Anam ShaikhRoll No. 94

Company AnalysisThe Raymond Group – Raymond Ltd.

THE RAYMOND GROUP

A Vision Finds FormA dream conquers reality...

The Raymond Group was incorporated in 1925 and within a span of a few years, transformed from being an Indian textile major to a global conglomerate. In their endeavour to keep nurturing quality and leadership, they always choose the path untaken - from being the first in 1959 to introduce a polywool blend in India to creating the world's finest suiting fabric the Super 240s made from the superfine 11.6 micron wool.

Today, the Raymond group is vertically and horizontally integrated to provide customers total textile solutions. Few companies globally have such a diverse product range of nearly 20,000 varieties of worsted suiting to cater to customers across age groups, occasions and styles. They manufacture for the world the finest fabrics - from wool to wool-blended worsted suiting to specialty ring denims as well as high value shirting.

About Raymond Group: It is an eight-decade old group, in operation since 1925 The Raymond Group is one of India’s largest branded fabric and fashion retailer, and

the second largest branded apparel business in India It is the market leader in the worsted fabrics business with over 60% market share It owns award winning brands like Raymond, Park Avenue, Colorplus, Parx This group has a large India focus, with more than three-fourth of revenues from

domestic market Raymond Ltd, the flagship company of the group, is listed on BSE and NSE

Mission Statement:

To be Asia's leading High Value Cotton Fabrics producer and marketer by combining Cotonificio Honegger's with Raymond's strengths.

OVERVIEW OF THE ECONOMY:The global economy is showing signs of a turnaround with Asian economies experiencing a relatively stronger rebound. The global economic performance improved during the latter half of the calendar year 2009, prompting the IMF to reduce the projected rate of economic contraction in 2009 from 1.1 per cent to 0.8 per cent in January 2010. Consequently, the IMF also revised the projection of global growth for 2010 from 3.1 per cent to 3.9 per cent. However, significant risks remain: (1) in many economies, the recovery is largely driven by government spending whilst consumer sentiments remain fragile; (2) high levels of global liquidity have led to steep increases in commodity prices; (3) emerging markets are likely to face increased inflationary pressures and (4) developed economies are facing large budget deficits.There are concerns that the global recovery phase may be fragile, as economies of developed countries, particularly USA and Europe, continue to be beset with the problems of high unemployment, low consumer spending and depressed housing markets. Besides, the recent crisis in Portugal, Ireland, Spain and Greece indicate that there would be many pitfalls along the road to recovery and that normalcy is still some time away. India’s growth–inflation dynamics are in contrast to the overall global scenario. The Indian Economy is recovering steadily from the growth slowdown, but inflationary pressures, triggered by the supply side

factors, have developed into a wider inflationary cycle. Although the growth momentum of the Indian economy was substantially impacted with the onset of the global economicslowdown, the severity of the impact was considerably less when compared to most developed economies. The fiscal and monetary policies implemented by the Government of India helped the economy to weather the downturn phase. The outlook of the Indian economy turned positive towards the end of 2009, driven by the uptrend in industrial production and recuperating consumption and investment demand. The Reserve Bank of India has projected the final real GDP growth for 2009-10 in the range of 7.2 per cent to 7.5 per cent with a forecast of 8.0 per cent for 2010-11.

SEGMENT ANALYSIS AND REVIEW

A. TEXTILE DIVISIONIndustry ConditionsThe Indian Textile Industry is one of the leading textile industries in the world. The textiles and apparels sector is a major contributor to the Indian economy in terms of gross domestic product (GDP), industrial production and the country’s total export earnings. India earns about 27 per cent of its total foreign exchange through textile exports. Besides, the Indian Textile industry contributes 14 per cent of the total industrial production of the Country. This sector provides employment to over 35 million people and it is expected that the textile industry will generate new jobs during the ensuing years.The industry went through a challenging FY 2010, with the global meltdown ravaging economies. The collapse in consumer sentiments, weak exports, noteworthy drop in discretionary spending in textiles/apparels and down trading by the consumers put immense pressure on both the top-line and the bottom-line of textile companies.Opportunities and ChallengesThe present global economic scenario throws up opportunities for fundamentally strong companies such as Raymond Ltd. The inherent strengths, in the form of strong domain expertise, powerful brand positioning and strength and resilience of the brands, fully integrated state-of-the-art production facilities, cutting-edge technology and unparalleled product innovation capabilities combined with the deep retail market penetration, growth potential of the Tier 3, 4 and 5 towns; provide a highly potent platform to seize opportunities in the form of newer markets, new segments of customers, new channels of distribution, etc.On the other hand, value-buying by consumers, sharp increase in raw material prices, continued weakness in developed geographies, prospect of higher domestic inflation and interest rates are some of the challenges facing the textile industry at large.OverviewThe Company is the market leader in high quality suiting fabrics and is a preferred supplier to leading international and Indian brands. The Company has a powerful brand ‘Raymond’, state-of-the-art manufacturing facilities and a strong Pan-India retail presence in the form of ‘The Raymond Shop’ (‘TRS’). The Company is on the path to becoming a lifestyle solution for discerning customers with an offering of a range of fabrics, garments and accessories in a premium shopping environment. The Company continues its growth of its retail network of ‘TRS’ in tier 3, 4 and 5 towns.Performance HighlightsThe performance of the Company improved during the second-half of FY 2010 as demand picked up significantly vis-à-vis the first-half of FY 2010. In spite of the challenging business environment the Company’s net sales from the textile division was Rs.1222.93 crores compared to Rs.1137.85 crores in the previous year.

Market Share and Retail NetworkThe Company is the market leader in India and is considered as one of the most formidable players in the global markets for high-quality suitings.In FY 2010 the Textile Division domestic sales were Rs.1089.29 crores as against Rs.1027.32 crores in FY 2009. During FY 2010 the Company opened 89 new retails stores. The Company continues to be judicious in its selection of store locations.ExportExport to the USA improved during FY 2010 vis-à-vis FY 2009. The Textile exports for the FY 2010 were Rs.133.64 crore, as against Rs.110.65 crore in the previous year. Quality, design, new products, higher levels of service to mid-premium and premium customers have resulted in stability of customers internationally and new customers being attracted for an integrated offering.Raw MaterialWool prices were stable during the year under review as compared to the previous year. However, the Australian Dollar appreciated against the Indian Rupee. Your Company in its pursuit to de-risk dependence on traditional wool sources has developed alternate vendors in other countries. The Polyester fibre prices were generally stable.B. FILES & TOOLS DIVISIONThe Division manufactures and markets Steel Files, HSS Cutting Tools (mainly drills) and merchandising activities mainly in Hand Tools. During the year, the Division further consolidated its position in Cutting Tools and Hand Tools segments.Industry OutlookGlobally, the Steel Files business registered marginal organic growth in demand. The domestic market for the Company’s products improved over the previous year with the Company registering good growth. Although the Company witnessed signs of revival in the world economies for Files and Tools, the markets in Europe and USA, continued to be sluggish.Performance and Review of Operations (for 6 months ended September 2009)The Division continues to remain the market leader in the files segment in the domestic market and is amongst the largest producers of Steel Files in the world. The Export Sales of the Division was Rs.39.26 crores, lower by 27 per cent over the corresponding period in the previous year due to sluggish markets in Europe and USA. The Division reported net sales of Rs.96.52 crores for the six months ended September 2009 (Previous Year: Rs.111.51 crores for the six months ended September 2008).

PERFORMANCE OF SUBSIDIARY COMPANIESDomesticRaymond Apparel LimitedAlthough the gross turnover of the Company was lower by 5 per cent at Rs.401.56 crores (Previous Year: Rs.421.02 crores), the Profit after tax for the FY 2010 was Rs.5.57 crores (Previous Year: Rs.4.67 crores), registering a year-on-year growth of 19 per cent over the previous year.The adverse consumer sentiments made the FY 2010 very challenging due to poor retail off take and extended end-of-season sales. Though the Company’s top-line performance was impacted, the strength of its brands and several initiatives taken to rationalise stores, reduce operating costs, enhance efficiencies in raw material and packing material usage helped to improve profitability. The Company also successfully implemented Enterprise Resource Planning (ERP) to streamline operations.Going forward this Company is geared to consolidate and retain the leadership position of its power brands and improve profitability, through continued focus on product innovation,

appropriate product-price matrix and operating efficiencies, especially in retail. In order to optimise operational efficiencies, rationalise cost, etc., this Company and another subsidiary of your Company namely Solitaire Fashions Limited (formerly known as Gas Apparel Limited) is seeking the approvals of the High Court, Bombay and High Court, Madras, respectively under Section 391 – 394 of the Companies Act, 1956 for amalgamation of this Company with Solitaire Fashions Limited. The appointed date of this amalgamation is April 1, 2009. The legal process for the said amalgamation is expected to be completed shortly. This Company shall stand dissolved without winding up, upon completion of the amalgamation. In view of the Petitions pending before the respective High Courts the financial statements of this Company have been prepared and audited for the purpose of enabling your Company to prepare its consolidated financial statements for the FY 2010.Colorplus Fashions LimitedThe Company’s turnover for the year ended March 2010 was marginally higher at Rs.154.28 crores (Previous Year: Rs.148.32 crores). The net loss for the year after taxes, was at Rs.3.40 crores (Previous Year; Net loss after taxes and exceptional items Rs.15.05 crores).The performance of the Company was affected by the adverse consumer sentiments resulting in consumer down trading. In spite of this, the Company continues to be the market leader in the premium casual wear segment. During the year this Company exited from the women’s wear and the kids wear segments, as a part of its rationalising initiatives. With a view to consolidate this subsidiary’s market leadership in the premium casual segment, various structural and strategic initiatives are under implementation. The Company is confident that these strategic measures will enable this subsidiary to report improved performance going forward.Silver Spark Apparel LimitedThe gross turnover of the Company was marginally lower at Rs.83.82 crores as compared to the previous year Rs.86.83 crores. The Company had a Profit after tax of Rs.3.06 crores (Previous Year: Rs.1.81 crores). The Company was successful in retaining its customers in the domestic and export markets and continues its endeavour to attract new customers. The Company continues to meet the ever increasing quality standards set by reputed national andinternational brands.Celebrations Apparel LimitedThe gross turnover of the Company was Rs.17.42 crores (Previous Year: Rs.14.29 crores). The Company earned a Profit after tax of Rs.2.09 crores (Previous Year: loss after tax Rs.0.05 crores).Everblue Apparel LimitedThe Company earned a Profit after tax of Rs 2.15 crores (Previous Year: Rs 1.32 crores).Raymond Woollen Outerwear LimitedThe gross turnover of the Company, net of returns and discounts was Rs.46.17 crores (Previous Year: Rs.45.72 crores). The Company recorded a loss after tax of Rs.1.71 crores (Previous Year: loss after tax Rs.1.59 crores). With focus on product and design development and exploring opportunities in new markets and customers, the Companyexpects to improve performance.Solitaire Fashions Limited [formerly known as Gas Apparel Limited]During the year under review this Company became a subsidiary of your Company with the erstwhile Joint Venture partner Grotto S. p. A., divesting its 50 per cent stake. The gross income of the Company for the current Financial Year March 31, 2010 is Rs.27.90 crores, as against the income of the previous year ended March 31, 2009 which was at Rs.11.99 crores. The Profit after taxation was Rs.16.67 crores as against Loss Rs.50.44 crores in the previous year ended March 31, 2009. This Company and Raymond Apparel Limited as stated above is seeking the Approvals of the High Court, Madras and High Court, Bombay, respectively

under Section 391 – 394 of the Companies Act, 1956. The appointed date of this amalgamation is April 1, 2009. The legal process for the said amalgamation is expected to be completed shortly. Raymond Apparel Limited shall be merged into this Company upon completion of the amalgamation. In view of the petitions pending before the aforesaidCourts the financial statements of this Company have been prepared and audited for the purpose of enabling your Company to prepare its consolidated financial statements for the FY 2010.JK Files (India) Limited [formerly known as Hindustan Files Limited]This Company is now the market leader in the files segment in the domestic market and is amongst the largest producer of Steel Files in the world.The Export Sales of the Company is at Rs.45.72 crores compared to Rs.4.50 crores in the corresponding previous year. The Company reported gross turnover of Rs.138.66 crores for the year under review (Previous Year: Rs.45.79 crores). The Company recorded a Profit after tax of Rs.4.58 crores (Previous Year: Rs.1.31 crores). In spite of global recession and general inflationary trend, the Company registered good performance during FY 2010. Improvements in processes and yields, control over rejections, improvements in through put, control on costs; tight working capital management and focused marketing are the factors, which enabled the Company to boost performance for the year under review.JK Talabot LimitedThe Company manufactures files and rasps at its plant located at Chiplun in Ratnagiri District, in the State of Maharashtra. During the year gross turnover of the Company was at Rs.17.44 crores (Previous Year: Rs.18.85 crores). The Company recorded Profit after tax of Rs.0.83 crores (Previous Year: Rs.2.74 crores) during the FY 2010. The weak export markets affected the performance of the Company.Scissors Engineering Products LimitedThe Company incurred a loss of Rs.34,631 (Previous Year: loss of Rs.25,735) during the year under review.Ring Plus Aqua LimitedThe gross turnover of the Company was at Rs.81.48 crores (Previous Year: Rs.84.56 crores). Profit after tax was at Rs.5.08 crore (Previous Year: Rs.2.94 crores). Gear sales during the year were Rs.46.30 crores as compared to Rs.54.74 crores in the previous year. The gear sales were lower mainly due to fall in export sale. The Company continued its efforts in developing new markets, making major in-roads into Asian and Latin American markets during the year. In the domestic market the Company was successful in securing orders from new customers.The performance of the Shaft Bearings Divison showed significant growth during the year under review. The Bearings sales were higher by 39 per cent at Rs.25.73 crores as against Rs.18.56 crores in the previous year. USA continues to be the major market for bearing exports. During the year the Company received quality certification from a top international quality car maker.Pashmina Holdings LimitedThe Company made a loss of Rs 0.05 crores in the FY 2010 as compared to a loss of Rs.0.08 crores in the previous year.Overseas CompaniesJaykayorg AG incurred a loss of CHF 743,667 (equivalent to Rs.3.34 crores) [Previous Year: loss CHF 883,975 (equivalent toRs.3.70 crores)] for the year ended December 31, 2009.Raymond (Europe) Limited [formerly known as J. K. (England) Limited] recorded a loss of Pound Sterling 111,804 (equivalent to Rs.0.84 crores) [Previous Year: profit Pound Sterling 4,084 (equivalent to Rs.0.03 crores)] for the year ended December 31, 2009.

R & A Logistics INC, USA, a subsidiary of Ring Plus Aqua Limited set up in USA to provide better service to US based customers,earned a profit of US $ 7,239 (equivalent to Rs.0.03 crores) [Previous Year: profit US $ 1,430 (equivalent to Rs.0.01crores)] for the year ended March 31, 2010.

STRATEGIC THRUST AREAS: Strong thrust on their core business areas of Branded Fabrics and Apparel Immediate expansion plan in high value cotton shirting fabric business – current

capacity 11.5 mn meters p.a. to be increased to 21.6 mn meters Aggressive retail thrust last – year initiated a plan to add 289 stores by 2011 (128 new

stores opened since then upto June 2010) Address the dual manufacturing cost at Thane and Vapi ‐ potential margin increase in

Textiles business of 3‐4% per annum Focus on profitable growth across businesses

High Value Shirting Fabric Business: Consistently high profitability levels, working at close to full capacity Capacity expansion from the current 11.5 million meters to 21.6 million meters being

undertaken by March 2011.

Raymond has turned around FY 10 by successfully resolving the issues faced

Now the company’s focus is to take advantage of the Indian domestic market growth which is backed by increase in discretionary consumption

The retail thrust will assist the groupto penetrate into newer markets in smaller towns and cities

Operationally the group is focused on tackling the dual manufacturing cost build up

Raymond reported strong topline growth and better operational performance for the quarter ended December 31, 2010.

Sales for the quarter registered 20% increase to Rs. 447 crore from Rs. 372 crore in the corresponding period of the previous year

Textiles segment sales grew by 21%, EBIT grew by 69% Loss at the Net Level due to charge of exceptional item on account of voluntary

separation of workers at Thane plant

The Textile segment sales for Q3FY11 registered an increase of 21% to Rs. 444 crore on the back of higher realizations in a buoyant domestic market. The Textile segment reported EBIT of Rs. 105 crore which is up by 69% compared to the corresponding period of previous year.

Raymond Ltd (Rs. in crs.)

Q3FY11 Q3FY10 Y-o-YIncome from operations

447 372 20%

EBITDA 111 70 58%

The Branded Apparel business witnessed a 29% increase in sales to Rs. 178 crore, while EBITDA of Rs. 26 crore for the quarter, higher by 111% as compared to the corresponding period of the previous year.

Raymond continues to operate one of the largest specialty retail networks in India in the textile and apparel space with 671 retail stores covering over 1.4 million square feet of retail space. In addition, the company also has 39 stores in Middle East and SAARC region. Like-to-like store sales growth for the quarter has been strong at 14%.

The company has successfully completed the voluntary separation scheme with workmen at its Thane plant.

Analysis of Q3FY11:HIGHLIGHTS:

Consumer sentiment has been on uptick and market conditions have remained buoyant

Have witnessed higher volumes and realisations across various products and categories.- Consolidated Sales up 24%- Consolidated EBITDA up 62%

Voluntary separation scheme is successfully concluded with workers at the Thane plant.

- Of the total package of Rs 260 crore, the company has paid Rs 150 crore and balance of Rs 110 crore will be payable in three years- Accounting impact in current quarter is Rs 235 crore

Textile Segment- Sales up by 21%- Realisations up by 17%, have been able to pass on input cost increases- Margins improved during the quarter, despite higher raw material cost- Domestic market has been the major growth driver.

High value cotton shirting fabrics- Sales up by 17%- Volume up by 7% and realisations up by 8%- Margins impacted on account of high cotton yarn prices

Denim- Indian fabric realisations up by 22%- Romania operations losses at EBITDA level have reduced significantly

Branded apparel business- Revenues up by 29%- EBITDA increase over 2-fold

Retail- 33 new stores opened in the quarter- 14% Like to Like sales growth for the quarter

Garmenting business witnessed export volume growth Auto component business

- Sales up by 44%- EBITDA up by 38%

Files and Tools business has performed well backed by volume and realisation growth- Sales up by 30%

Business-wise Performance:Textiles Division(Segment of Raymond Ltd.)

Have witnessed sales growth as well as margin improvement in the business Domestic market demand continues to be buoyant

- Volume up by 5%- Realisation up by 16%

Implementation of 7.2MW captive power plant is underway, and on schedule

Shirting Fabric(Raymond Zambaiti JV)

Market conditions remain buoyant- volume growth of 7%- realization growth of 8%

Margins impacted due to unprecedented increase in cotton yarn prices Healthy order book position Project to increase capacity to 21.6 million meters is underway, and on schedule

Woollen Outerwear Fabric:(Raymond Woollen Outerwear Ltd.)

Restricted availability and high costs of raw material impacted margins Options being evaluated given the consistent underperformance.

Garmenting Business:(Silver Spark and Celebrations)

Volume growth witnessed in export market especially for jackets Margins impacted due to higher input costs

Denim Business

(Raymond UCO Denim JV)

Denim market has remained buoyant Indian fabric operations witnessed

- 4% volume growth- 22% realisations growth

Unprecedented cotton price rise partly passed on but margins impacted Romania operations losses have reduced Since Oct’10, JV shareholding has been reduced to 50% in the Romanian operations

Branded Apparel Business:(Raymond Apparel and Colorplus)

• Surge in sales has been contributed by robust performance across brands• Overall consumer sentiment has been on an uptick

Retail Network:

During the quarter, added 33 stores with 46,279 square feet of retail space- Have closed Zapp EBOs subsequent to discontinuation of the brand.

Like to like sales growth is 14% for the quarter Good results of new ad campaign for the TRS shop Going forward, retail thrust into smaller towns and cities will continue

FILES & TOOLS BUSINESS:

Overall market has witnessed healthy volume and realisation growth for files as well as drills

Volumes for the quarter- Files up by 17%- Drills up by 18%

Realisations- Files up by 3%- Drills up by 20%

AUTO COMPONENTS:(Ring Plus Aqua Ltd)

Surge in sales and profitability backed by volume and realisation growth in ring gears- Ring Gear- Volume up 21%, realisations up 24%

Shaft bearings witnessed volume growth of 30%

WAY FORWARD: Continue rapid expansion of the ‘TRS’ network in smaller cities and towns. Enhance customer servicing by widening product offerings across all price points Implementation of capacity expansions

- Cotton shirting fabric capacity at Kolhapur- Captive power plant at Vapi for Textiles

Concerns - Unprecedented commodity price increases and inflation

Financial Results:

Raymond Ltd Growth Drivers and Business Outlook:

With its enviable brands in worsted suiting and strong distribution, it has a domestic market share of over 60%. Raymond has a strong foothold in the apparel space, through its brands “Park Avenue”, Colourplus and “Parx”.

Strong brand and robust distribution are its strength:The ‘Raymond’ brand, under which the company’s worsted fabric retails, is India’s largest textile brand. Company has invested in its brands over the years and has gained acceptance as one of the most respected brands in India. Raymond enjoys the largest retail network in the textile space in India, with 704 exclusive stores. Its network spans across over 270 towns, Raymond plans to open another 125 stores by Mar 2012, through franchise route in smaller towns. In addition, Raymond’s products retail through a distribution network of more than 18,000 touch-points.

Direct play on rising discretionary consumption in India:Raymond is a direct play on the rising income as well as aspirations of the Indian consumer and favourable demand demographics in India. Increasing retail penetration into smaller towns is driving demand growth for branded apparels. Company expects to achieve a rapid growth in fabrics sales, driven by new store roll-outs in tier 3/4/5 towns. Company will double shirting fabric capacity by March 2011 and company believes they can ramp-up production quickly due to strong demand and thus expects to grow the business at a good pace.

Restructuring initiatives to drive turnaround in profitability:Raymond’s profitability in the last few years was impacted by large losses in associate companies outside India. Company has exited these loss making operations like denim operations in Belgium and US. Further, post closure of Thane plant, Raymond will save ~Rs500mn (2% of consolidated revenue) in employee cost each year. Company will switch tocaptive power from April 2011, which will add another 30bp to margins. Recent surge in cotton and wool prices is a short-term concern, however given Raymond’s brand equity they are well placed to pass on the costs to customers through product mix as well as modest price hikes.

Core business at a discount, option value in real estate:Raymond has a net debt of Rs12bn and debt-equity of 1.1x. Company has planned capex of Rs2bn over the next two years. Raymond is trading at 8.4x FY12E EBITDA, as against its historical average of 13x. Post VRS settlement with workers, Raymond has ~120 acres of prime land in Thane (just outside Mumbai). Company is exploring various options to monetise this land including outright sale and co-developing the property in phases. Our channel check suggests that land price in this area is Rs2,500/sq ft, while residential property is selling at Rs5,000-6,000/sq feet.

The growth proposition: India’s textile and apparel industry is estimated to grow at 11% CAGR over next 10

years Growth will be driven by high unit value growth apart from increase in per-capita

consumption Raymond is the largest player in worsted fabrics and second largest in the apparels

portfolio Raymond has the widest distribution in the textile space Company plans to open another 125 exclusive stores by Mar. 2012 in tier 3/4/5

towns.

The value proposition: Recent closure of loss making operations will improve profitability RW is trading at 8.4x FY12E EBITDA (based on Bberg consensus), 30% lower than

its 5 year average RW is exploring ways to monetise 120 acres of prime land at Thane

The business model: Fully integrated across the value chain – Fabric – Garments – Brands – Retail Enviable brands in fabrics as well as apparels Strong thrust on core business – Branded fabrics and apparels Aggressive retail thrust – opened more than150 new stores in last two years – enables

penetration into newer markets

The main risks: Continued rise in wool, cotton and polyester prices Unfavourable change in consumer preferences/fashion trends Adverse currency movements Real estate development plans may get delayed

Strengths:

Strong brand equity with dominant market share Widest distribution reach in the India textile space Unique asset light model for retail network expansion Fully integrated across the value chain Strong franchisee relationships Adequately funded for planned capacity additions

Weaknesses: Some of the past business ventures (like denim JV) were not successful Discretionary sales may slow down if broader macro-economic scenario weakens

Opportunities: Significant growth opportunities in branded fabric and apparel business Improvement in global economy to boost export and international sales profitability Retail expansion required to tap strong demand in smaller towns that is currently not

being met Real estate project will boost near term cash-flows and unlock value

Threats: Rising competition in the premium and super-premium apparel categories Growth in smaller towns/rural areas may not match-up to the growth in larger cities Sustained rise in wool/cotton costs Real estate development plans may get delayed