Merrill Lynch maintains 'underperform' rating on Raymond
Merrill Lynch has maintained its ‘underperform’ rating on Raymond.
RAYMOND
RESEARCH: MERRILL LYNCH
RATING: UNDERPERFORM
CMP: Rs 194
Merrill Lynch has maintained its ���underperform��� rating on Raymond as the near-term earnings will remain subdued with denim continuing to be a huge drag on overall performance. The management has indicated that it may reduce its involvement in the denim business ��� this can be a time-consuming process. Raymond���s 50:50 denim joint venture with Belgian denim major UCO NV continues to pile losses (Q1 ���09 loss Rs 40 crore, FY08 loss Rs 120 crore).
Losses are driven by suboptimal capacity utilisation in overseas facilities, continued poor denim market and rising cotton prices. Worsted capacity expansion by 7 million metres at Vapi is on track. This will take the total capacity to 38 million by March ���09 and can potentially help free up about 140 acres at Thane, where a part of its worsted capacity is currently located. Merrill Lynch estimates that this land may be worth over Rs 200 per share.
However, the Thane closure is unlikely to be taken up before elections next year. Worsted fabric performance is likely to improve in the current fiscal. Merrill Lynch has assumed a 4% year-on-year (y-o-y ) rise in realisations driven by price increases and a richer mix. This, together with slightly weaker wool prices, should drive EBIDTA margin expansion by 150 bps.
FY09 will be a year of consolidation and streamlining of businesses. The management intends to entirely focus resources on 4-5 key brands. To this end, it aims to expand its retail network judiciously, with a larger proportion of stores through the franchise route in tier-III and IV towns. Raymond added 31 stores in Q1, to reach 518 stores.
RESEARCH: MERRILL LYNCH
RATING: UNDERPERFORM
CMP: Rs 194
Merrill Lynch has maintained its ���underperform��� rating on Raymond as the near-term earnings will remain subdued with denim continuing to be a huge drag on overall performance. The management has indicated that it may reduce its involvement in the denim business ��� this can be a time-consuming process. Raymond���s 50:50 denim joint venture with Belgian denim major UCO NV continues to pile losses (Q1 ���09 loss Rs 40 crore, FY08 loss Rs 120 crore).
Losses are driven by suboptimal capacity utilisation in overseas facilities, continued poor denim market and rising cotton prices. Worsted capacity expansion by 7 million metres at Vapi is on track. This will take the total capacity to 38 million by March ���09 and can potentially help free up about 140 acres at Thane, where a part of its worsted capacity is currently located. Merrill Lynch estimates that this land may be worth over Rs 200 per share.
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However, the Thane closure is unlikely to be taken up before elections next year. Worsted fabric performance is likely to improve in the current fiscal. Merrill Lynch has assumed a 4% year-on-year (y-o-y ) rise in realisations driven by price increases and a richer mix. This, together with slightly weaker wool prices, should drive EBIDTA margin expansion by 150 bps.
FY09 will be a year of consolidation and streamlining of businesses. The management intends to entirely focus resources on 4-5 key brands. To this end, it aims to expand its retail network judiciously, with a larger proportion of stores through the franchise route in tier-III and IV towns. Raymond added 31 stores in Q1, to reach 518 stores.
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