. But in case, sir, High-Value Cotton margins have -- like, mainly halved, from 15.1% to [ 8.83%. ]

Yes. You're right. Because the reason being, one, clearly, in your branded CapEx, you are getting a significant [indiscernible] for a brand, which is always the case. And once you have the resumption of the demand, you are selling at a decent level, your pre-COVID levels, your cost due to fixed cost dilution and everything starts to play out. Whereas on the B2B segment, what happens is you are delivering to the customers who are eventually going to be the apparel makers. And as I mentioned, the prices are not moving every day. Which you change the prices at a certain periodic level, and there is always a lag. In the B2B businesses all across, you will always have a lag. And after that lag, you start collecting. And once you collect it, then it remains with you. So therefore, you will see that the price change of any inflationary [indiscernible] on a retail is far sooner compared to in a B2B business where there is a lag.

Okay. And similarly for our engineering business, [indiscernible], sir, here we have seen some correction in the margins as far as raw material in [indiscernible] part. So here, do we expect the margins to return back to normalcy after a lag of a few quarters?

Yes, absolutely. So what has happened is, if you see the overall margin, we have delivered is 15%. And 15%, if you see over the last few years, that has been consistently growing up. It used to be 12% and it went to 13%, then it went for 14.5%. And over -- what has happened is when you look at the third quarter of last year, why the margin was so high? Because we were sitting with a very high inventory of steel, which was at a lower price. And during the last 3 quarters, the steel prices have moved up. And there has been -- obviously, there is certain supplies to a B2B segment where you get a delay, there is a lag. And therefore, we will collect it, but it will be with some amount of lag depending upon the country export. And let us also not forget, in Engineering sector, we export -- 50% of our goods are exported and the freight rate increases has been to the tune of 400%. Now, freight rate increases, it takes a while to recover it back. So that's the reason.

Okay, okay. So [indiscernible] sustainable margins would be in the range of for Engineering division as a whole?

Look, on Engineering business, as we talked about and -- that we have this margin. You have seen the performance in the first quarter. You have seen the performance in the second quarter. The average of the same, you can consistently consider that, that could be the margin.

Okay. And lastly, on the Real Estate side, have you booked any revenue in our premium project, The Address?

No -- so if you look at it, the way the business -- as you do the accounting, you do on a percentage of completion method. And since in the last quarter, the project was launched and there was hardly any work done, so we have started the excavation now. And based on that excavation during -- from this quarter onwards, we will start booking the revenue.

Okay. So out of INR 252 crores which we have booked, how much have you received? How much has been collected?

No. So basically, sir, when you do these kind of things, at the time of booking, anything between 2% to 5% depending upon various customer base and various arrangements, you collect that amount. But for me, the most important is somebody who has already come in, made a booking and that reflects upon the confidence of the project that out of 180-odd apartments, 116 bookings have been made.

So just to add to that. As per RERA, the legal requirement is that I cannot collect anything more than 9.99% until I have registered the agreement. And sales registration of agreement, it is any time between 2 to 2.5 months timeline is needed. So in any case, by law, I cannot collect more than that, until the administration happens. So most of this 10% or 15% money will get collected towards the end of Q4 by March.

Okay. And just sir, I have 1 last question, that is on the liquidity side. So we have [indiscernible] to INR 700 crores worth of cash in our books, and we are running some debt as well. Now, with the COVID hopefully almost coming to an end, what is the plan here? I mean, do we expect to continue to maintain same level of liquidity on our balance sheet or we would retire some debt and bring down the cash level?

So look, very clearly, we have demonstrated that we have been able to consistently reduce the debt. And the focus now is to become a net debt-free company over the next course of time. Now as far as this cash is concerned, look, this cash is available, and we have been able to draw lesser and lesser our cash credit working capital lines. Second thing, if you look at it in terms of your thoughts about the negative carry. The way we have been able to borrow now and our recent past in the last 2 to 2.5 months, we are able to borrow at a phenomenally cheaper rate, so the negative carry is very, very small. And considering the COVID impact, we have been seeing every 6 months or so, when a COVID wave comes in. So it is much better, important, that you have the [indiscernible] available with you so that you can draw upon these facilities -- drop on this cash balance at any point of time. So let's go through a journey when we see 6 to 9 months of -- for paying period where you're not impacted by pandemic and then we can take it forward.

The next question is from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations on a strong set of numbers. Just wanted to understand your cost reduction strategy. So in 1 of the slides, you mentioned that there has been a substantial 9-month -- the substantial reduction in the cost in the 9 months over the last 1 year. Now, in this year also, we had the first quarter when the -- when we were hit with COVID and the [ total closure ] stuff. So there would be some operating expenses which would have got reduced over there as well. So how should we see your cost structure going forward? And what should be the sustainable cost reduction in absolute terms even when we reach pre-COVID level of operations?

Yes. No, absolutely. A wonderful point, Prerna. I think if you look at it, we have been showing that if I consider even the most recent quarter -- third quarter of fiscal '22, we have been able to reduce our cost by INR 100 crores compared to the third quarter of fiscal '20, which was a comparable COVID -- pre-COVID quarter. And overall, for the 9 months, we have been able to reduce INR 400 crores. And we gave the guidance that for the whole year, our reduction compared to fiscal '20 was INR 300 crores. So we are ahead of that. And this has clearly demonstrated that it is not just because of the COVID period, however -- it is going beyond the COVID period. So what has happened is certain structural changes which have been brought in terms of manpower, rental savings, the way you do the advertisement, the way you go about sales promotion activities, the way we used to hold this big trade shows, which would cost INR 20 crores, INR 40 crores. So like we explained to you last time also that every single item has been looked, and we have started to work on a zero-based budgeting so that we do not increase the cost. Now as far as this year is concerned, we are very clearly seeing compared to the fiscal 2020, INR 400 crores has been already achieved and obviously, some more savings will come in the Q4. So in well ahead that, we have been able to reduce the cost. If I look at it, you see in the first quarter, which was maybe pandemic [ less ] 30%. Compared to that, Q2, 27%; Q3, around 20%. So very, very clearly, we are seeing that we will be able to maintain a decent cost reduction on a go-forward basis. However, at some point of time, you have to also consider the impact of the inflation. If I would consider fiscal '20 and adjusted by the inflation even with the 4%, 4.5%, you can imagine that we are sitting in the savings in this quarter itself by more than INR 175 crores of savings. Because that is -- normally one would go out and [ use ] that inflationary increase. So that something needs to be also incorporated.

Okay. Okay. And sir, could you guide us on your new businesses strategy of growth like Ethnix, Khadi and FMCG businesses, which has been quite small today, but can see substantial growth going forward. So what is your strategy there? And how -- what kind of growth can we expect in these businesses?

Okay. Let me start with the Ethnix, I think that's -- that's what we are focusing on as a growth lever. And we have reworked our Ethnix strategy and what 3 aspects that we are going to look at. First is The Raymond Shop is a natural destination for wedding purchases. So that is where we are going to expand our presence, and we are going to make sure that all those wedding -- Raymond shops where we have space to offer or when we can expand, we are going to offer Ethnix and arrange to the consumers for wedding shopping. Second is on the EBO network. From the current network, we are planning to double the network expansion over the next 12 to -- 12 months. And if things go on well, we will probably get into a 3x mode as well. I think that's the second area. Third, of course, which is a very fundamental to this business is what are the offerings that we give to the consumer. So we have set up a process of understanding the consumer insights on the trends and the fashion that we are offering on the Ethnix side, and that is where we are going to expand in terms of the core Ethnix as well as the casual Ethnix range. And that's where -- that's where we will -- we will build capabilities for us. I think broadly, the assumption is that Raymond Shops are the wedding destination -- a logical wedding destination, and that's a leverage which we would capture and build the Ethnix business. For FMCG, I will give it to Amit.

Sure. So look, FMCG is a very strong business. FMCG, as we speak today, we are currently in our own category, which is the [ new ] category, which is down as we speak. To date, considering the market, people have to go out, then people use more deals, and there's people are not going out. But slowly and steadily, this is a very strong category which would recover. We enjoy a healthy market share of 17% to 18%, and we see a huge growth opportunity for us, as we talked earlier. We see this revenue over the next 4 years to double from the level where we stand today, and also improvement in the margins. So very, very clearly, a very, very robust business for us, which has a significant potential, and capitalize on the strength of the marquee brand which is the Park Avenue and the KS.

Okay. Okay. Sir, a follow-up on this Ethnix strategy. Just wanted to understand, you are planning to open separate Ethnix stores or it will be a part of the TRS? Because when you talk about Raymond as a destination for wedding shopping, it will include all your blazers plus short pants, and as well as the India attire, or the one [indiscernible].

So -- so to answer to your question, there is an opportunity for us to leverage on the existing Raymond Shop, which is one of the strategies that we will do. It is not an either or because there are certain markets, certain catchment areas where you need to add exclusive brand outlets as well, so it will be a combination of both Raymond Shop as well as EBOs. And plus, we will, of course, tie up with [indiscernible]. We will also tie up with MBOs, select MBOs, where we'll offer this range. So we will have formats of EBOs under 3 categories, which is mostly in terms of the size of the market, business opportunity, in terms of 1,000 square feet, 1,500 and 2,000. I think that's what we are looking at.

Okay. Okay. And the last question is on profitability. This quarter, we've seen substantial improvement in profitability, especially in the branded textile and branded apparel businesses, which we've been waiting to see a 20% plus in branded textile and 10% plus in the branded apparel or kind of business. Now, how sustainable these margins are? And sorry if I -- I joined late, if these questions have been answered -- earlier also. Just wanted to get clarity on this.

Sure, Prerna. Obviously, you see -- I tell you, as far as the branded apparel is concerned, we have spoken a number of times in the last 18 to 24 months, because of the pandemic, people have not been able to go out to the shopping mall and the street to do the shopping in a normal desired manner. And the shopping of an apparel is not just dependent that you are a distinct shopper, you go and buy this. If you go for a meal, if you go for a movie, you will see something nice and you pick it up there, and that is called an impulse shopping where people are not really looking for the large discount and everything. Second, if I look at it, as the demand is so strong and the products, the new lines, which we have introduced are so strong that the discounting on the EOSS has come down substantially. Second thing, if I look at it in terms of the intake margin, very, very clearly, we are seeing an improvement in the intake margin. Third, all said and done, we have rationalized the cost in this segment of our business in a very, very large manner. Be it sampling cost, be it the distribution, be it the rental you need to pay, so we are very, very mindful that if the x number of -- x volume of sales happen, then you can say why only rental even if it is in the most attractive location. So all those careful evaluation is being done in order to see a healthier growth in revenue. And we know very well, if I look at INR 316 crores, it's a decent revenue which brings a decent profitability. So, therefore, we expect that this profitability will be continuing and give us a robust revenue going forward.

And in branded textiles, can we expect a little more margin because wool prices are going down?

No. So branded textile has explained also that in branded textile, what happens is it's a very seasonal business. So you will find in wool segment, which is sold typically in the winter time, your margins are way high. And in the poly-viscose and others, the margins are slightly lower. So seasonally adjusted. If you consider, we can easily see as the trend has been in the past, with a couple of improvements in basis points in terms of the EBITDA margin going forward.

Great set of numbers.

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

Yes. So I have just a couple of questions. I'm not sure if they are answered earlier. So first is, with the third waves coming in January and some restrictions in certain states, have you seen any change in our revenue momentum from the December quarter?

Actually not. Because what happens is typically, you see, we all know till 14th of January, the sales is a little lower because of the time -- and post-14th of January, the sale starts to improve considering the wedding starts to come into the way. And the wedding plays a very, very important role in the revenue. So -- and maybe it is a little bit coincided also with the Omicron variant, especially in the Tier 1 cities. And -- however, the sales get impacted when you have a countrywide lockdown or a state-wide lockdown or during the shopping hours lockdown. While in this Omicron variant, we have not seen any of these things happening. Maybe in far and few there, you have some weekends lockdown or late night hours, which is not typically a shopping hour. So the activities were practically happening. There was a small here and there dip, but can I say it was a remarkable -- a significant drop? Answer is no. So we don't expect any major concern as we speak today, but it is very difficult to predict which kind of variant and when it erupts, so.

In fact, this is one thing which we have to live with. I think as business houses, as retailers, what we have also started looking at is how do we prepare for this. So there are -- one is the revenue from the stores itself. Second is also how do we reach out to the consumers and how do we service their required requirements. From both this combined process combined together, I think we are in good stead, and we can tackle any sort of challenges that come in. Three points that one needs to remember. The lockdowns are typically localized, and lockdowns are not full-day lockdowns, it is basically restricted time outs. So whereby whatever shopping needs to be done is still happening. That's point number one. Second, vaccination is increasing with every passing day. I think that's the other point, which is also ensuring that people come to the stores, the malls, et cetera. And we have seen this evolution over the last 18 months from the first pandemic onwards, that now people are no longer scared of not getting out into and doing shopping if required. And the third, which is very, very critical is the weddings, the celebrations, the events have started going back to the original scale in terms of people wanting to get their relatives, their family, their friends, celebrate. So that is becoming much, much more prominent. And thereby, the impact on the retail for us, at least from what we are seeing in our Raymond Shops and the EBOs is not so significant.

Got it. Got it. That's very clear. The second question is, so the recovery that you have seen in the last 6 months, and especially this quarter in the festive season, do you see any divergent trend between, let's say, metros and Tier 1 towns and, let's say, smaller towns? Since Raymond has a fairly broad EBO network or TRS network.

Yes. In fact, the Tier 1 basically had a slow start, but today, across tiers, across zones, we have recovered the sales and they're doing -- all of them are doing fine. The only point which all of us need to remember is Tier 4, 5, 6, which, during the pandemic also, did not go down because it was always there. The second trend which we are also seeing is an improvement of the average ticket volumes. So that has gone up by about 10% to 13% on -- in a range. It has gone up, and that is still continuing to be going strong for us.

And let us understand very simple that the [ 25 lakh ] weddings, which people talked about and our dealer distribution network talked about -- between November, December, [ family ] between 1 or 2 towns, Tier 1 and Tier 2 towns. It is spread all across the country, and considering that it is spread, celebrations have spread all across the country, it benefits us.

The next question is from the line of Siddarth Mohta from Principal India.

Yes, sir. Historically, sir, we have seen strong topline growth in branded apparel and textile, but it used to be at an expense of working capitals. But this time, we have witnessed strong sales growth without compromising on working capital as reflected in our strong cash flow and debt reduction. So what were the few changes that we have done in working capital policy in [ the trends starting ] -- [indiscernible] more closely, system driven, and hope -- continue to maintain the same discipline in working capital without sacrificing on the growth?

No, absolutely. I think this is -- pandemic has started a lot of things. What we did was very, very clear that we took certain discipline that we will go out and sell to our dealer network, franchisee network on the premise that we give you all sorts of facilities, all provisions, all collections in everything. But there is one simple condition that when the amount is due, you will pay that money. And if there is a certain delay, which is not acceptable beyond the normal framework, we will [ start with ] the delivery. And now, that kind of a discipline which has clearly helped us to improve our performance in terms of receivable management. Second thing, what we have been also very careful was that whatever is typically required when the store needs, and that is why, which I mentioned in my earlier script back, we were getting orders last week to deliver as intended. So that also has faster turnaround time for our plants so that people get the right quality of inventory which they can sell sooner, helps them to move the whole cycle faster. Third thing, in terms of our plant location, we cater the plant in such a manner in demand planning in a way that they will produce specifically to the requirements of the customers and without compromising on cost, obviously, but very specific. So when we do a booking, we know exactly what has to be done and we were very, very careful in terms of our demand planning and delivery. If the people do not take their inventory, it is very clearly told that there would be certain penalties, which will be imposed upon the [indiscernible] in order to take the business, and the next time they will come stand in the queue at a later point. So therefore, there has been a lot of discipline, and I think the entire company has very clearly focused that working capital is a key and it cannot be compromised for the sake of achieving sales. And that is why, as I told you, that we are sitting as one of the lowest working capital in terms of number of days in this company over a long period of time. And we have not compromised sales. I can tell you, we have hardly compromised any sales because it is a discipline.

Absolutely. No, sir, so that is very heartening to know. And sir, hope that the same discipline and the same alignment would keep between working capital and the sales will continue going forward also. Sir, my second question, sir, is on this Ethiopian unit. Sir, any update on that? How is capacity utilization going on with that? Is that -- has it become profitable?

Absolutely. So look, that business is doing around 80% of capacity utilization. And you know the attractiveness of Ethiopia having the, what we call, free trade agreement, so the supply is made out of Ethiopia to the U.S. and all do not have to end up paying duty -- sorry, export duty. So that has really made -- and 80%. We were very clear, if these facilities go above 70%, it is a very -- it is a cash machine. So therefore, we see good volume and good profitability coming out of Ethiopia. You want to add anything?

Yes. Secondly, we have also added new customers into Ethiopia to who we are supplying, so that also added to the capacity utilization. And we are also looking at how do we diversify the product ranges as well over there.

Okay. Okay. So that is up and running?

Yes.

Yes, yes.

Sir, regarding -- yes, sorry, sir?

Today, it is such in our export market, I can keep on adding more capacity and the orders keep coming to us. So it's such a good market as we speak today.

Okay, sir. Sir, so any plan to expand the capacity as that unit is running at 100%? Or any thought to do some debottlenecking here?

Look, we consistently do that. It is not that we don't do that. We consistently do that. And I'll give you a classical example. In our engineering business, we plan to double our capacity over the next 3 to 4 years. And we have seen an increase in our capacity at the engineering plant. Because basically, you get the orders -- the whole philosophy of the group is that you secure orders or order pipeline and then you invest them in CapEx, not to invest before and then look -- chase for an order. So we develop the market, we develop the line and then go and create the CapEx.

Okay, sir. Sir, you have mentioned that, within 3-year, company plan is to become net debt-free. Sir, but seeing the very strong cash flow and assuming the IPO that we have planned to do for the Engineering segment and it comes and INR 700 crores, INR 800 crores it goes into to the company. So the combination IPO plus strong cash flow, do you think that this is being a bit conservative guidance that you have given?

I think sometimes it's better to be conservative, no? You're right. You did the right math.

Okay. Sir, and final question, sir, is on the tax front. Sir, can you please help what it would be? Because this time, taxation part, it has gone a bit higher, sir.

Yes. Maybe you were not there when I explained.

No, I missed it, sir.

Yes. So we explained that during the quarter, we took INR 100 crore of dividend from our subsidiary companies. And when you consolidate the results, the INR 100 crore dividend is nullified or eliminated. However, the tax incidence on that is around INR 50 crores. And if you knock out the INR 50 crores, then your tax rate comes down to 29% -- 28%, so which is a normal tax rate. We believe that is a normal standard tax rate we will continue to have on a go-forward basis.

And sir, my final question, sir. We do a bit of export, sir. Are you eligible for any export incentive from the government side?

So we do quite a bit exports. I'll ask.

Yes. So across Fabrics, Garmenting and the Engineering business, there is an export and whatever is the export incentive available at that point in time, that is eligible and we get. In fact, there are some which has been removed, withdrawn. The -- yes, it has been withdrawn, but there are others which are still there, and we get export incentives. We are eligible, and we are also getting the cash flow clean into our system.

Great, sir, and best wishes for upcoming quarters. Excellent results.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Abhijeet Kundu for his closing comments. Over to you, sir.

Thanks -- thanks for participating in the Raymond conference. Thanks for the -- all the questions. When we can do it, management gives, even though it's a [ little tedious ], the opportunity to raise some points. Over to you, Mukund.

Thanks, everyone. In case of any other queries, please reach out to me.

Thank you very much. Looking forward talking to you in the next quarter.

Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking Limited, that concludes this conference call. Thank you for joining us. You may now disconnect your lines.