Raymond Limited (RAYMOND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Raymond Limited Corporate Initiative -- welcome to the Raymond Limited Corporate Initiatives 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. Thank you, and over to you, sir.

Thank you. On behalf of Antique Stockbroking, I would like to welcome all the participants in the Raymond Corporate Initiative Call. 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 corporate initiative call [ training ]. I hope you would have received a copy of our presentation and media release. Today, I would like to urge you to go through this announcement's slides. We have with us from senior management; Mr. S. L. Pokharna, who's Director of Raymond Limited. Mr. Amit Agarwal, Group CFO; Mr. Jatin Khanna, Head of Corporate Development. I would like to hand over the call to our Group CFO, Amit, who will give you a brief summary of the complete corporate initiative before we open up for Q&A. Over to you, Amit.

Thank you, Mukund. Good evening, everyone. Thank you for joining us today on this call. It gives me an immense pleasure to share that the Raymond Limited yesterday announced major corporate initiatives that will chart out a long-term growth trajectory at the group level with clear road map to shareholder value creation. These corporate actions are in line with our stated objective of making payments net debt free and simplifying the group structure. These initiatives are sale of FMCG business to GCPL for a cash consideration of INR 2,825 crores. Next, demerger of Lifestyle business from Raymond Limited into Raymond Consumer Care Limited and making it a pure play Lifestyle listed net debt free business, achieving zero net debt free in both Lifestyle and Real Estate entity with healthy liquidity for future growth. Now let's take you details about each of these initiatives. RCCL, which is Raymond Consumer Care Limited, have sold the FMCG business to Godrej Consumer Products Limited, GCPL, on a [indiscernible] cash basis for a cash consideration of INR 2,825 crores. The shareholding of RCCL is helped by promoter with 49.7% share, Raymond Limited with 47.7% share and 2.66% with some of the other shareholders. Sale of the FMCG business is, along with the trademark of Park Avenue specifically for FMCG category, KamaSutra, KS and Premium. We take pride in building strong homegrown brands [indiscernible] the leader in their categories. Having brought these brands at the forefront of the consumer recall, we believe that GCPL will provide the requisite impetus to further drive the growth of these trends. RCCL will retain its contract manufacturing facility at Aurangabad and will continue to do B2B business for both domestic and international markets, including the contract manufacturing for GCPL for their KamaSutra brand. Now let me talk on the Lifestyle demerger initiative. Yesterday, the Board of Directors of Raymond Limited, on recommendation of its audit committee considered and improved the composite scheme of arrangement. The key highlights of the scheme include the demerger of the Lifestyle business, along with its assets and liability and debt into Raymond Consumer Care Limited, which is RCCL. The Lifestyle business consists of suiting business with its manufacturing plant, B2C shirting and [ NPL ] business, branded apparel with a portfolio of brands, Raymond Ready to Wear, Park Avenue, ColorPlus, Parx and Ethnix by Raymond, and subsidiaries include garmenting business with manufacturing facilities. B2B shirting business with its manufacturing plant will be demerged into Raymond Consumer Care Limited, which will become a pure play Lifestyle business on a net debt free listed entity. Now let me talk about the deleveraging initiative. RCCL will receive a cash consideration on account of slump sale and as demerger of Lifestyle [indiscernible] along with all debt and assets and liabilities, the consideration after tax payment will be utilized to repay debt, which will result into listed Lifestyle business becoming net debt free. Raymond Limited, which will be primarily Real Estate business with investments in engineering and denim JV will also be a net debt free listed business. Now let me explain the shareholding structure post demerger of Lifestyle business in RCCL. As per the component scheme of arrangement, by virtue of RCCL being merged into RCCL and Lifestyle being demerged from Raymond Limited into RCCL, will enable each Raymond shareholder to get 4 shares of RCCL for every 5 share held of Raymond Limited. This is based on the swap ratio, which has been arrived based on the valuation done by independent valuers, KPMG and BDO along with a fairness opinion issued by ICICI Securities and approved by the Board of Directors of both companies. Currently, the shareholding in Raymond Limited stands with 49.1% of the promoter and balance 50.9% by public. Post this demerger initiative, the shareholding in Raymond Limited will continue to remain same. Now shareholding in the RCCL, which is the demerged Lifestyle business, would be promoter at 54.87% and public at 45.13%. The increase in the shareholding of promoter in RCCL is due to promoter holding of 49.8% in the FMCG business, which has been sold for INR 2,825 crores. The promoter will be allotted 73 lakh shares further value in the FMCG business, post that estimated at INR 1,100 crores, which translates into promoter being issued shares at approximately INR 1,450 per share in the RCCL, which is the demerged Lifestyle business. This also reflects the promoter count commitment towards Raymond's business by infusing 100% of share of sale proceeds of FMCG into the RCCL business, which is managed in the demerged Lifestyle business. With this transaction, the promoter shall have invested over INR 1,400 crores in the business through asset monetization in the last 4 years. This will enable the utilization of sale proceeds of the FMCG business in repaying debt of demerged Lifestyle business, leading into Lifestyle becoming a net debt free pure play B2C business in RCCL and with circular cash being available for growth as a growth capital. Now let me discuss about the businesses in Raymond Limited. Post demerger of Lifestyle business, the Real Estate business becomes the umbrella business of the company, along with investment in engineering business through 100% subsidiary, JK Files & Engineering Ltd., and in denim business through Raymond UCO Denim Limited, which is a joint venture. Also, I would like to highlight that we had earlier initiated 100% subsidiarization of Real Estate business to capitalize on its strength as it had become a sustainable independent business. However, now this is not required with the current scheme of arrangement as Raymond Limited is now becoming predominantly a Real Estate business. Overall, to sum up, post completion of sale transaction, RCCL with Lifestyle business will be a pure play branded consumer listed company with the following segments: Branded Textile, Branded Apparel, Garmenting and High Value Cotton Shirting. Raymond Limited will continue to be listed entity, predominantly a real estate company with investments in engineering and denim business. This move will create a clear demarcation of lifestyle and other businesses leading to simplification of the group structure. As mentioned earlier, promoter strongly believes in the business and has demonstrated the same by deploying proceeds from their shareholding in the business. And over the period of 4 years, the company -- promoter company has put in approximately INR 1,400 crores in the businesses through the asset monetization that [ the land ] sale and current FMCG business direction. Through a combination of free cash flow generated from the business and the promoter group contribution, we will not only be achieving the status of becoming a net debt free much ahead of the stated of 2 years of times of our target, this consolidated net debt of INR 932 crores as on 31st of December 2022, and net of tax realization of approximately INR 2,200 crores on sale of FMCG business will lead to approx surplus cash of INR 1,300 crores in the Raymond Group on a pro forma basis, which will be available for growth and expansion plan for the Raymond Group. To conclude, I would like to state that we have been able to achieve this right at the beginning of this current fiscal, and we are hopeful that going forward, we will be able to deliver value for all of our stakeholders, and as we inch towards our century year in 2025, the great brand Raymond is set to achieve many more milestones. Thank you. Now we will be opening the lines for questions, please.

[Operator Instructions] The first question is from the line of Himanshu Nayyar from Systematix.

Congratulations, many congratulations on the transaction. Sir, first question, if you can give some color on the time line on 2 things. Firstly, how much time do you think this separate listing of RCCL will take? And secondly, what is the time period in which you think we can repay our debt and start saving on the interest cost as to by when you think the money will come in and we'll be able to become completely debt free?

Yes. Thank you, Himanshu. The first one, separate listing demerger, it is [indiscernible] through the NCLT, and through the regulatory process, what we have understood, because of various adviser consultants, that it takes anything between 12 to 14 months. So that's the time frame which will be required in order to become a listed entity for the Lifestyle. As far as the money is concerned, as you know, we are targeting in a very short order that the money will come into the RCCL or on the cash consideration for the planned sale, which will be quickly used to repay the debt, so that we will start getting the benefit of the interest cost right in this quarter itself.

Okay. The second bit, you said there would be INR 1,300 crores approximately of net cash in the group. So any rough idea you can give as to the division between Raymond and RCCL? How much cash would be there in Raymond and how much would go to -- would be there in RCCL?

So that, as I said, that INR 1,300 crores was based on the pro forma numbers as on 31st of March. We are yet to announce our results for the fourth quarter, so the exact number what will be announced post 31st of March results, we'll let you know how much money will be in each of these entities.

But would it be a fair assumption that predominantly the existing debt would be for the apparel-related businesses and the current cash balance that we would have would predominantly lie in the Real Estate and Engineering businesses?

Absolutely. And that's what we have always said, that primarily the debt is that the group is for the Lifestyle business, which has a large working capital requirement investing, and the Real Estate, as we have always mentioned, it is a cash flow -- significant cash is sitting because of the sales velocity and the milestones we have achieved very, very quickly, which is 2 years ahead of [indiscernible] we have delivered. That has actually helped us to remain a cash flow -- net cash flow positive or net debt positive.

Got it. And next one would be -- I mean, I know it might be too early to ask, but have you decided on the allocation of this cash that you're going to get? Because I believe Real Estate, we are going in an asset-light model, and Engineering business might also not be requiring too much cash. So do we intend to distribute it to shareholders? Or have we looked -- are we exploring any other plans to utilize this INR 1,300 crores that we'll get?

Look, at this juncture, it's still too premature but we have clearly outlined in our other discussions that we have a large growth plan across all of our businesses, and we really want to take this business to a different level and pursue a strong higher growth rate.

Okay. Got it, sir. And final question is on this FMCG. I mean does that existing top leadership in the FMCG business stay? Or will that be completely going to GCPL?

No. So what we have clearly understood and agreed with GCPL is that the entire team is going, along with the business, to GCP.

Okay. Including the top leadership?

Yes. The CEO, we are just retaining the CEO of that business.

[Operator Instructions] The next question is from the line of Priyanka Trivedi from Antique Stockbroking.

So my first question is with regards to -- in 2020, we had come up with a restructuring and we had indicated that the B2C shirting business had some legal issues due to which we could not demerge that business. So is there any issues with that? Is that continuing?

No, there are no issues around that, and we have reviewed that situation. You are right at that point of time, there was certain issues which we have been able to resolve, and we see a very clear path for doing a demerger of entire B2C, B2B business of shirting as well in this process.

Okay. And sir, my second question would be with regards to what would be the component of the working capital debt of the total debt that we have in our book for us now?

Actually, look, today, the most of the -- there has not been a significant CapEx in the last 4, 5 years. So the CapEx debt for the project is very small. Primarily, it is mostly relating to the working capital of the business.

Okay. So a major chunk of the INR 2,000 crores would be for the working capital of the business, right?

Yes. That INR 2,000 crores is a gross debt. Our net cash stood at INR 930 crores as of 31st of December.

And the cash position that we had in the Raymond Limited, would that also be transferred into the RCCL business? Or would it remain with Raymond Limited?

So as we mentioned, that cash, we will have to do all those allocations, debt transfers. And accordingly, once the 31st December is complete -- sorry, 31st March numbers are completed, and then because this demerger will be effective 1/4/23, based on that balance sheet, we will come out and talk to all of you about the exact split between the cash, debt and so on and so forth into the 2 companies, between the Raymond Limited and Raymond Consumer Care Limited.

[Operator Instructions] The next question is from the line of [indiscernible].

Many congratulations for the deal here. My question is related to the contract manufacturing business, which you'll be retaining in the FMCG space. So right now, or before this, we are rarely doing any contract manufacturing stuff or the entire manufacturing for our own consumption. And going forward, what could be the revenue that we can -- revenue and EBITDA we can generate from this business?

So if you look at it, the contract manufacturing facility which we have at Aurangabad primarily supplied almost 50% to 55% for the KamaSutra product. And the balance, 45%, 50% is for the B2B businesses in the domestic and in the international market. So that is a business which we are planning to -- which we are retaining. And we are not giving the split as we speak today of that between the B2B businesses. What kind of a revenue? There is a small margin which we make on the B2B business as well.

So just now on your 50% to 55% which you are using for KamaSutra, now that is also available for B2B business. Is that the case?

No. No. Whatever is the requirement for KamaSutra brand, we will supply on a contract manufacturing to GCPL. So that [ apparently ] is clearly going to them for the purposes of contract manufacturing. The balance 40%, 45%, which we were doing a B2B business for a third-party customer, we will continue to do that. So effectively, there is no change in terms of the mix between the KamaSutra brand as well as the B2B brands.

Okay. Understood. So the number of which we were referring on the FY '23 or FY '22 basis for FMCG, that includes this revenue as well. Is that a correct understanding, revenue from the contract manufacturing piece?

Yes.

So that number is also included in FY '22 sales purchase? And right now, it would be difficult to get that number, what is exactly there? Okay. Second question is pertaining to the real estate business. There, sir, we have about 60 acres of land, if I'm not wrong, which is to be utilized. What sort of a developable area or a salable area could be on this map? Will that be possible to share?

Very clearly, we have 60 acres of land, which is completely developable. Now it depends on the way we construct it. So the [indiscernible] are available. I think what we had calculated last time that we did this math a year back or so, I believe was 7 million to 8 million square feet, which is still we can construct on that. But it is always dependent which mix you do, whether you do a retail, whether you do office complex, whether you do residential. So all these have different degrees or really in terms of developable and a saleable stake. So that's what we're talking about. 7 million to 8 million square feet was based on our residential number.

Okay. And the existing piece where we have like in 10x, we have another [indiscernible] area, and in case of adjust by [indiscernible], we have another 0.3 million square feet of the area. So in what say, I mean, what is the construction costs remaining for this area and what has been the necessary construction cost for that?

No, no, listen. In terms of this detail, today the call will be focused primarily on this transaction, so we would not like to get into that was in remaining because I will talk about remaining only with the 31st March call, because things have changed from 31st December to 31st March. We have constructed, we sold. So I think it is appropriate these operational quarterly numbers and testing should be done in the financial results call for the first quarter.

Okay. Now sir, just wanted to understand the break up how the new businesses will announce going forward [indiscernible] have the same clarity during the quarterly call.

In any way, just to give you the perspective, in our numbers which we gave, the segment numbers, very clearly, it is outlined what is the revenue generation out of that [indiscernible] business that was these 2 projects are delivering the revenues.

[Operator Instructions] The next question is from the line of [indiscernible], individual investor.

Yes, just 2 short questions. First, thank you for the opportunity and congratulation on the sale. My question was regarding -- actually, I'm an investor in your company. Just looking at the previous years of your listing, I came to know that you were also eyeing for the sale of ColorPlus and your Engineering business, but that didn't materialize. So are you still looking for that, or they will be housed in the new listed entity?

I think I can't comment on the speculation which has been done in the past. Absolutely very clear, we are very focused on the plans to build and create. And as we have earlier outlined also, we are having a very large retail expansion plan, which also includes our marquee brand of ColorPlus. So we will be opening more [indiscernible] for the ColorPlus and expanding that retail expansion, similar in the case with the Park Avenue apparel, which we are going to expand.

[Operator Instructions] The next question is from the line of Priyanka Trivedi from Antique Stockbroking.

Sir, my question is with regards to what is the value at which the shares and [indiscernible] would be valued at?

No, so what I explained earlier that the promoter has got or will be allotted a share at INR 1,450 per share in the RCCL demerged Lifestyle business.

Okay. And for the public, public also would be at INR 1,450?

Yes, exactly the same. There is no difference. So there is a very little number for the public, because as far as the shareholding, which -- so if you look at it, in the RCCL, first, the shareholders of Raymond Limited, because of the demerger, will get 4 shares of RCCL for every 5 shares held into Raymond Limited. So that's number one. That said, the promoter and small number of public shareholders in the FMCG business will also get shares at INR 1,450 in RCCL. That would make that the shareholding -- resulting shareholding in RCCL is 54.87% for the promoter and 45.13% for the public.

[Operator Instructions] As there are no further questions, I hand the conference over to Mr. Amit Agarwal for closing comments.

Okay. Thank you very much. Look forward to talking to all of you in the next few days when we announce our fourth quarter results.

Thank you. On behalf of Raymond Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.