Raymond Limited (RAYMOND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the earnings conference call of Raymond Limited hosted by Antique Stockbroking Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priyanka Trivedi from Antique Stockbroking. Thank you, and over to you, ma'am.

Thank you. On behalf of Antique Stockbroking, I would like to welcome all the participants in the 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, Priyanka. Good evening, everyone, and thank you for joining us for our Q2 FY '24 earnings call of Raymond. I hope 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 from senior management of Raymond: Mr. S. L. Pokharna, who is Director of Raymond Limited; Mr. Amit Agarwal, Group CFO; Mr. Sunil Kataria, CEO of Lifestyle business; Mr. Harmohan Sahni, CEO of Realty business; and Mr. Jatin Khanna, Head, Corporate Development. Now I would like to hand over the call to our Group CFO, Amit, who will give you the summary of the company's quarterly performance before we open up for Q&A. Over to you, Amit.

Thank you, Mukund. Good evening, everyone. Thank you for joining us today for the earnings call to discuss the results of the second quarter of fiscal '24. Let me start with a brief overview of the market for the quarter. The quarter witnessed subdued demand -- consumer demand and seasonality. The discretionary spending was impacted primarily due to inflationary pressures and continued higher commodity prices. Additionally, this calendar year also had Adhik Maas, which pushed the festival ceremonies and wedding towards the end of the year. With Pitru Paksha period concluding in the middle of October, all festivals have been delayed, especially weddings have been pushed to November -- late November onwards. Now let us get into the consolidated financial results for the second quarter of fiscal '24. At the inflection point of its transformation journey, Raymond continues to attest its growth momentum with strong quarter-on-quarter performance. And second quarter of fiscal '24 was the ninth consecutive quarter that reported highest-ever performance, both in terms of revenue and EBITDA despite being in-quarter impacted because of subdued demand -- consumer demand. Raymond reported revenue of INR 2,321 crores in the second quarter of fiscal '24 with a growth of 27% on quarter-on-quarter basis as compared to INR 1,826 crores in the first quarter of fiscal '24 and by 6% on a year-on-year basis, over INR 2,191 crores in the second quarter of fiscal 2023. This year-on-year growth was driven by our Branded Apparel and Garmenting segments and well supported by the Branded Textile segment. At the EBITDA level, we recorded the highest-ever quarterly EBITDA of INR 382 crores with a healthy EBITDA margin of 16.5% in the second quarter of fiscal 2024 with a growth of 52% on a quarter-on-quarter basis as compared to INR 252 crores in the first quarter of fiscal '24 and by 7% on year-on-year basis, over INR 358 crores in the second quarter of fiscal 2023. Also, during the quarter, the company recorded a cost of about INR 4 crores during the quarter and recorded an equivalent liability under the share options outstanding account in other equity. This is according to the Raymond ESOP Scheme 2023 granted in the first quarter of the current fiscal. Excluding the ESOP cost of INR 3.9 crores, the EBITDA would have been higher to the tune of INR 386 crores with an EBITDA margin of 16.6%. During the company -- during the quarter, the company also recorded an exceptional item of INR 23 crores relating to the voluntary retirement scheme in our Engineering business. Post this exceptional item, we reported net profit of INR 160 crores during the quarter compared to INR 159 crores in the second quarter in the previous year. Excluding this exceptional item, the net profit would have been INR 177 crores, which is 11% growth over the second quarter of the previous year. Now let me discuss about the segmental performance for the second quarter of fiscal 2024. The Branded Textile segment reported a steady top line of INR 933 crores in the second quarter, a small growth of over INR 912 crores in the second quarter of last fiscal year. The EBITDA margin continued to be healthy at 22%, which is marginally lower when compared to 22.3% in the second quarter last year. Here, I would like to point out that despite being a slow quarter with market witnessing lower offtake due to delayed festivals and wedding dates and Hindu calendar also had Adhik Maas, additional month this year, in the suiting business, we were able to garner some traction in the wool blended category by expanding the product portfolio across multiple sales channels. However, the B2C shirting business witnessed stable top line at the backdrop of new launches in the cotton blend category with growth driven in the multi-brand outlets channel. Now let me talk about the Branded Apparel segment. Branded Apparel segment showed a very healthy sales growth of 18% to INR 437 crores as compared to INR 370 crores during the second quarter of the previous year. There are a couple of reasons for this growth. One is our distinct product offerings with a new collection for the season that includes vast range of casual wear and increased premiumization. Second, our focused approach of increasing our footprint and reach of our apparel brands. We have rolled out about 100 stores in the first half of the year across metro Tier 1 to Tier 4 towns in pan-India business. Additionally, we have also increased number of doors in the multi-branded outlets and large format stores. The growth was witnessed across all brands with Park Avenue, ColorPlus, Raymond Ready to Wear leading the front and well supported by Parx and Ethnix by Raymond. The segment witnessed healthy EBITDA margin of 12.2% in second quarter of fiscal '24 as compared to 9.7% in the previous year. The improvement is mainly due to premiumization and operational efficiencies. Now let us talk about the retail network. We continue to strengthen our retail footprint by opening 63 new stores during the quarter. With a focus to expand our chain of EBOs, 40 branded outlets were added to our existing portfolios across all brands. Ethnix by Raymond being the majority with 17 new stores for the quarter, taking it to a total of 92 stores for the brand as on 30th September 2023. Also during the quarter, we have closed 17 stores, which is mainly a combination of relocation of stores and the closure of some Parx/EBOs as we are focusing on expanding the brand outreach through MBOs, LFS and online channel in line with our stated strategy. As on 30th September 2023, our retail store network stood at 1,453 stores spread across 600 towns and cities in India. Now let us talk about the Garmenting segment, which we explained earlier that we are expanding our Garmenting capacity by about 1/3 in order to take the advantage of China Plus One adopted by the global brands. Also, this capacity augmentation is in line with Government of India's Make in India initiative. We continue to acquire new customers, and we are getting increased size of orders from our existing customers. Accordingly, our sales have consistently grown over the last 2 years. And in line with the trend in the quarter, we reported INR 312 crores, which is a robust growth of 18% as compared to INR 266 crores in the previous year. As we supply to marquee global brands, product quality remains at the forefront as far as customer service is concerned. Therefore, we train our staff well to deliver the same. And as we undertake the capacity augmentation, upskilling of our employees is an ongoing process leading to a buildup of cost. This resulted in the EBITDA margin for the quarter to be at 7.3%, a tad lower as compared to 8.7% in the previous year. In High Value Cotton Shirting segment, the top line was stable at INR 211 crores as compared to the sales in the previous year. In the current environment of subdued consumer sentiment, the demand was stable for our cotton and linen fabric offerings by our B2B customers in the domestic market. EBITDA margins for the quarter at 13.2% also maintained as well as compared to the same in the previous year. Now coming to the performance of the Engineering business, which is consolidated under JK Files & Engineering Limited on an aggregate basis. The sales was -- stood at INR 201 crores in second quarter as compared to INR 228 crores in the second quarter of last fiscal. The sales in the engineering consumer category continued to be impacted by the existing sluggish export markets. However, we continue to cater to the growing automotive segment, both in India and export market. In line with our stated strategy of business expansion, market consolidation and overall margin improvement, we have acquired the business of Maini Precision, which has a strong presence in the automotive segment and -- as well as into the sunrise sectors of aerospace, defense and electric vehicle components. We will discuss about the same later in my remarks. Despite the challenging -- challenges in the engineering consumable sector, we were able to maintain the EBITDA margins at 12.7% for the quarter as compared to 12.8% in the previous year. Now let me talk about the Real Estate segment. In the second quarter, we launched new projects in Thane of over 1 million square feet with over INR 2,000 crores revenue potential. We received an overwhelming response from the customers and sold over 40% of the launched inventory in these projects during the quarter. Overall, the Real Estate business showed a stellar performance during the quarter and recorded a total booking value of over INR 650 crores in the second quarter of fiscal '24 across all of our projects, which is double the booking value as compared to the second quarter of last fiscal. Also, I would like to highlight that we have sold more than 85% of the total units in the first 2 projects in Thane, namely Ten X Habitat and The Address by GS. We have around 100 acres of land in Thane, of which about 40 acres is under development with an estimated revenue of INR 9,000 crores. The balance land of about 60 acres has a potential revenue of INR 16,000 crores, which can be developed over the next 2 years. Considering that the land in Thane is finite, we have taken a leap forward by expanding our presence beyond Thane in the MMR region and would now be developing three residential projects based on the joint development route. Now the first project, which we all know is in Bandra with a potential revenue in excess of INR 2,000 crores. Last week, we announced the second project under the JDA route, where Raymond Realty has been appointed as a developer for redevelopment of a prominent housing society located in Mahim West spread over -- across 3.6 acres. The project is estimated to have a revenue potential of more than INR 1,700 crores over the project period. Today, we have also announced that Raymond Realty has been selected as a preferred developer for redevelopment of a prominent society located in Sion East, Mumbai spread over 4.3 acres. And we estimate the revenue potential from this about INR 1,400 crores during the project period. Put together, the revenue potential from these joint development projects in MMR outside of our Thane land is in excess of INR 5,000 crores. Now let me give an update on the construction status of all projects. The construction momentum in all the five projects is going quite well. And especially in the Ten X Habitat project, first three towers have been delivered, which is 2 years ahead of the RERA timeline in December 2022. In Tower 4, lift installation is under progress; Towers 5 to 8, internal finishing is under progress; and in Towers 8 and 9, 37th and 35th flats has been completed respectively. In The Address by GS project, 18th and 10th flats have been completed, respectively, in Tower A and Tower B. In the Ten X Era project, the foundation has been completed for Tower B and plinth slab has been completed for Tower C. In The Address by GS Season 2 and Invictus by GS projects, excavation is under process. The business delivered a sales revenue of INR 243 crores, which was marginally lower by 2% as compared to INR 247 crores in second quarter of fiscal '23. The revenue recognized during the quarter is not compatible with the previous quarter as we followed the percentage of completion method for revenue recognition, which is based on the incremental percentage of completion of different towers in different projects. The EBITDA margin of 19.5% for the quarter as compared to 25.6% in the same quarter last year. The margins are lower due to initial launch costs of the new projects, The Address by GS Season 2 as well as the Invictus by GS. Now let me talk about the working capital and the cash flows. As explained earlier, the festivities and winter weddings have been pushed towards the fag end of the calendar year due to Adhik Maas. Given the fact that majority of the festivities and the weddings are in the second half of the financial year, inventory is made available across all channels in the second quarter in order to cater to the increasing demands in the second half of this fiscal year. Accordingly, the net working capital stood at INR 1,927 crores as on 30th September 2023, higher by INR 344 crores as compared to INR 1,583 crores as on 30th June 2023, and higher by INR 435 crores as compared to INR 1,492 crore as on 30th September 2022. In addition to the above, seasonality and with the expansion of Ethnix by Raymond and other branded exclusive brand outlets, the inventory was higher during the quarter. As you are aware, we do primary sales to our sales channel partners, including wholesalers and franchisees of our stores to cater to the festive season requirements post Pitru Paksha in early October resulted in an increase in receivables. Also, the two new real estate projects being launched the quarter. There has been an increase in inventory due to construction costs as well as approval costs. Now regarding cash flows. Due to the increase in the net working capital for the quarter, our operating cash flows have been utilized to the tune of INR 53 crores. During the quarter, we also incurred a CapEx of INR 36 crores, mainly in the ongoing capacity expansion in the Garmenting and Engineering business and maintenance CapEx across our various plants in various businesses. With the increase in the net working capital and post CapEx and interest cost-related outflows, our free cash flow for the quarter was a net utilization of INR 171 crores. Now let me talk about the consolidated debt position. Our total gross debt stood at INR 2,851 crores, which comprises of external gross debt of INR 1,151 crores and NCD issued by Raymond Limited to Raymond Consumer Care Limited of INR 1,700 crores. We continue to maintain liquidity with cash and cash equivalents of INR 1,712 crores as on 30th September 2023. I wanted to highlight that the issuance of INR 1,700 crores NCD by Raymond Limited to RCCL is a temporary arrangement, which will be netted off at the completion of the demerger. The demerger will result in two independent, net debt-free, pure-play listed entities for B2C-focused Lifestyle business and Real Estate business with Engineering business with significant liquidity surplus at the group level to spur the future growth. The interest cost in the quarter is INR 89 crores, which is higher by INR 26 crores on year-on-year basis as compared to INR 63 crores in the same quarter last year. The interest cost has increased on account of the following: that there is an interest cost of INR 38 crores on the NCDs issued to RCCL, which will be netted off at the completion of the demerger as the effective date of demerger is 1st April 2023. Higher interest and lease liabilities on account of increase in the stores which are open has been taken on a rental basis. Now let me discuss the current status of the operations and outlook. As stated few times earlier, the onset of activity -- festivities and weddings are delayed this calendar year leading to limited secondary sales. As of from the third week of October, we witnessed a progressive uptick in the consumer demand driven by festive celebrations and the start of the wedding season. We expect the momentum to maintain with the winter wedding season, which has started from November until February and March. In line with our stated guidance, we are on track to expand our retail footprint and will be adding almost 200 stores in the next 12 to 18 months and we'll follow the asset-light franchise model. This will be driven by large store network expansion for Ethnix by Raymond to cater to fast-growing ethnic wear market. In the Garmenting segment, export lever continues to be China Plus One strategy. And we are focusing on building new strategic customer relationships and gearing up for the increasing demand with the capacity expansion, which is well under progress. In terms of our raw material prices, while the wool, cotton and poly viscose continue to remain stable, however, prices of linen flax seeds have also been on an increasing trend. In the Real Estate sector, the strong consumer response to our recently launched premium residential projects, The Address by GS Season 2 and Invictus by GS, has been overwhelming in the current quarter as well. And we are witnessing strong booking momentum in our Thane project. In our Bandra redevelopment project, the initial work, demolition of the existing building has been initiated and we'll be launching the project in due course of time. In the Engineering business, as we announced last week, we have forayed into the sunrise sectors of aerospace, defense, EV components through acquisition of business of Maini Precision Products Ltd. This acquisition of Maini Precision aligns seamlessly with our business strategy of business expansion, market consolidation and overall margin improvement. As far as the business expansion is concerned, with a strong foothold in aerospace component manufacturing since 2004, MPPL has integrated three sub-verticals: aerospace engines, aircraft systems, aero structures. The extensive experience positions MPPL to supply to the aerospace industry, leveraging long-standing relationships with international customers and furthermore, MPPL has forayed into defense programs spanning across land, airborne and naval platforms to collaborate with major defense players in the U.S., Europe and Israel. With the acquisition, we will be complementing customers to scale up auto component business. Together, we'll be catering to global top auto OEMs in multiple geographies. We will leverage our existing relationship to sell MPPL products by enhancing our product portfolio and utilize MPP existing global customer base to sell our existing products of JK Files & Engineering Group. Margin improvement, the consolidation would help in deriving synergies and operational efficiency. We'll be building operational efficiencies across manufacturing, supply chain process, sourcing, product development and other operating cost synergies to supplement revenue and earnings growth for both the businesses. Along with the above strategy, we have an experienced and focused strong management team in place. MPPL Founder, Mr. Gautam Maini, with his entrepreneurial mindset, will be leading the consolidated Engineering business, driving growth and create larger value for the overall Engineering business. With this acquisition, Raymond's Engineering business will emerge as a large scale provider of engineering, automotive, EV, aerospace and defense components, distinctly positioned to target high-growth precision engineering segments with a significant presence across domestic as well as international markets. Raymond Group has always believed in Make in India initiative. And this acquisition will also provide an impetus to the China Plus One strategy that has been benefiting us. Let me provide an update on the demerger of the Lifestyle business. Currently, it is in the approval stage with the regulatory authorities with SEBI. And we expect the process to complete in the first quarter of next financial year. To conclude, I would like to reiterate that Raymond Group will continue to have three distinct vectors of profitable growth that will create shareholder value for each of the business. To achieve this, we have taken affirmative steps in the form of selling the FMCG business, demerging the Lifestyle business and shaping the scalable Real Estate business and consolidation of Engineering business. With strong free cash flow and no major CapEx requirement, Raymond Group will remain net cash positive post the transaction. Now we would like to open the floor for Q&A.

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

So my first question is on our Branded Textiles business. So the growth of 2% that we have seen, what has been the volume-led growth and what has been the realization growth in this segment?

Sunil?

Yes. This is Sunil there. So I think we have seen a good, healthy mix in our suiting business of poly-wool fabric, which have done pretty well. So in the suiting business, we have seen a healthy, positive volume growth led, in fact, by the poly-wool fabric. And in case of a shirting B2B business, we have seen a flattish volume growth in line with the market. So overall, I think if you see, our EBITDA margins are pretty healthy. And one of the reason is that our mix has improved a lot with a large volume being driven by poly-wool fabric.

Okay. And if you have to look at the first half performance in the textiles business, we have grown at almost 4% level. So what is the yearly guidance for the textile business in terms of the growth?

Look, first of all, we are not going to give a specific guidance. But as we have demonstrated with some of the growth sectors, which you see very consistently delivered in the quarter is clearly the Branded Apparel segment, which witnessed 18% growth. Second is the Garmenting. Again we are putting INR 200 crores of CapEx in this segment in order to expand the capacity by almost 1/3. So I think these two segments, we are very, very bullish that these two segments will give a significant growth. And overall, as we have always talked about that it is not just a question of one quarter or the other quarter. Over a 5-year period, what we are seeing is in terms of revenue growth to the tune of early teens. And in terms of the profitability, we are seeing mid-teens growth across the 5-year period in the Lifestyle business.

Okay. And sir, my third question, you highlighted that the linen prices have been increasing. So what would be the impact in terms of the margins in our B2B shirting business? Any guidance on that front?

Yes, actually, we have been very fortunate in terms of -- because of our brand presence and the quality of fabric, which we make is like very high nature. Therefore, we have been consistently been able to pass on the cost increases, especially on the raw material side. The last 2, 2.5 years, we have witnessed the cotton price increase from INR 32,000 a candy, it went to almost INR 85,000, INR 90,000 a candy, but we have been able to contain and deliver consistently the margins because of the reason that we could pass on the raw material increases to the customer.

Okay. And sir, lastly, my question is on profitability in our JDA business versus our own land projects in the Real Estate business. And post that, I'll come back in queue.

Harmohan?

Yes. So the profitability -- this is Harmohan. The profitability on our own land has been quite stable. If you look at our gross margins and the EBITDA margin that we have, it has ranged between 23%, 25%, depending on which quarter we are in and how. Because we follow percentage completion, so it goes 1% or 2% here and there in terms of consistency. As far as JDA model is concerned, JDA model also will give similar profitability in the range it will be -- in early 20s. Just from deal-to-deal, it can be different, but it will be a similar range.

[Operator Instructions] The next question is from the line of Varun Pratap Singh from ICICI Securities.

So my first question is on Branded Apparel segment, wherein we have seen a very strong growth number. I mean if we compare it with other companies, the number appears very, very healthy and strong. I just wanted to understand that what would be the same-store sales growth, SSG number into this segment, if you wish to call out that?

Yes. Okay, I think same-store growth would be in mid-single digits. It's in that range. I think which again if you see the trend which we have seen of the industry in the second quarter, it has been mostly negative to flat. So I think we have outperformed the industry also in the same-store like-to-like growth also. And the two factors which have really contributed to a strong apparel growth is one is, we have kept a focus in terms of our casualization journey that has happened across most of our brands. So I think that has started -- helped us in some of these growths. Second, obviously, our distribution outreach, where we are actually taking a very aggressive go-to-market approach in EBOs as well as expanding our large-format store and MBO footprint.

Understood, sir, very clear. And sir, my second question is on Ethnix. Now that we are close to 92-odd stores, which is quite a healthy number, sir, like if you want to highlight the health of the business with regards to SSG revenue performance. So I mean, anything in this segment, sir, Ethnix?

So I think, well, as you've seen that we have ramped up these stores between January to really October, until now. And this is a period when really the wedding season has been very, very lean. And what we are seeing is that it's a good thing that we have now got a reasonable threshold level of stores. The season has just begun around 20 days back. And I think these 20 days are telling us some very, very healthy signs that the way our sales per square feet is ramping up, it's a very progressive pace. But I can tell you, we'll be in a much better shape maybe around 6 months down the line to really give some indication on the health of the business. But what we are seeing, three things which are really giving us good thing is that our product assortment is getting very, very strong reviews across consumers. So we think we have been able to map up a very, very clear positioning in terms of high-quality products at a very good pricing. Secondly, our store feel, look, experience that I think has also worked very well with consumers. Now the third thing which is really happening is we are seeing the business scaling up as soon as the season has come up. You know that this business is very heavily linked to festive and wedding business. I think this is the season which is really the first season for us in that sense.

Understood, sir. And sir, one last question if I may, in the Lifestyle business, like if we break down our performance in terms of geographies here, how would we compare revenue growth in Tier 1 and 2 compared to Tier 3 and 4 cities?

Which segment are you talking of within Lifestyle?

Sir, Branded Apparels.

Yes. So if you see our presence in Tier 4 and 5 and 6 is primarily through TRS, The Raymond Stores. And we are focusing through our EBO route on primarily Tier 1 and 2. So that's a very clear demarcation of our strategy. Because we have a very large footprint already of 1,000-plus Raymond stores, which span across some 650-plus cities in the country anyway. So if I see that differentiation, I think we are clearly seeing that Tier 1 and 2 have performed well, which is in line with a little bit of K-curve, which we've seen across the country. And I think that's spanning out across Tier 1, 2 have done well. It's not that Tier 4 or 5 are bad. But I think there's clearly a difference between the two segments that we have. And now what we expect is, see, a lot of our Raymond stores also are dependent on heavily skewed towards wedding season. Because that's the time that gifting takes a very large play. And we know that Raymond is part of almost -- I mean, you can't have a wedding complete without Raymond. It's almost like a jewelry kind of a thing. So I think we expect this curve to flatten out a little bit more for us. And we'll see growth happening more uniformly across clusters. And that's what the hope is here.

The next question is from the line of Aliasgar from Motilal Oswal.

So first question is on Branded Apparel. So you did mention a few points on ethnic wear. But would you be able to just tell me the kind of growth you have seen in Branded Apparel? How much of that would be contributed from ethnic wear? And just that, what would be the growth in rest of the brands?

Ali, the Branded Apparel what we reported the number for the second quarter is our revenue. And revenue in the second quarter from Ethnix cannot be meaningful because we had no wedding, no festivity, Diwali-Dussehra is not there. So what happens, everything what we have done is, we have put the stores, created the stores and made available for the customer. What I can tell you is that the Puja and the Diwali sales, which has been seen and which is not the expensive sherwanis and such things. In the kurta and all, we have seen that our product is liked by everyone so much. And the sales, what has been seen in the last 10 days is good compared -- better than what we had even expected. So I think the true testimony of our wedding collection will be seen from now until end of December and then further more from February until May and all. So as Sunil pointed out that truly the -- how our Ethnix has performed, not performed, we'll come to know in 6 months from now. Then we know exactly because so far, everybody likes our collection. But not -- next important is that the customer has to walk in, buy our product because the suit in any case he's going to buy from us, because that is a natural destination for any wedding. So this is an extension, we feel. And there is a significant belief with our franchisees and our trade partners that this would also do well.

And we have also in line with the fact that now we have a pretty healthy threshold level of stores, given this wedding season, we've also upped our investments behind Ethnix. We clearly believe that it's a strong strategic opportunity for us, and we'll continue to build awareness for this brand.

Correct. So I understand and, in fact, that was my point that if our H1 has done somewhere about close to 17% growth, certainly 3Q, 4Q, one, because of the festive shift, and second, because ethnic wear, you have in the last 1 year added more...

I think we just pointed out that in quarter 2, Ethnix is pretty much not meaningful.

Correct. And then in the last 1 year, you have added a very sizable number of stores. So both contribution should drive H2, right? H2 should be meaningfully higher than what we have seen in H1 in terms of the growth for Branded Apparel, right?

Yes, that's absolutely the plan.

Got it. Okay. Second, on the margin front for Branded Apparel. Now I just want to understand the trajectory from two points of view. One is that I understand raw material prices have softened. So how have we managed it? Have we passed it on? Are we retaining some, given that we had taken really sharp price increases when the normal prices were going up? And secondly, given the fact that you will be now in a heavy festive season and as you mentioned that marketing costs will be aggressive, so how will you manage both? And what is the kind of margin trajectory we should see for the apparel business in probably next couple of quarters and beyond?

Yes. So actually, I think we have discussed that our apparel margin is a question of achieving a certain scale because the operating leverage kicks in. And as you continue to open stores, which we talked to you, in the next 3 years -- 3 to 5 years, we are opening almost 500 stores. So every time you open a store, there is a small investment, maybe not so much direct investment, but advertisement is there to bring the product and the customer to come in. It takes a while. Second thing, as we want to expand the apparel category, Ethnix category in a very dramatic manner, these categories require a significant amount of advertisement. And as you would watch over the next few days, starting that we will come back with a very strong ad campaign. And we are going to invest behind the ad campaigns across the four apparel brands plus Ethnix by Raymond in the next 3 years in order to create a sizable because this is an investment. In the plant and machinery, you do CapEx. In the branded business, I think that the investment is by creating the brand and putting the advertisement and market outreach. I think that is why you would see that our margins would stay around the similar level. I think anything between 10% to 12%, you would be seeing for the coming quarters to see. And then over the next 4 years -- I think we have always spoken that over the 4 years, we should get to 14%, 15% of apparel margins.

Got it. And what about the raw material price softening? How are we playing that? Have we fully passed it on? And has that played out in the existing inventory?

So after we looked at this price softening, as I said, it is such a thing that we have been able to negotiate. We need -- we start making combinations. We're making blends and so on and so forth. So effectively, in our business, we have not seen much of an impact because of big time price increase, maybe 100 basis points here or 50 basis points here and there. It can happen from one quarter to another quarter. But over the 1, 2 quarters, it gets stabilized. So I'm not so much seeing that the price increases. Because we also don't want to give a shock that if I were selling a trouser for INR 3,000, I make it to INR 3,500 and the next month -- next season, I bring it down to INR 3,000 because that hurts the customer sentiment. So therefore, we are trying to maintain more or less a price parity. But we are also -- through operating efficiencies and other things, we are able to also maintain the margins in the business.

Okay, got it. And last, on the textile business, so we have very clearly highlighted our strategy of both suiting business, where we are expanding in the premium jackets and the shirting piece, where we are kind of filling the gap in shirting price point that we have not been available there. And because of those two factors, our growth should be in high single digit, which is something that we did in 1Q. But 2Q was an aberration maybe for the reason that you already indicated. So should we expect this strategy to enable us to do that high single-digit growth probably maybe in the third quarter onwards? And you did mention October, late October has already started showing traction. So is that playing out well?

Yes. So I think two things would happen in this. I think from a mid-term to long-term perspective, the strategy stays true for us. Very clearly, we see that we'll do a lot of premiumization in the suiting segment. We're already seeing poly-wool as a fabric. We're investing with new products as well, ensuring as you already rightly mentioned and good to see that you recall that, that we are filling up the gaps in terms of mass-to-mass premium price points. And parallelly, we are also expanding our outreach, which we think that is a huge scope to grow that in the shirting business. Now what will happen is in going forward in quarter 3, quarter 4, I think as the season picks up, I would say this mid-single-digit strategy should pan out between the two. There could be a quarter here and there of some base effects, which may come in because of primary, secondary mismatches of the 2 quarters. But other thing, if you ask me over a 6-month period, 1-year period, yes, we stay true to this projection that we have given. Plus one thing which is also panning out well for us is, as we said, that we also are looking -- we have also started introducing in shirting business some very differentiated products like prints. Now we're finding casualization is a theme which is not playing only in ready-made apparels, it is a theme which is playing across ready-to-stich segment as well. So I think that is another segment you will see maybe in coming quarters. Some campaigns will also happen around that, where the product development is already rolling out in the market. Plus hopefully, in the next quarter, we also will be able to tell you something new, some new product developments and new segments that we are creating within our suiting business in line with the premiumization strategy. To cut the story short, we hold true to this mid-single-digit kind of a growth. Over a period of 6 to 12 quarters, definitely we should be able to do that.

Understood. This is very clear. Understood. And just last question is on the demerger process, I mean, where are we on that? And when should we expect that to conclude?

Yes. Ali, you know that in India, any demerger from the time of announcement is a 12- to 14-month process. We have announced end of April. Based on our processes, we look very comfortable that in the first quarter of next year, which is 12, 14 months, we should be able to achieve the demerger. I think the process is completely on. We are expecting very shortly the NOCs from various people and then launching with NCLT and after the demerger is a traditional 35 to 45 days to take for listing. So I think first quarter 30th June 2024 should be possible to complete the demerger and the listing of the two businesses separately.

The next question is from the line of Pritesh Sheth from Motilal Oswal.

Firstly, congrats on the delisted business for ramping up your non-Thane in your pipeline. Safe to say all these three projects that we have acquired, including the older one, which was in Bandra, would be launched in the next 12 months?

So as far as Bandra is concerned, Bandra launch is imminent and it's at the last stage of approval. So it should happen either within this year or early next financial year. But as far as our plan is concerned, we are budgeting for it to happen in this financial year itself. So that's Bandra. As far as the other two projects are concerned, they both come to us now. And by the time we finish all the planning and approval process, it is going to be easily 12 to 14 months and not before that, we will be able to hit the market. So typically, in a real estate project, as you know, I mean, the time to market is about 18 to 24 months. But of course, we work slightly differently and we try and cut it short. So for us, it is going to be about 14 months or so.

Sure. So I mean, what I meant was FY '25, we should see all these three projects coming online and contributing to our presales -- residential presales?

Yes, definitely.

Okay. And just from your broad estimates, since you are closer to launch Bandra, right, the revenue potential that you have indicated for Bandra, even for the recent new -- two new projects, any upside potential in terms of pricing that we might have assumed when we have underwritten these projects versus probably where the market is right now? Specifically, Bandra was at least 1, 1.5 years back. And since then prices have increased a bit. So any sort of revisions that you expect in terms of pricing?

Give us the pleasure of surprising you positively.

Hopefully, yes, sure. And just lastly, I think on the P&L side, we have one line item, which is cost towards development of property, which is in this quarter a little unusually high. While in the presentation, you have mentioned that we are still on that 19.5% EBITDA margin, I mean, still clocked 19.5% EBITDA margin. So is this INR 284 crores all related to residential segment? Or there is some other amount also included in this?

All are residential. And basically, what we've mentioned is our brief that basically, when you launch a project, there is an advertisement cost. There are certain one-time approval costs which you need to incur and that is the P&L item. And that is why it is reflected into this. And therefore, the margin of normal 24%, 25% is reflected in this quarter to the tune of 19.5%.

So we've launched three projects all around the same time. So their marketing expenses are a period cost, and they don't get amortized over the lifecycle of the project like all the other costs. And since they are period costs, they come and hit upfront. And the bulk of the cost goes right upfront because at the time of launching, we have to make the market aware of the product being available. So that's really the impact that you're seeing. It will kind of even out over the next couple of quarters.

Got it. But just I was -- I mean, got that point. But I was just wondering, we had net sales -- I mean, net revenue in Real Estate business of INR 243 crores while this expense item is INR 284 crores, right, so -- and still, we are saying 19.5% was this EBITDA margin. So where is that disconnect?

See, out of that, INR 100 crores plus is the inventory cost. So P&L impact is less, INR 160 crores only.

Okay, okay. So yes, there is some item which is netting of about INR 164 crores and that is where it's getting adjusted. Got it. Fair enough.

The next question is from the line of Varun Pratap Singh from ICICI Securities.

Sir, my question is on Engineering business. I understand our guidance of high-teens revenue growth and 20%-plus EBITDA growth for next maybe 3, 4-odd years. But just wanted to understand that given like we mentioned about cost synergies between the existing business and the new business, so like how do we objectively measure with regards to this so-called cost synergy between the two business also, I mean, given that auto is a common element between the two things -- between the two pieces of business? Sir, if you can give some understanding about the cost, the synergy element and, as a consequence, the EBITDA margin improvement, et cetera, into the consolidated numbers.

Sure. Well, look, fundamentally, what we are saying is the synergy between the two business would deliver me 250 to 300 basis points improvement on synergies. Now the way the synergy will work out, for example, both of us -- both the businesses buy a lot of steel. There is a clear possibility to negotiate on steel. In terms of manpower, the way we are structured, that is there a way we can create a common team. So that would also help. Third thing, in terms of exchanging of better practices that there has been a lot of innovation on both the sides. We can exchange the practices, good, efficient practices on both the sides, which will help us reduce the cost. So -- plus, for example, very clearly, we keep the warehouses, Ring Plus keeps the warehouse, even Maini keeps the warehouse in different parts of the world, maybe we can share together a warehouse so that the space utilization can improve and the rental can be saved. So there is a plethora of activities which we have identified, which will enable us to get to the synergy benefit. And on top of it, I think fundamentally the biggest thing, which I mentioned in my script, was that you see we supply to some of the top auto OEMs and Maini supplies to some of the other top OEMs. If we get an access in these auto OEMs together, we can cover practically all the top auto majors, which is the single biggest achievement which one can do. And you know it is very difficult to enter into an auto OEM if you don't have an earlier relationship. And that is, in my opinion, one of the very large synergy benefits, which will come into this business.

Understood, sir. And second question is by when -- I understand like we have given a guidance that by FY '24, we are expected to close the transaction. But still, like by the end of Q4 or by when are we expected to start consolidating the numbers?

In Q4, we will start consolidating. But obviously, it is subject to some of the external approvals. As we mentioned that there is a certain external approvals are required. So post that, we will be able to consolidate and we expect that to happen during the fourth quarter.

Okay. Okay, Amit sir. And sir, last question is again in the apparel segment. Sir, there has been one common observation that the premium price point maybe not growing as fast as the value price point. As a consequence, we see several companies entering into the value format. For example, Shoppers Stop entered into the Zudio kind of a market at the price point. Reliance has entered into the same market. Arvind exists in the same market, now maybe ramping up their plans, et cetera. And also, I mean, for example, if we say last 4, 5 years, there has been examples of few companies not growing maybe the store expansion. For example, ZARA would not have added much stores over last 3, 4 years. So having said that, I understand our portfolio is relatively strong, robust and we have all price points also which we are catering to. But having said that, given so much of excitement, for example, Trent result also, it has been quite strong and so much excitement around this so-called value format. Given that we have entered into ethnic, do we also not aspire to maybe enter into this very segment where there has been so much of excitement?

Okay. So I think, first of all, I think there are two parts to happening -- there's two phenomena very clearly happening in India. India is seeing a very large wave of premiumization, which is very clearly panning out that every segment that you take, whether it's automotive, whether it's real estate, whether you see jewelry, there's a large piece happening that the premiumization is playing out. So people who always had money, who actually have the money, disposable income, they're actually spending more and more on high-value items. And that's where we are also seeing a trend very clearly for our product portfolio. Second trend, which is happening is, yes, there's a K-curve happening in the mass end and there's in fact the down-trading happening. So both premiumization down-trading are playing out. In down-trading, you're seeing this trend that the players who are below INR 500, INR 600 segment that also you're seeing some wave happening. Now the question for us is a very clear large play already possible. We play in the mass premium to premium end. So I think there's a huge scope for us across our brands on multiple vectors of growth. One is that we are going through an expansion of go-to-market, which is standard across brands. Second, we are going through casualization. Third, we are going through premiumization. So I think -- and obviously, fourth sector is getting into a new adjacent category like Ethnix. So for us, there's enough large market to grow that rather than change our strategy or looking at it to a sub-INR 600 kind of value-for-money segment, we don't see that as a critical area for us. We have enough room to grow across between mass premium to premium and through adjacencies. And that is something which we're doing. Having said that, our Parx brand, anyway that's a conscious call, which has happened in the Parx strategy that for Parx will not do EBOs. Because there, we -- it's a value brand. It is not an INR 500-minus brand. It's a brand which is, I would say, mass brand, I would say. And that segment, we are catering to the Parx. And we think there, we would rather not spend money on EBOs. We'd rather go and expand outlet to multi-brand and large format stores where there is an automatic flow of consumers so that we can participate in a share game there.

And also, just to add that, look, as Raymond, we have got 12 million CRM base. And the way the affluence is coming in our country, this will always show that people moving up the value chain. If we are able to cater to even that much of a segment, even 50 million customers, if we are able to cater to, I think the revenue has a full potential to grow in high-teens or even crossing 20%-plus growth in the apparel segment. There's such a big market.

Understood. Understood. And sir, what about beauty segment? For example, we have seen a listing of some of the beauty companies also. And as -- like Raymond has been relatively under-indexed in the beauty side. So will we also not aspire to venture into this very segment and kind of exist with the lifestyle or apparel-dominated plus the category extension that we are doing? That's my last question, sir.

Yes. Look, at the end of the day, you see we just sold our FMCG business, which was into the personal care. Now there is a reason why we sold the business. Though we have absolutely no non-compete available, we can start the FMCG business from today to tomorrow. However, what I want to add is that we believe there is a significant growth potential across our all businesses, be it the branded fabric, through big way in the shirting. Second thing on the Branded Apparel, see, our revenue, even if you take it at INR 1,500 crores, INR 1,600 crores, this is a $50 billion market, growing to $75 billion market over the next 5 years. So there is a huge opportunity. And the whole shift is happening from an unorganized sector to an organized sector. That opens up a lot of space for people like us. So therefore, we feel that there is significant opportunity in our own segment to cater to. And we can do a much better business, which you know and you have done it for so many years.

And also, within the Lifestyle current business, within the men's apparels itself, there are so many adjacencies which are possible, which we can nurture. And I would rather focus where we have right to win, which is so obvious to us, rather than getting into segments where you can say, "Okay, is our right to win really very clear?"

The next question is from the line of Reuben Mathews from Equity Intelligence India Pvt. Ltd.

I just had a quick question on the financials. Can you shed a little bit more light on why there was an increase in the receivables? And maybe on which segment is it primarily for the Branded Apparel? If you could just give a little bit of explanation on that, that'd be great.

Yes. Sure. Look, as we talked about that the dealers and the franchisees are expecting a very strong second half of the year based on the festivities as well as the wedding season. So normally, what happens when they buy the product, they bought the product mid- to late September and that stood as receivables in our portfolio. So this is primarily for the Lifestyle business. And it is a classical case because of seasonality. Every year, the same thing happens. Now this time, it is slightly more delayed because Pitru Paksha continued until 15th of October. Otherwise, you would have seen by 14th of September, 15th of September, the Pitru Paksha gets over. So people start to take the material in mid of August. Whereas this year, they started to take mid- to late September. And that's the simple reason which we believe can be during the quarter -- this quarter and the next quarter, we will be able to bring back to the normalcy to the working capital.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Amit Agarwal, Group CFO, for closing remarks.

Thank you very much. And we convey our wishes of Happy Diwali and prosperous New Year to each one of you, and we will talk in the next year. Thank you.

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