It’s my daughter’s birthday.” No, Gautam Hari Singhania was not inviting this correspondent to his daughter Niharika’s 17th birthday bash. He was making the point that on December 10, 2022, Raymond’s real estate business would open for possession the first set of 900 apartments to customers of Ten X Habitat, a 3,103-apartment complex on Thane’s Pokhran Road. This date was decided and announced in early 2021. Big deal? A promoter chooses his daughter’s birthday to announce a new launch. So what? Well, two things. One, this was Raymond Realty’s first project. And two, the delivery date was two years ahead of the RERA deadline of December 2024. Singhania, 58, admits it was risky, and puts the decision down to naiveté. “We didn’t know the game. So, we wrote our own rulebook,” he says, looking relaxed and in control in a dark blue T-shirt, chinos and casual shoes (all made to measure, mind you), as we chat up in the fancy Atelier Lounge on the second floor of JK House, his residence-cum-office in Mumbai.

With RS 1,115 crore in sales in FY23, real estate’s success has propelled Raymond to profitability after a harrowing time in FY21, and underscored its viability as the next big growth driver for the organisation. Pummelled by the pandemic and, especially, the lockdowns, Raymond’s businesses had seen some of the toughest times in its 98 years. Sales of its traditional businesses—branded textiles, branded apparel, garmenting, high-value cotton shirting and, to a lesser extent, engineering & auto components—plunged between 7 per cent and 59 per cent that fiscal, and the company’s bottom line slumped to a loss of RS 297 crore (see charts).

Atul Singh
Group Vice Chairman
Raymond Group

Raymond is underindexed in ethnics and even branded casuals, so they will start from a lower base and they can scale up profitably

Abhijit Kundu
Senior VP-Research
Antique Stock Broking

From there, Singhania doggedly engineered Raymond’s recovery, taking the scimitar to costs, excess inventory and non-performing stores, and generally just deciding to not quit. He also hired a bunch of grizzled professionals in leadership positions including the heads of the real estate and lifestyle businesses, a new CFO, and a Vice Chairman with multinational exposure, between July 2020 and July 2022 (see Raymond’s A-Team). In FY22, Raymond’s bottom line returned to black, and in FY23, net profits doubled and revenues notched up its highest-ever value of RS 8,337 crore, making it a freshly minted billion-dollar organisation. “Vision is 20:20 in hindsight, but we built a real estate business, we built a full new team of people, we built a profitable business, you’ve seen four quarters of proper delivery, it’s all happened, not by chance,” says Singhania.

“Reduction in inventory levels, which led to reduction in working capital requirement and debt levels, really led to the recovery of its balance sheet,” says Abhijit Kundu, Senior Vice President of Research at Antique Stock Broking. “And then it also cut down on non-performing branded apparel stores, and focussed on more efficiency. That really led to the overall recovery of operations post-Covid-19.” In addition, the sale this April of its FMCG business to Godrej Consumer Products Ltd (GCPL) for RS 2,825 crore has given Raymond significant cash in hand to invest in its lifestyle businesses and pare debt further if necessary.

By any measure, it has been a spectacular turnaround, and with much acceleration yet to come on the runway.

Battling the Pandemic

Let us begin at the beginning of Raymond’s slump. With the country going into lockdown in March 2020 and staying there in different shades for several months, Raymond’s textile, apparel and garmenting business, comprising nearly 80 per cent of its overall revenues, were badly affected. “We had already pushed inventory, but there was no uptake. And in a fashion business, if stocks are not sold, they become old,” recalls K.A. Narayan, 65, President-HR and a 15-year Raymond veteran. Plus, it also had manufacturing plants for these products, which presented a different challenge. “If we continue to produce [stocks], we have a challenge in terms of where to dispatch them, what to do with them, and that gets added to the inventory. At the same time, if we don’t produce, we have to shut down factories.” This situation sparked fears of a liquidity crisis, and the Board was quick to alert the management of the need to cut costs and strengthen cash flows. Raymond then undertook a bunch of steps to cut overheads, reduce headcount and lower discretionary expenses.

Earlier, there was mistrust in the [real estate] market... that gap was identified by a number of corporate players. Their entry got back the confidence of buyers

Karan Singh Sodi
Senior MD
Metropolitan Region & Gujarat, JLL India

Harmohan Sahni
CEO
Raymond Realty

Amit Agarwal, Group CFO of Raymond, looks at the pandemic as a blessing in disguise. “As we grow old, we accumulate a little fat here and a little fat there, and the same thing was happening with the company. We needed to change things,” says Agarwal, 54, smiling broadly with positive energy visible even on a Zoom call. Pointing out that the company cut almost RS 400 crore of operating costs, Agarwal lists a host of measures taken to cut costs, including structural costs such as people, operation, retail stores, advertising, etc. For example, about 4,000 dealers would get an all-expenses paid annual tour of the company’s Thane plant for trade bookings. That exercise was moved to digital during the pandemic and, even today, is still largely digital.

“We had opened a lot of stores, and in some of them, rental to revenue ratio was as high as 0.6, meaning the rental would be 60 per cent of the revenue. It did not make sense,” he says. So, the company shut about 150 stores where revenues were not picking up. On the people front, some layers in the organisation were eliminated, and some others were consolidated through the use of technology. Some regional and branch offices were also shut down. “We were able to enhance the productivity levels of our plant operations, and reduce the fabric spoilage, cuts and ends. Every single piece of the business was looked at and improved upon,” says Agarwal.

In addition, the company went hard to bring receivables under control. The net working capital cycle (NWC), at a high 98 days in September 2019, was brought down firmly to 47 days in March 2022 through a strong collection drive. “We told our dealers that if you don’t bring your dues down, we will not supply you the material,” recalls Agarwal. (In March 2023, the NWC has again risen to 53 days.) The money released by cutting costs, enhancing productivity, managing inventory better, and from reducing the NWC was used to repay debt, informs Agarwal. All these initiatives helped Raymond’s net debt fall from RS 2,378 crore in September 2019 to RS 689 crore in March 2023, with a subsequent fall in the debt-equity ratio from 1.1x to 0.23x in the same period.

With more efficient money and operations management, Raymond was back in the black in FY22 itself, notching up a profit of RS 260 crore, despite Q1 of the fiscal being lost to the debilitating second wave of the pandemic. But it was the real estate business that stood out as the star among equals, carving a new growth path for an entity that is known to you as a clothing firm that promises to make you The Complete Man.

Completing projects in time gives comfort to consumers… anybody coming in will have to deliver on time and deliver the quality promised

Anshuman Magazine
Chairman & CEO
India, South East Asia, Middle East and Africa, CB

The Real Estate Bet

Harmohan Sahni, of the light beard and light smile, is a qualified chartered accountant. The CEO of Raymond Realty has been leading various initiatives in real estate, starting with GE Shipping’s realty venture, then Mahindra Lifespaces, then his own venture, and then running Edelweiss’s realty lending business. Been there, done that. Calling himself a builder of businesses, Sahni, 55, joined Raymond in June 2021, when it really needed him. He is also a hard man to ruffle. Ask him how Rs 2 crore for a 2BHK apartment can be called ‘affordable’, and he answers with a straight bat. “The market is always right. Who am I to say it is expensive or cheap? I cannot own that value judgement if my product is selling better than the others. As of today, in the relevant Thane market, we have 25-30 per cent market share, which for one project in a micro market is significant. I have never seen it in my career… so I know it’s rightly priced,” he says with a drawl, calmly, slowly chewing on his words.

That kind of composure, plus experience, makes him the perfect man to front Singhania’s real estate dream. And Sahni believes this is just the beginning. The real estate industry, which is prone to long cycles, saw a seven-year downturn till a couple of years ago. And now, it is in the midst of another upcycle. “Things have stabilised on all those fronts, there has been pent-up demand and the incomes have been growing, affordability is at its best that anybody’s seen in the last 30-40 years in India, in terms of multiples of income. I think there are significant tailwinds for this industry,” says Sahni.

According to Karan Singh Sodi, Senior MD, Mumbai Metropolitan Region & Gujarat of JLL India, certain factors have worked in favour of Raymond thus far. Its land bank houses a high school owned by the Singhanias, Sulochanadevi Singhania School, fulfilling a big ask for buyers who have children. Then, a small part of the bank was sold to a mall developer, so a mall is also being built—that’s another ask fulfilled. Then, there is a hospital nearby, and being in Thane’s prime area, the ingress and egress to Raymond’s land is smooth. Plus, Sodi points out that Thane has had nearly 50 per cent share of all residential unit sales in Maharashtra in recent years. So, it’s a good place to be in currently for a realty developer.

Raymond’s performance is also adding muscle to the larger trend of big, established corporations jumping into the real estate gravy train, including Tata, Mahindra, Adani, Wadia, Godrej, Piramal, among others, especially thanks to the structural changes brought by RERA—Real Estate (Regulation and Development) Act. “These brands have been around for many years, so they have a head start. And completing projects in time gives huge comfort to consumers… anybody coming in will have to deliver on time, deliver the quality that is promised, and provide all the amenities required,” says Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa of real estate services and investment firm CBRE. Adds Sodi: “Earlier, there was mistrust in the marketplace—some Tier II, Tier III developers would take money and not finish their projects. That gap was identified by a number of corporate players. Their entry into this sector got back the confidence of buyers.”

Some parts of GCPL’s portfolio are seasonal, and some don’t fit into future consumption patterns... [It] may be looking to fix this by acquiring Raymond’s FMCG business

Naveen Trivedi
DVP-Institutional Equity
HDFC Securities

Already, Raymond has activated two more projects. The Address by GS has 549 apartments and is more expensive than Ten X Habitat. Both these projects have seen more than 80 per cent apartments booked. A third project, TenX ERA, with 905 units, was launched this February—25 per cent apartments are already booked. All this reflects in the company’s performance. The real estate business’s sales increased 401 per cent in FY22, and another 58 per cent in FY23 to touch RS 1,115 crore. Ebitda margin for FY23 is at 25.7 per cent, which, according to Sodi, is more or less on par with that of the larger Thane market.

Beyond the land bank, Raymond plans to get into joint development with others in the MMR (Mumbai Metropolitan Region). “We are not investing any money on the land. We will only do such projects when we are confident that all the approvals are happening,” says CFO Agarwal. The company has signed up one joint development project in Bandra with a local partner, which is the redevelopment of a society on the Western Express Highway. “As of now, we have about 270-280 proposals, and some have been shortlisted. But in terms of active discussions, we would always have five to seven proposals that are in line with our strategy…. Difficult to predict, but our endeavour is to do two to four deals a year,” says Sahni. If done well, this strategy has the potential to make real estate much bigger in Raymond’s portfolio. In the past three to four years, it has become the third biggest business for Raymond. And since it is still taking baby steps, this is likely to grow further, subject to market conditions. No wonder Singhania is so bullish.

Meanwhile, its traditional business of everything to do with clothing is also chugging along just fine. So are the denim and engineering & auto components businesses.

The Core Keeps Rumbling

Sunil Kataria, 55, the CEO of Raymond’s core lifestyle business, looks every bit his role. Having been in GCPL during the pandemic (as CEO of India and SAARC), the suave and eloquent Kataria joined Raymond in March 2022 and took charge of the growth journey. And it has been an impressive ride. All the businesses related to clothing clocked high growth in FY23—sales of branded textile, branded apparel, garmenting (which is an export-oriented B2B business where Raymond supplies ready-made garments to international brands) and high-value cotton shirting grew at 20.6 per cent, 49 per cent, 51.7 per cent and 33.2 per cent, respectively, with Ebitda margins between 8 per cent and 20 per cent.

Sunil Kataria
CEO-Lifestyle Business
Raymond

This growth has come on the back of an explosion of pent-up demand after the pandemic. In FY23, a net 58 units of The Raymond Store (TRS) outlets were opened, taking the total count to 1,409 stores (including franchisee-owned TRS shops and exclusive brand outlets) as on March 31. Over the next 12-18 months, the company plans to expand this network by another 200 stores. Yet, there is scope for further expansion. “We are available in a lot of small towns. But there are hundreds of towns that we are probably not available in because our distribution network doesn’t go that far. Those are opportunities for us to expand,” says Atul Singh, Group Vice Chairman of Raymond Group. Singh, 62, is a Coca-Cola veteran who has worked around the world and brings understanding of global markets to Raymond (it already exports a chunk of its clothing products overseas to large global brands).

What are the growth drivers of the future? One, Kataria believes that a China-plus-one strategy by global brands will benefit India compared to competing economies like Vietnam and Bangladesh because either their capacities are choked or they face a volatile economy. “And within India, we (Raymond) are very well placed. When all these players look for either ready-made garments or fabric, they look for a vertically integrated player. We have one of the world’s best factories in terms of ability to give worsted fabrics, plus we have four units in Bengaluru and one in Ethiopia, where we do ready-made B2B garmenting. So, we are able to give end-to-end vertically integrated, very strong world class facilities, people,” he says.

Two, certain consumer trends in India are also being targeted by Kataria. Casualization and hybrid formals is one such, where people go to work wearing attire that is not strictly formal, yet not totally casual either. Think start-ups, the tech crowd and millennials, and their approach to dressing. You’ll get the drift. “Two of my brands, Park Avenue and Raymond Ready to Wear, are formal brands. We are going to stretch these two brands into casual as well. The casualization play between my apparel brands is going to become very strong. And that’s an area where we are focussing on both product and design,” says Kataria. He’s also betting big on this trend spilling into fabrics. “We are seeing that even within fabrics, it is no longer the blacks and the blues and greys that people prefer. They are open to buying prints, colourful linens, more casual designs.” Plus, there’s a lot of work going on in innovations such as a techno-stretch fabric—which as the name suggests are fabrics with some stretch built in—and even a stain-repellent fabric.

But what gets Kataria most excited is ethnic apparel, through its brand Ethnix by Raymond. If you think ethnic is only for weddings and festivals, you have another think coming. Kataria caught this correspondent by surprise by pointing out that the interview was being conducted by someone wearing a bundi, which is what he calls “smart ethnic”. The bundi, kurta and other ethnic wear are becoming fairly common in the workplace, and remain popular in weddings and festivals. Raymond is targeting a mix of exclusive Ethnix stores as well as shop-in-shop placements in TRS outlets for its ethnics drive. Antique Stock Broking’s Kundu points out that while there is competition, there are also a lot of unorganised players in this segment, which would help the overall ethnic portfolio in terms of consumers wanting to buy branded ethnics. “Raymond is under-indexed in ethnics and even branded casuals, so they will start from a lower base and they can scale up profitably,” he says.

Raymond also has a RS 1,000-crore-plus business of denim, which it runs through a 50:50 joint venture with UCO of Belgium. The entity, called Raymond UCO Denim, has been around for 25 years now, and has become one of Raymond’s biggest businesses under CEO Arvind Mathur, 62, a veteran of 29 years at British industrial thread manufacturer Coats PLC, before joining Raymond. Despite cotton prices doubling in recent years, both denim fabric and ready-made apparel have done well on the strength of its B2B relationships. “A bulk of our business has been on the export side and we have grown significantly there. And even in the Indian market, all the premium labels would be using our fabric in their jeans,” says Mathur. Apart from supplying to other brands, Raymond UCO Denim now also supplies denim fabric and readymade jeans to Raymond brands such as Parx. Going forward, Mathur is focussed on expanding his garmenting footprint, which is where demand is climbing.

The final piece is engineering and auto components. If you’re surprised that Raymond is in this business, well, don’t be. Even Balasubramanian V., 63, the MD of JK Files & Engineering, a 25-year veteran of Brakes India and Bosch till he joined Raymond in October 2017, didn’t know about it before he got the job offer from Raymond. The division’s sales fell just 7.4 per cent in FY21, the lowest of all Raymond’s businesses, but recovered smartly thereafter. This growth has come on the back of a good showing from its two companies. One, engineering company JK Files, which has strong products such as engineering files, drills used in manufacturing, and power tools used by electricians and plumbers. And two, auto component maker Ring Plus Aqua, which manufactures a host of products.

Arvind Mathur
CEO
Raymond UCO Denim

It sells engine and transmission components to global OEMs such as Cummins, Caterpillar, BMW, among others, and in India to practically all OEMs in both passenger and commercial vehicles. The company also makes water pump bearings used in engine cooling circulation, and a product called Flex Plate, used in automatic transmission systems in vehicles. Ring Plus Aqua is now getting into new products such as dual clutch transmission and dual mass flywheels. About 60 per cent of its revenues comes from exports. “Each business can double in my opinion in four-five years, easily. Currently, there is a bullishness that is coming back after two Covid-19 years. Even in Covid years, we somehow managed to grow,” says Balasubramanian. With the Indian auto industry moving into growth overdrive, things are continuing to look good for this business as well.

The Way Ahead

Going ahead, Raymond is restructuring and streamlining its businesses to drive further growth. This April, Raymond Group exited its FMCG business by selling its condom brand Kama Sutra and deodorant brands Park Avenue and DS, to GCPL for RS 2,825 crore in an all-cash deal. However, Raymond will retain its condom manufacturing plants and contract-manufacture them for others. Analysts feel this sale reflects Raymond’s desire to sell off a non-core business and strengthen its balance sheet. From GCPL’s point of view, Naveen Trivedi, DVP-Institutional Equity, HDFC Securities, says: “On the core business side, some parts of GCPL’s portfolio are seasonal in nature, and some parts don’t fit into future consumption patterns. GCPL may be looking to fix this problem by acquiring this business, which is more in the personal care segment and is growth-oriented, where they can drive their own distribution.”

In parallel, the businesses of Raymond have now been shuffled into a new structure. The lifestyle businesses are being demerged from Raymond Ltd into Raymond Consumer Care Ltd (RCCL), and Raymond Ltd’s main business will be real estate, with investments in engineering-auto and denim. “RCCL will see reduction in debt levels and better funding of working capital internally, because it now has cash from the sale of the FMCG business to GCPL,” says Kundu. “It will have a strong balance sheet, which will help fund the working capital needs of the lifestyle business.”

While things have been smooth sailing in recent times, Raymond will have to watch out for potential stumbling blocks. “The apparel market saw a lot of growth due to explosion of pent-up demand last year, which has now been exhausted. So, there will be a slowdown in branded apparel growth this fiscal, but it is likely to make a comeback in FY25,” says Kundu. In real estate, the move into joint development in areas beyond its comfort zone of Thane would require Raymond to manage relationships with multiple stakeholders, which can be a challenge. Then, export markets, largely western economies, are seeing their own challenges including high inflation, high energy prices, volatile currencies, war, and fears of a possible recession. And while these factors have not affected Raymond in FY23, there’s no predicting the future.

Challenges or no, what stands out in this whole story of the revival of Raymond is the positive mindset of its promoter and its band of leaders, and their willingness to take setbacks on the chin, shrug and move on. With the company’s businesses firing on all cylinders, clearly, this story isn’t over yet.