Financial Analysis: Raymond

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Financial Analysis Report

Presented towards the partial completion of
Financial Accounting at
Indian Institute of Management, Bangalore

Submitted by,


1. Introduction - A Brief Description of the Company and the Industry2
2. Major Events in the period FY’09 – FY’103
3. Stock Price Movement and PE ratio3
4. Growth Rates4
5. Margin Analysis4
6. Turnover Analysis4
7. Analysis of Leverage5
8. Analysis of Short-Term Liquidity6
9. Analysis of overall Profitability6
Executive Summary7

1. Introduction - A Brief Description of the Company and the Industry Incorporated in 1925, Raymond is the world’s largest vertically and horizontally integrated manufacturing centre and provides customers with total textile solutions from worsted suiting to shirting. Raymond has over 60 per cent market share in worsted suiting segment in India. Raymond's business is divided into three major segments - textiles, files & tools and air charter services, with the textiles division contributing to 77% of total sales during 06-07. S Kumars, Arvind Mills, Century Mills and Bombay Dyeing are the major competitors of Raymond, with the gross margins of the 3 Indian companies - Arvind Mills, Raymond and Century Mills, averaging around 42% against the global average of around 22%. India is the 2nd largest textile economy in the world after China. Textile sector in India accounts for around 8% of GDP and, contributes 14% of the value addition in the manufacturing sector and more than 30% of the export earnings of the country. Raymond’s sales have declined during ‘10 by 2% whereas it had shown a significant increase in sales in ‘09 (9%). The decline in sales has been due to poor domestic sales, low export volumes and high raw material costs in ‘10. Raymond’s growth rate was very high at around 18% for three consecutive years (‘05-‘08) but dropped down significantly to 4.77% in ‘08-‘09. In the same time period, the textile industry’s growth rate also went down from 5% to -2%. The reason for such a sharp decline was the economic recession in the western countries. Demand for textiles dropped sharply in the domestic as well as international markets. The market share of Raymond was increasing till ‘08-‘09 as Raymond’s growth rate was higher than the industry’s growth rate. But in year ‘09-‘10 Raymond lost a sizeable amount of market share as its growth rate went negative to -1.68%. This was the year during which the company closed down its operations at its high cost Thane unit in December ‘09. Net profit margin is negative for the financial year 2009 (-4.47%) and has marginally gone up to 1.46% in the FY’10. Also Return on equity in FY‘10 was 3.06% whereas it was -8.58% in the previous year. Also it is notable that the company’s return on equity is higher than its return on assets which stood at 2.15 for FY’10. This implies that company earned more per rupee of shareholder’s funds than per rupee of assets. 2. Major Events in the period FY’09 – FY’10

* Raymond plans to achieve a total of 118 new store openings by the end of calendar year 2010. 88 of such stores have already been opened. * The operations of Company’s denim joint venture - Raymond UCO Denim Private Limited were restructured by closing down two of its heavily loss making subsidiaries in Belgium and USA in FY’09. * The company closed down it highly cost inefficient Thane unit in December 2009 and convinced the majority of the workforce to opt for a voluntary retirement scheme. 3. Stock Price Movement and PE ratio

Exhibit 1: Stock price of Raymond on BSE since Oct ’09 to present Stock Price: 356.60 (Dated 4th Sep 2010)
P/E Ratio (x): 87.34 (Dated 4th Sep 2010)
Over the last one year investors have shown a lot of faith in Raymond. After two...
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