Raymond Ltd

NSE:RAYMOND

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Raymond Limited Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhijeet Kundu from Antique Stock Broking Limited. Thank you, and over to you, sir.

[Abhijeet Kundu, analyst]

Thank you, Jim. On behalf of Antique Stock Broking, I would like to welcome all the participants in the Q1 FY '23 Conference 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.

[J. Mukund, executive]

Thank you, Abhijeet. Good evening, everyone, and thank you for joining our Q1 FY '23 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 the 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 Real Estate; and Mr. Jatin Khanna, Head of 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.

[Amit Agarwal, executive]

Thank you, Mukund. Good evening, ladies and gentlemen. Thank you for joining us today for the earnings call to discuss our results for the first quarter of fiscal 2023. I am happy and delighted to talk to you about the first quarter of the current fiscal that was witnessed as a fully normal quarter after 2 consecutive years.

Domestic markets [indiscernible] last fiscal. The buoyancy was driven by fully operational physical offices and institutions, normalcy in social gathering, upsurge in travel and tourism and hospitality, and fueled by strong summer wedding season.

During the quarter, the strong summer wedding season provided the thirst for consumer sentiment and strong footfalls were witnessed across the retail network, leading to healthy traction in secondary sales, especially in the months of April and May.

June witnessed subdued consumer sentiment, but footfalls gradually improved with the onset of end of season sale. Major export markets, such as U.S., U.K. and Europe continue to battle with inflation and supply chain issues, but consumer demand remain persistent in garmenting and most of the product categories in our engineering sector. Now let me discuss about our first quarter fiscal '23 performance.

We are happy to share once again that Q1 FY '23 has been yet another strong quarter with highest Q1 revenues and profitability in last 10 years. Our consolidated revenues grew by 104% to INR 1,754 crores from INR 862 crores in the first quarter of fiscal 2023, the highest quarter 1 revenue in the last 10 years. The top line performance was driven by strong sales across all businesses in domestic market and well supported by export markets. Besides having highest revenue, we also achieved highest quarter 1 EBITDA of INR 235 crores with an EBITDA margin of 13.4% in the last 10 years.

Driven by the strong performance, we reported PAT of INR 81 crores as compared to INR 157 crores of loss during the first quarter of last year. Also, as compared to pre-pandemic levels of same quarter, the revenues in the first quarter FY '23 were higher by 19% versus INR 1,470 crores in the first quarter fiscal '20 and EBITDA margin stood at 13.4% in the first quarter fiscal '23, which was higher by 360 basis points versus 9.8% in first quarter fiscal '20.

In line with our strong focus on profitable growth momentum, we delivered profitable growth across all segments of Branded Textile, which grew by 8%, Garmenting, which grew by 30%; Engineering, which grew by 32% as compared to pre-pandemic levels of first quarter fiscal 2020.

Now let me talk -- take you through our segment-wise performance for the quarter. In our Branded Textile segment, which continued to deliver strong performance with a top line of INR 648 crores and a robust EBITDA margin of 17.6%, the top line grew by 129% as compared to previous year same quarter, sales of INR 283 crores and by 8% as compared to pre-pandemic levels of first quarter fiscal '20 quarter sales of INR 600 crores.

The sales performance was driven by high demand for the premium product category across suiting and shirting fabrics. The sales realization happened across all channels with strong footfalls in our retail network, especially given the strong bidding season demand during the quarter. Additionally, with physical work resumption, demand for work here improved, and that continues to grow.

Now let me explain the sales performance of suiting and shirting business separately. For suiting business, there was high demand for wool-rich blend and premium poly-viscose category. Our exotic and exclusive collections with West summer wedding collection resonated well with our customers across market, driving secondary sales across product categories. In our B2B shirting business, there was upsurge in demand for premium quality cotton and linen fabric, along with the new seasonal collection for the summer, leading to higher realization and better product mix in the field. As a result, we witnessed strong sales across all the channels.

Our strong 1,000-plus The Raymond Shop, the TRS network, spread across 600 towns and cities, reported 31% growth in average transaction value as compared to pre-pandemic on the first quarter of fiscal '20 levels. This is a reflection of strong consumer demand for our products and services across Tier 1 and -- to Tier 6 towns.

The segment reported a robust EBITDA margin of 17.6%, driven by better product mix in both suiting and shirting fabric. The benefit of 2% to 3% price hikes were undertaken during business lower dealing bookings in early January and enhanced operational efficiency.

Now let me talk about our Branded Apparel segment, which recorded a sales of INR 262 crores, a growth by 251% as compared to INR 75 crores during first quarter of previous year and 16% lower as compared to pre-pandemic level of third quarter fiscal '20 quarter, which stood at sales of INR 313 crores. The sales performance was driven by strong consumer demand for our brand with the resumption of the fully operational physical offices, increase in social gathering, wedding season related purchases. The performance was driven across our retail network of exclusive branded outlets and The Raymond Shop.

Among our 4 power brands, performance was led by Park Avenue, ColorPlus and Raymond Ready to Wear brands. The sales for the quarter is 15% lower as compared to pre-pandemic first quarter fiscal '20 sales of INR 313 crores, mainly due to 2 reasons.

Firstly, first quarter '23, we controlled -- continue to control sales to our channel partners to whom we had extended support in clearing the channel inventory due to pandemic impact over last 2 years. Secondly, in our EBO retail network, we had impact on store rationalization process of nonperforming or underperforming stores, which resulted in overall reduction in the EBO network by 22% to 278 stores in first quarter of fiscal '23 as compared to 360 stores in first quarter of fiscal 2020.

Currently, our EBO network is performing well as we have received an overwhelming response from our customers for our new collection in core product portfolio casual category, and there has been a 39% growth in average transaction value as compared to pre-pandemic of first quarter fiscal '20 level.

The segment reported an EBITDA of 5.5%, driven by continued operational efficiency. With normalcy being fully restored, the business has started incurring advertisement and sales promotion spend to promote the curated collection across brands akin to the workwear, casual category and category extension in ethnic wear thus resulting in impact on margin on a short-term basis.

As far as our retail network is concerned, this quarter, we further strengthened our retail footprint with net addition of 21 stores across metros and Tier 1 to Tier 4 towns, making the total count to 1,372 stores spread across 600 towns as of June 30, 2022, compared to 1,351 stores as on 31st of March 2022.

And off the backdrop of strong consumer sentiment, we witnessed strong traction in secondary sales with significant improvement in average transaction value. As mentioned earlier, the TRS network reported 31% growth and the EBO reported 39% growth in average transaction value as compared to pre-pandemic levels, respectively.

On our Garmenting segment, which reported a buoyant growth of 13% to INR 247 crores compared to INR 98 crores in previous year due to a strong momentum in the export markets. High demand in bulk businesses and tailored clothing from our existing customers and new customer acquisitions in U.S. and European markets have propelled retail sales.

Additionally, the momentum in order book was maintained with continued China+1 adoption by leading global brands and consolidation of vendors by some global brands and other elevation to critical supplies [ cater ]. EBITDA for the quarter in the Garmenting segment was INR 15 crores, while it has grown from an EBITDA of INR 1 crore in the previous year. However, there was a continued impact of higher freight costs. And also to cater the higher demand, there has been an incremental cost of training of the workforce, and which was impacting the margin for the current quarter.

In terms of our high-value cotton shirting segment, where the sales grew by 68% to INR 170 crores compared to INR 101 crores in the previous year, due to higher cotton fabric sales in the domestic market, a strong demand from our B2B customer continues. The segment reported improved EBITDA margin of 9.7% for the quarter as compared to 6.2% in the previous year, mainly due to higher realization and better product mix.

Now let me talk about the performance of the Engineering business, which was consolidated under JK Files & Engineering Ltd. in the quarter 3 of last year on an aggregate basis. The sales grew by 17% to INR 209 crores as compared to INR 180 crores in the previous year. Here, growth was mainly driven by strong growth in domestic market across categories and well supported in export market of Europe and Asia, with growth in ring gears, drills and bearing categories.

On an aggregate basis, the business reported lower EBITDA margin of 12.8% as compared to 13.1% in the previous year. The margin was lower mainly due to increase in the steel prices and freight costs, which was partly offset by higher productivity and efficiency. Steel prices have been in increased trend, and we have been able to mitigate, to a large extent, the impact by strategic buying in the quarter 4 to cater to the first quarter demand. Also, as stated, we have the ability to pass on the same even though with a small time line.

Let me talk about now the Real Estate segment, where the sales grew 120% to INR 286 crores from INR 130 crores in the previous year. There has been a sustained momentum in demand and in the overall real estate sector with key demand generators being affordability and rising income levels. The EBITDA margin stood at 27.5% as compared to 29% in the previous year.

Our Real Estate business witnessed growth due to higher number of bookings in both the projects. Our first 10x reality project received 157 bookings in the current quarter, higher than 146 bookings received in the preceding quarter, that is the fourth quarter of fiscal 2022, resulting in a sale of total of 2,066 units booked as on 30th of June 2022, which accounts for about 80% of the total inventory launched and with a booking value of INR 2,062 crores.

Our new premium residential project, The Address by GS, which was launched in the third quarter of fiscal 2022, continued to receive strong response from customers with 102 bookings in this quarter, which is 65% higher as compared to 62 bookings in the fourth quarter 2022. The total bookings made for the project accounts for 281 units, which is 68% of the total inventory launched with a booking value of INR 670 crores.

It gives us immense pleasure to state that within 8 months of the project launch, about 51% of the total inventory has been sold. On the construction front, fast-paced construction activity continued in all 10 towers of the Ten X Habitat project and the next project, which The Address by GS project as well, the construction activity has started.

Now let me give you some details about the construction activity. In the Ten X project, the tower-wise construction status is as follows. The interior initial work is in progress for the Tower 1, 2 and 3. In Tower 4, it is above terrace works. Exterior and interior work is in progress. 40th slab, work is in progress for Towers 5 and 7; and 42nd slab, work is in progress for Tower 6; and 36th slab, work in progress for Tower 8; and for Tower 9 and 10, fourth slab work is in progress.

As far as our second project, The Address by GS, is concerned, that [ down-through ] slab has been completed for Tower 8 and BCC and B2, slab work is in progress for Tower B. As the revenue is recognized on percentage completion method from fourth quarter last year, we have started recognition of revenue on the premium project, The Address by GS. The revenue contribution from this project is approximately INR 65 crores during this quarter.

Recently, a definitive Joint Development Agreement, JDA, has been signed for a premium residential project at a prime location in Bandra. The revenue potential is estimated to be in excess of INR 2,000 crores over the project period. The expansion is in line with the overall real estate business strategy to expand in the MMR region.

Now let me discuss on the operating costs, working capital and cash flow. Our operating costs stood at INR 514 crores in first quarter fiscal '23, which was higher by 49% as compared to previous year level of INR 346 crores, while our revenue increased by 104% from INR 862 crores in first quarter fiscal '22 to INR 1,754 crores in first quarter fiscal '23. As compared to pre-pandemic levels of first quarter fiscal '20, the OpEx cost was marginally higher by 4% as compared to INR 494 crores, while the revenues were higher by 19% from INR 1,470 crores in first quarter of fiscal '20. Here, we would like to highlight that through the cost optimization initiatives undertaken during the last 2 years, we have been able to reset the cost level to a much lower base. And currently, the increase in the cost is mainly on account of inflation, which is still in the -- on the lower cost base.

Also in the current quarter, there has been an impact of increase in the wage cost in 1 of our suiting manufacturing facilities, which happens once in full year. Secondly, as we all are aware that the freight charges, which have been especially high, [ seethe ] with charges, which have impacted the overall cost. About 20% of our revenue is from export mainly contributed from garmenting business where we export to U.S., Europe and Japan markets and from our engineering business, where we export to more than 65 countries in North and South America, Europe, Africa, Middle East and Asian regions.

Also during the quarter, we have incurred higher A&SP advertising and sales and promotion spend in our B2C businesses of Branded Textile and Branded Apparel to address the strong wedding season and also in the real estate business, the strong booking numbers were achieved in both the projects. Overall, our variable costs have been in line with the overall increase in the revenue.

Now let me talk about the working capital. Our continued focus on efficient working capital management, as compared to March '22, on a quarter-on-quarter basis, the net working capital has increased by INR 321 crores to INR 1,323 crores in June 2022 versus INR 1,002 crores in March 2022. The increase in net working capital is mainly on account of Q1 witnessing temporarily high inventory on account of higher production to address the upcoming festive and wedding season in the coming quarters in our B2C businesses in the domestic market as well as export market for garmenting business.

Certain wage increases, which have been negotiated and provided for in Q4 of last year has been paid to the employees of the company. Furthermore, in our real estate business, due to construction activities, there's also an increase in inventory as recognition in income statement is based on percentage of completion method. Also due to timing, this temporary timing distance in between demand notices and revenue recognition, contractual assets or contractual liabilities get created. And hence, to that extent, there's movement in net working capital in our real estate business.

However, in the receivables, there has been a continuous focus on collection, in which we can enable to further reduce receivable in 30th June 2022 compared to 31st of March 2022. From a cash flow perspective, mainly due to increase in the net working capital, temporary increase in the net working capital and interest payment, we utilized operating cash flows of INR 136 crores, which led to free cash flow negative of INR 207 crores for the second quarter -- for the first quarter.

As far as debt is concerned, the gross debt stood marginally at INR 2,049 crores as of June 30, 2022, as compared to INR 2,066 crores as on 31st of March 2022. As in this state, the increase in the working capital needs were met by the existing liquidity and yet we continue to maintain a strong liquidity level with cash and cash equivalents of INR 739 crores as compared to INR 979 crores as on 31st of March 2022.

Consequently, our net debt increased by INR 222 crores and our net debt stood at INR 1,310 crores as on 30th of June 2022 as compared to INR 1,088 crores as on 31st of March 2022. However, we will continue our debt reduction plan and the current net debt is expected to be reduced during the current financial year as the working capital cycle starts to liquidate and generate cash.

Now let me talk about the interest cost. In the first quarter fiscal '23, the interest cost stood at INR 59 crores, which is higher marginally by INR 4 crores on a year-on-year basis as compared to INR 55 crores in first quarter fiscal 2022, while the net debt reduced by INR 307 crores to INR 1,310 crores on 30th June 2022, as compared to INR 1,617 crores as of 30th of June 2021. This result increase in the interest cost is mainly on account of following reasons.

In the first quarter of fiscal '23, there has been increase in the interest rate by 75 basis points from May 2022, which has resulted in higher interest costs. Additionally, during last quarter -- last year in Q1, due to second wave of pandemic, the manufacturing activity was very low.

And accordingly, lower working capital facility was drawn in first quarter of fiscal '23 and higher working capital facility was drawn for the quarter for manufacturing of goods to cater to the strong wedding season. Overall, our net debt-to-equity ratio has marginally increased by 0.45x in March 22 to 0.52x in the June 2022, which is also at a comfortable level.

Now let me take a moment to give you an update on the consolidation of the business undertaken. Consolidation of B2C business, which includes Apparel into Raymond Limited has been completed in March 2022. Consolidation of Engineering business and the status of public listing process, the consolidation of Engineering business has been done and is in line with our stated strategy to monetize the business and deleverage at consolidated level. JK Files had filed the DRHP with the regulator with an offer for sale of shares held by Raymond Limited and has already received the regulatory approval. We will update you as we progress ahead on the same.

In terms of subsidiarization of the real estate business, the Board of Directors have approved the Real Estate business division to be subsidiarized into wholly owned subsidiary of Raymond Limited, and the scheme has been filed for regulatory purposes. Now let me talk about the current status of operations and the near-term outlook.

With the upcoming festive season, coming post mid-August, I'm happy to share that the bookings for our fabric business by our channel partners are very encouraging with the backdrop of strong consumer sentiment. As far as the apparel market is concerned, we are approaching the culmination of end-of-season sale. And over this time around, we witnessed lower discounting by brands in the market. We are hopeful that our new collection for festive season will drive sales from end of August onwards.

In the Garmenting segment, export levers continues to be China+1 strategy and the global industry or retail industry undergoing a consolidation [ suit ]. We have our order book in place for the next 2 quarters. From a raw material perspective, the wool and poly-viscose prices have remained stable, and we expect them to remain there.

Over the last couple of years, the cotton prices have increased significantly. And given the commodity market prices are higher, we expect the cotton prices to stay at the higher level. However, we have been able to largely pass it on to our customers with a time lag.

In the Engineering business, we are witnessing a healthy domestic retail demand in consuming sectors and expect the same to continue in the coming months. We are also witnessing demand momentum in the industrial segments in exports. The steel prices have continued to remain high, and we expect it to gradually soften. However, freight cost continues to be in the core area of monitoring as a shortage of containers, which is resulting in delay in shipments as well as higher freight cost.

From a long-term perspective, we are focused on consolidating market leadership, particularly in the files and automotive segments, increased wallet share with existing customers, increased presence in non-auto export market and continue to build relationship with other white [ stable ] customers for the engineering consumer products. We are expanding existing manufacturing facilities across product categories of cutting tools, ring gears and water pump bearings.

In the real estate market, we expect the growth momentum in residential market to be maintained at healthy levels, and the construction activities are continuing in full swing in both of our projects, and we stay on cost to deliver the first 3 towers of Ten X Habitat ahead of our time line by nearly 24 months based on RERA time line.

The recent hike, rate hikes by RBI, 1% made to sales imposed by Central Government, increase in GST rates on work contracts from 12% to 18%, and increase in input prices are being closely monitored. From a net working capital perspective, over the last 2 years, we have optimized the net working capital in terms of number of days, and we would aspire to maintain those levels on an annual basis. During the course of the year due to seasonality and phasing of wedding dates, there may be temporary increase in inventory on a quarter-end basis, which will reduce over a period of time.

Also, in our real estate business, due to accounting based on percentage of completion method, there may be variations in the inventory on a quarter-to-quarter basis. However, as we witnessed during this quarter, with strict credit policy in place, our receivables reduced as compared to March levels has been.

On a capital expenditure perspective, there are no major CapEx plan in the Lifestyle business in near term. There will be replacement CapEx requirements for the existing terms. Some lines are being put up in the garmenting to cater to the increased demand from our customers. And retail store network will be expanded through a combination of franchisee- and company-owned network.

During the year, we are planning to open about 150 stores across TRS and EBO network, including 70-plus stores to expand the Ethnix by Raymond to capture the fast-growing Ethnix-wear market. About 20% of the new stores would be on the company-owned, company-operated model for which we will require some CapEx.

In the engineering business, which is already a net debt-free business, the growth CapEx is being funded through the internal cash accruals. In the real estate business, which is already generating free cash flows, the cash flows from the existing 2 projects of Ten X and The Address by GS would be broadly able to take care of the investments to be made in the joint development projects in the near term.

There may be a temporary requirement of funding for new projects. It will be -- which will be on a short-term basis. Overall, we would like to state that our debt guidance of being net debt free within 3 years remains intact. The net debt is expected to be reduced through a combination of free cash flows generated from our businesses and proceeds from corporate actions such as our engineering IPO. We look forward for your continued support in this journey.

Thank you very much. We are open for questions now.

[Operator]

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of [ Darshan Zaveri ] from Crown Capital.

[Unknown Analyst]

Sir, am I audible?

[J. Mukund, executive]

Yes. Yes.

[Operator]

Yes, sir. You are audible.

[Unknown Analyst]

Yes. Yes. Sir, my question is, sir, what kind of -- in the upcoming season, what kind of growth do we see? Like, is the quarter 1 can be considered as a base? Or what kind of revenue growth and EBITDA margin are we expecting in this year and maybe a long-term goal that you could state, please?

[Amit Agarwal, executive]

Yes. So look, as we have stated very clearly that Q1 is seasonally the weakest quarter. And going forward, as we continue to cater to the demand for the upcoming festival as well as the wedding season, the sales would start to improve from the quarter 2 onwards. And you have seen very visibly that in the last year, Q3 and Q4 has been the strongest quarter for The Raymond Group.

So to that extent, we expect the same. And as far as the margin is concerned, we are very clearly seeing that overall, we will have at least a 200 basis point improvement in the EBITDA margin.

[Unknown Analyst]

Sir, 200 basis points from last year full year margin? Or this quarter's margin?

[Amit Agarwal, executive]

Even from this quarter's margin.

[Unknown Analyst]

Okay, sir. And so because we will be seeing -- could you just explain maybe quarter 1 and 2 consisting of 40% of revenue and quarter 3 and 4 would be 60% of the revenue, would that be fair to assume?

[Amit Agarwal, executive]

I will ask Sunil to explain this, mainly it is driven from the Lifestyle. So Sunil?

[Sunil Kataria, executive]

Yes. So the seasonal impact is that Q3 and Q4 are the largest quarters for us in both our apparel business and more so in the fabric business. So you can safely take a ratio of around 40% to 60%, that will be roughly a right number to take.

[Operator]

[Operator Instructions] The next question is from the line of Nikhil Jain from Galaxy International.

[Nikhil Jain, analyst]

Just a couple of questions. So sir, congrats on a good set of numbers. If you look at it quarter-on-quarter, obviously, the numbers are very strong. But when I look at it on a quarter-on-quarter basis, let's say, as compared to March 2022 to now, so I think I accept the reality, all the divisions have shown compression in the gross margin and the performance base obviously come down. So is there any seasonality that is involved in all of these businesses? So -- yes, so that -- if you can just throw some light on that?

[Amit Agarwal, executive]

Yes. Sure, it is a seasonality. We have always mentioned that Q1, for our Lifestyle business, is seasonally the lowest quarter. And in terms of explaining the details, Sunil, why don't you give the color on the fabrics and the apparel business?

[Sunil Kataria, executive]

Yes. Okay. I'll take it. So normally, the way we -- the seasonality pans out for us is that the wedding season normally is between March to May. Now these are the 2.5, 3 months where you see a lot of weddings happen in the country.

Now the way fabric business operates for us, it's a multilayered channel business, which is split between wholesale going down to further smaller MBOs. So they end up doing bookings for the wedding season months in advance. And hence, you would always see in our business that if the season is March, April, May, the bookings of that would happen somewhere between February, March and April, and which will reflect in our primary sales. And the actual consumer uptakes would start panning out closer to the dates of the wedding. Hence, there is always a changeover in primaries between quarter 4 and quarter 1 for us, and that's the seasonality skew that you see.

[Nikhil Jain, analyst]

Okay. And even in the tools business, I think the numbers were sequentially quite down. So that would be depending on the industrial demand, right? So was it impacted by the commodity prices?

[Amit Agarwal, executive]

Yes, I think it is a fact that commodity price raised, which has happened. And all of us know that between March, April, the steel prices shot up practically in a week, almost INR 8,000 to INR 10,000 a tonne. And since, we are a [ borrower ] of steel and more so a distributing and a processing business, we would need to absorb that. And over time, we have been able, successfully, to pass on. So there is always a lag, time lag. But over time, it -- we recover.

And you know very well that the steel prices, over the period, have almost doubled, and we have also been able to pass on the price increases. It is just that you do not get the chance of passing on the steel prices increasing from today to tomorrow. But overall, you get that back.

[Nikhil Jain, analyst]

Right, right. Second, I have a little more philosophical question, actually. See, when I look at one of the newly listed players, which is, let's say, 1/4 the size of Raymond is having 4x the market cap of Raymond, right? So I'm really, let's say, looking at that and saying that, okay, what do we need to do and how do we actually come back to the old glory days of Raymond, right?

So in that line, when you look at it, there are 4 or 5 distinct businesses, which are quite different, the B2B, B2C, tools, realty and then obviously, the consumer business that is there. So is there any thought -- let's say, what is management's thoughts on, let's say, unlocking the value? There are steps which are being done, and these are on the right direction, definitely. But what is the journey timeframe you anticipate to unlock this value? Because we are such a big company and such strong company, but somehow, we don't get that kind of valuation, and especially when you look and compare with some newly listed small companies, right? Any thoughts?

[Amit Agarwal, executive]

Yes, sure. So absolutely, I think we are very clear on the journey. And if you see the strategic initiatives which we have taken in the last year, that we said all the B2C businesses get consolidated at Raymond Limited. We have the unique synergies and the benefits coming because of TRS and EBOs coming under one management.

Second thing, the engineering businesses. As you know, that businesses have matured here we have seen. We said very clearly that -- and we have filed the DRHP. We got the approval from the SEBI, and -- which is just the current market trend which is preventing us to go to the market. Otherwise, we are going to list that business separately.

And over time, the third thing was the subsidiarization of the real estate business. Because what it started, real estate as a monetization. The land in Thane has become a full-fledged business. And as you can see, the significant development and the growth, which is happening in this business, we have also signed a JD agreement. And so the JD agreement helps us in order to grow without putting a huge amount of capital to grow the business exponentially faster.

And to do all that, you need the capital, so we thought it is most appropriate to put it into a subsidiary. So the equity pool of capital or any pool of capital, which may be made available for real estate may not be available for the consolidated business of payment.

So therefore, it is a journey. And as you can see that we have taken 3 actions, which it needs to get completed and then the set of actions need to be taken more. And it is a journey of next 3 years to 4 years, where we have clearly identified we'll be a debt-free company, which is again, a big thing for unlocking the value of the shareholders.

Second thing, our main focus is to deliver a strong performance. And if you see quarter-over-quarter, our company has been delivering record performance and will focus on the cost reduction on the working capital management, which eventually improves the return on capital employed and create the shareholder value. So very clearly over a 3- to 4-year journey, you will see, everything is happening and unlocking the value of the shareholder progressively.

[Nikhil Jain, analyst]

Right, right. Just a follow-up on that one. So given that the businesses are quite distinct, right, realty is distinct from tools and distinct from consumers and obviously, the other businesses, is there any thought of demerging, let's say, different businesses into this and Raymond seeing the holding company on this rather than all the businesses being there in Raymond at sales? Or is there any -- or do you think that this may happen actually maybe in the future? Or you would look at it?

[Amit Agarwal, executive]

Yes, as I mentioned, so we are very clear and focused on our shareholder value creation. And we have already initiated and explained to all of you that the 3 actions have been taken. One is already done, second one is already in progress, and the third one, we have already filed with the regulator, and we are waiting to hear back from the regulator and the real estate subsidiarization. So you can't do everything in one go, and it is a journey. So we have embarked on that journey. And over the next 3 to 4 years, you will see everything unfolding and unlocking the [ value ].

[Operator]

[Operator Instructions] The next question is from the line of Abhishek Jain from Arihant.

[Abhishek Jain, analyst]

I have 2 questions. First, on the garmenting side on the export largely on the B2C side on India, in the appropriate rate. Are you seeing any slowdown at this point of time? Because we've been talking to U.S. retailers or U.K., really, and they are talking about slowdown there right now. So if you can throw some light on the same.

[Amit Agarwal, executive]

Okay. Would you like to ask your 2 questions and then we respond? Or how do you want to...

[Abhishek Jain, analyst]

Okay. The second question is largely on the textile side of the business right now, especially on the retail side, you have said there has been some hike on the -- especially on the raw material side, especially in the March month, what percentage of hike you have passed on?

And if you see, going forward, if you have passed on a certain hike, if you feel, like, even at any point of time, if it's -- you are facing, like, raw material prices turning into our favor, how exactly it works out? Like, the prices remain the same? Or how -- do you pass back some of the hike to the customers?

[Amit Agarwal, executive]

Yes. Sunil, would you like to take that?

[Sunil Kataria, executive]

Yes, okay, I'll take the second question first. So as we already mentioned that we had seen a large jump in cotton prices happened over the last 1 year, and we have passed that on to consumers in proportionate number so that we have absorbed and made sure that it doesn't impact our gross margins.

In case of wool as a commodity, which impacts our textile business, the prices have been pretty stable over the last 1 year. So there, the hike has not been so significant, and we have taken care of that probably around 1% to 2% hike that happened that we pass on.

Now your question is if the prices cool off over a period of time, then what do we do? Then normally, what happens is that since there is, normally, an inventory in the pipeline for fabrics. We tend to ensure that we also give consumers an option of new collections, which come at the new fresh price points. So then the consumer gets pretty much a bit large portfolio of choices of different price points, which are available at that time at all kinds of multiple price points, and then that takes care of our competitive position also in the market.

Regarding your first question on the garmenting. While there are reports, obviously, of some kind of possible impact of the Ukraine War and the global inflation, which may be impacting the international markets. We are very happy to share on that. But given that we are very strategically placed on the China+1 strategy, and we have an end-to-end vertical integration, right, from garmenting -- from fabric to garmenting capabilities, that's a very large strategic advantage for us, and we are seeing a huge benefits coming out this despite this possible larger global phenomena. And actually, our order books, contrary to what you are hearing, are pretty much full for the next couple of quarters. So we think in this tough situation also, our strategic competitive advantage will play into our favor.

[Abhishek Jain, analyst]

Okay. And on the -- can I ask one more question, please?

[Amit Agarwal, executive]

Please go ahead.

[Abhishek Jain, analyst]

Okay. So what about the cotton prices? How are the cotton prices moving in this quarter right now? And how the July -- and what is your experience for July? Because there has been a decline in the cotton prices right now.

[Amit Agarwal, executive]

So see, the cotton prices, which was hovering around INR 32,000, had moved up to INR 97,000. Now that has cooled off. It has come down to INR 78,000. So still, it continues to be at a phenomenally higher level compared to the past trend.

So to that extent, the prices are high. But I think as Sunil mentioned, in our shirting fabric, because the cotton consumption, what you do is around 200 to 220 tonnes per meter. So even if it doubles the price of the raw cotton, our impact is only to the tune of 20%, 25%. And our price increases have been far in excess. And consistently, we have been taking the price increases. And so to that extent, we are not really seeing any impact of the margin.

Second thing we also hope you to note that in a B2C business, you are selling a branded product. So therefore, you are not going to come back and start reducing your prices once the commodity starts to taper off. So that margin, we are going to keep it in our company.

[Abhishek Jain, analyst]

Okay. Last question, let's say, how is the consumer sentiment for month of July and August, especially on the [ technical ] and garmenting side?

[Amit Agarwal, executive]

Sunil?

[Sunil Kataria, executive]

Yes. So when you say garmenting, you're talking about domestic or...

[Amit Agarwal, executive]

Branded Apparel. Branded Apparel.

[Sunil Kataria, executive]

Okay, Branded Apparel. Yes. So in fact, I would say the way sentiment was, we saw very strong footfall happening across our businesses in April and May, and it was also mentioned in the copy which Amit has just read out. There was some cooling off which we saw, which was across the industry in June. But right from the time that U.S. has started, we are seeing also footfall, which has started flowing back and the consumer sentiment is clearly improving, especially given that the festival season is beginning.

So I think this last week itself, we are starting to see very positive moment heading into a festival beginning through Raksha Bandhan. Similarly, what we are seeing in Eastern markets with the onset of maybe pre-Durga Puja season. That also is looking positive.

One point I want to make is that one phenomenon that is likely to happen this year is that maybe after 2 years, this will be our first full-fledged festival season, which will be completely with full freedom, which consumers in India can celebrate this time in terms of movement across homes, et cetera. So I believe that is going to be a very strong positive lever for us.

[Operator]

[Operator Instructions] The next question is from the line of Abhijeet Kundu from Antique Stock Broking.

[Abhijeet Kundu, analyst]

Yes. So my first question was on the Branded Apparel business. Now Branded Apparel business, we have been well under pressure in terms of margins. Now we are seeing recovery there. So what's the way ahead in terms of EBITDA margin in terms of Branded Apparel business? I mean, what is the time line? How do you want to take it forward? What are the initiatives behind it? This is my first question.

And second question is on branded textiles. Branded textiles has, overall, this year, it will do well. But I'm saying overall, 3-, 4-year, 5-year period. What's the way ahead there to scale up that business? Because growth has to improve, because it is a substantial size of Raymond Limited Lifestyle business. So -- and you are the leader there, unparalleled leader. So any initiatives there to scale up? What's the outlook there? So these 2 questions first.

[Amit Agarwal, executive]

Sunil? .

[Sunil Kataria, executive]

Yes. Okay. So let me take your second question first. So on the branded textile business, I think you very rightly said that we are the market leader in this business. And hence, the job of growing the category lies with us. And the way we are seeing it, we're breaking this business into 2 parts. And let me first talk about suiting and then shirting.

In suiting, we're clearly a very dominant market leader. We have one of the world's best technology invested in suitings. So there, we are defining our task from a long-term point of view in terms of category development. And that's the pitch that you will see us building over the next couple of years that we will have to do an upgrade of this category across multiple price clusters from mass to mass premium and from mass payment to premium. And that is all the subsets of both premium end of the market and the mass end of the market will be developed in the category by us. To do that, we'll do a lot of product innovation. That's something which we're building on. And we'll also do a lot of benefit communication to consumers. So that's a piece on suitings for us.

In shirtings, interestingly, while The Raymond brand awareness is very high and we're very strong, we believe there's a hell of a lot of headroom to grow in terms of sheer market share itself. Because we are not as sitting on that kind of market share as we are sitting on suiting business. So there's a clear headroom to grow for us would be that we'd like to drive, again ,through product innovation and using our GTM muscle. We'd like to grow at least at 3x, broadly, the category growth itself.

So that, I think, is the clear 2 broad segmentations, which were done within the fabric -- branded textile business and we believe if we drive these 2 levers of market share gain and has growing, it will be 3x the category in volumes and category development suitings. It will actually make sure that our fabric business actually grows very handsomely over the next couple of years. And you'll see a lot of initiatives, whether it's internal product as well as marketing panning out in this direction.

[Amit Agarwal, executive]

Yes. Just to add, Abhijeet. On the branded textile, as Sunil rightly pointed out, the booking is [ spreading ]. And if I look at the bookings, which we had just completed the bookings for the winter season, very clearly, there has been a decent increase in the volume compared to the pre-pandemic level also. So people have realized the value of the fabric, which they can get at [ States ]. And even in that, if you see the improvement in the mix, which is trending towards more the wool fabrics and a high premium poly-viscose fabric, so the trend is shifting towards the premium fabric.

And as far as shirting is concerned, if you look at the kind of linen and the cotton which people want to wear and go out is unbelievable. And over the last 4, 5 years, since we have put up the manufacturing facility between Kolhapur and Amravati, we have seen that we could build a 20 million meters of just the [ shelving ] OTC fabric business. So I think there is a huge opportunity in that.

Second, on your question about the Branded Apparel. Very clearly, you see, we have delivered that in our quarter 4 numbers and our quarter 3, we can achieve a double-digit EBITDA margin on the branded apparel. Obviously, in this quarter, we have spent a little bit more money in order to prepare ourselves for the ensuing winter -- what is it called, wedding as well as the festival season. Therefore, the advertisement and the sales promotion expenditure is higher in this quarter, which has put a little bit lower the margin.

But our clear target is that the branded apparel with the right cost structure, which we have already done. And you know it very well that the kind of cost rationalization has been done in the business of Apparel, has helped us to reach to the double-digit margin. So very, very clear robust view on the Apparel business. And the operating leverage will help us to get there.

[Abhijeet Kundu, analyst]

Right. And sir, in branded textile, your EBITDA margin has gone at about 17.6%, which is a pretty strong EBITDA margin. So the -- how much of this is sustainable? Will there be further improvement? Further improvement is -- I mean it is becoming too optimistic. But just your view on that. Is this for further to do? Or is this sustainable? Or not?

[Amit Agarwal, executive]

First of all, this is clearly sustainable. Second thing, it is our clear drive, at the end of the day, to continuously work on product mix improvement as well as driving efficiency. And if we look at it, both the factors clearly demonstrated over the last 2 years during the pandemic that the operating efficiency, working capital management is the key to the growth of this business. So we will continue to work on it, and I'm sure there will be improvement.

[Sunil Kataria, executive]

Yes. And maybe 1 point I will just point out in this also in the brand textile margin pieces. See, one of the pieces which I talked about in -- strategically in direction, which is there is that we will do the category development at the mass premium to premium end of the market. .

So our mix would play more out of the commodity side of the market towards more mass premium to premiumization of the market. And that, I think, should also work very positively towards helping us build greater gross margin and then help us invest and then obviously, we'll go down to our EBITDA margins. So we are positive about this whole direction.

[Abhijeet Kundu, analyst]

Okay. And in Branded Apparel, Sunil, you have a very strong brand, Ethnix. Now a lot of the branded players, retailers, they are working a lot on scaling of these goods. Now I mean, there's Ethnix -- or celebrating their business. So a lot of it is done. So where are you in this journey? Where is Raymond in this journey? And what would be the size, if at all, you could disclose of this business? And where you do -- where do you want it to be in 3, 4 years, 5 years down the line?

[Amit Agarwal, executive]

Sunil?

[Sunil Kataria, executive]

So first of all, let me tell you that this -- that you rightly pointed out. Raymond, as a brand, personally, itself is known a lot for occasion wear and for varying occasions and facilitations. And hence, it is a very obvious, right to win, for us, as an adjacency. So I think that's very clear for us that this is a place where we should command a pretty strong market share in this market. .

Second piece, which is working favorably in this market is market per se is growing. While we won't have an exact figure at this stage, but one thing which is happening is ethnic-wear is not only about weddings, but it also about people using more and more ethnic-wear were during festivals. Now what we are doing this year is we have -- yes, sorry. What we're doing is we are talking of opening, this year, roughly around -- we want to end the year by around 110 to 120 stores overall. And that's the footprint we want to sign off in this year itself.

And the work is in full swing in terms of starting from last quarter itself coming into this quarter. And as we head into wedding season, we would like to have a footprint of 100 plus, maybe 120-odd stores happening across. And if some of you are in Delhi, you should definitely visit some of our flagship stores, which have opened in Karol Bagh and in Chandigarh in channel, and we are seeing very positive early response. That's one.

Second piece is our ambition on this business is that we should actually take it to 4x in the next 3 years. Because this market has that potential. Raymond has a right to win. And that is the 2 things that we're focusing on. We are, right now, looking at scaling up stores, and you will see a lot of marketing investments, which will also go behind Ethnix by Raymond over the next couple of quarters.

The question is, this is a game, which will be an investment game, which we'll keep on doing over the years, and we clearly believe we have a right to win in this.

[Abhijeet Kundu, analyst]

Got it. And last question from my side. In the real estate business, there could be some timing difference and hence the margin contraction. There has been a EBITDA margin contraction from 29%, 27.5%. So what's the reason for that? .

[Amit Agarwal, executive]

Harmohan is there. Harmohan?

[Harmohan Sahni, executive]

Yes. Yes, I'll take this. So there have been some cost pressures, as you know, because of the commodity price increase and also, recently, the GST increase, which has happened. So as you rightly pointed out that this is only a timing difference because we have also taken price increases, which will play out in the next 2 quarters. Maybe next quarter, you will see, again, a slight contraction in the margin, very minimal and then we will catch up thereafter. Eventually, we will settle down around 29% or 30% mark on -- overall on the project, which is what our plan also is.

[Operator]

The next question is from the line of [ Siddarth ] from M K Ventures.

[Unknown Analyst]

Yes. Am I audible?

[Operator]

Yes, sir. Kindly proceed.

[Unknown Analyst]

So I have 2 questions. First question is on the real estate again. We are seeing very good traction on the projects launched 'til now. Can you just help us understand what is the ambition for the real estate business for the next 2, 3 years? And what kind of pipeline we are seeing -- project pipeline we are seeing, which we can announce in the next couple of years?

[Amit Agarwal, executive]

Siddarth, tell your second question also so that...

[Unknown Analyst]

Yes. The second question is on the debt part. We had a very good debt reduction in the last year. But understandably, that has increased in the first quarter because of inventory and all. So a broad guidance on the debt side, when will this working capital increase reverse during the year? And for the full year, what kind of debt reduction we can expect on a net basis, irrespective of whether we can do the IPO or not?

[Amit Agarwal, executive]

Sure. So regarding real estate, we have outlined very clear the journey that, first, it was focused on the Thane project. You all are fully aware that we have signed Joint Development Agreement for almost 7,00,000 square feet, which will deliver almost INR 2,000 crores of revenue in Bandra.

Now we continue to evaluate the project. We are not going to just jump into any project. We will evaluate, which meets our threshold in terms of all the requirements; b, that the project is clear. We can deliver fast because that is one of the USPs, which, I think, Raymond Realty has created for itself, that whenever it takes a project, it needs to deliver fast and give the quality of the project, which the consumers get a delight because that is the same thing which we do in our Lifestyle business. So we are not going to digress -- or dilute any of such things.

So to that extent, we are very clear that we will continue to evaluate the project, and we will take a few more JV projects then grow the business from there. But we are not in a hurry to say that we will -- whatever opportunity on a JDA project comes, we will take it. We will do it where we think we can add value and do the right capital mix for our projects.

Third thing, we are not going to buy the land. It is very, very clear that it will stay. The growth beyond Thane will always be a JDA project, and primarily it will be in the MMR in the first few years. And then over time, maybe it spreads to all other areas, but first few years, it will be in the MMR region.

As far as debt is concerned, it is not that this has come as a surprise. This was very well planned because the purpose of working capital facility is exactly this, that we need to drop on this facility in order to see the benefit and the growth for the business, because kind of requirements we have in the third quarter sales and the second quarter -- later part of the second quarter sales very clearly spells out that we need to produce well in May and June. Otherwise, we would have missed the opportunity of sales.

So therefore, if you look at it, the increase has come primarily in the inventory and this inventory gets liquidated as we speak, maybe September, October onwards. And it is the same thing which has been reflected in Raymond's business over the last so many years that first quarter, you build the inventory and dispatch it, and then second quarter, third quarter. Third quarter almost annually, you start to review.

And again, we are very clear that the debt reduction needs to be maintained. And over the 3 years, which we have always talked about, even from our own cash flow, we should be able to reduce the debt of -- and make it a debt-free company. Just understand simple that even on the real estate side, between these 2 projects, we would generate close to INR 100 crores of free cash flow over the next 4 years.

[Unknown Analyst]

Sure, sir, that's helpful. Just to follow up on the real estate part. Any new phases being planned for the Thane land? Of course, we will look at JDA opportunities. That isn't impossible. But for Thane, any more visibility, sir, of new phases except the 2 projects which we are -- have on hand?

[Amit Agarwal, executive]

Siddarth, you just need to understand that we launched our The Address by GS project in November last year. And as we speak, we are still 4.5, 5 years to complete the project. Within the first 7 months, we have sold 50% of the inventory. So clearly, there is a significant traction. So we will evaluate whatever is the right product mix available.

And even on the -- one we expect to [ experience ] on the Ten X project, we have sold more than 2,066 apartments. So very clearly, 2/3 of the inventory is sold. So I believe there is a clear potential, but we continue to evaluate. And when we have got the right product, which is available to the market, we will come out until -- to the community that when and which projects we are launching and in which area.

[Operator]

The next question is from the line of Abhishek Jain from Arihant.

[Abhishek Jain, analyst]

Sir, 2 questions. First question is on our FMCG business, how exactly -- what are the things happening at this point of time? And on Ethnix side, after, like, 2 years, the proper launch and this thing right now, we have seen one full quarter for the Ethnix at this point of time. What is your experience? And how -- can you throw something on the long-term part of Ethnix?

[Amit Agarwal, executive]

Yes. First, let me talk through the FMCG, and then I'll hand it over to Sunil for the latter part. So on FMCG, we have always maintained that FMCG is a very attractive business for us. The kind of brands between Park Avenue, KS, KamaSutra is a very, very formidable brand, which has its own full factor in the marketplace.

Here, we are very represented with over 650,000 point of sale. So to that extent, we know there's a good product, good reach, and we are building upon these 2 things and going to scale up. We have seen a growth -- a revenue growth opportunity in the first quarter, and we are quite satisfied with that. And that has already helped us to improve the EBITDA margin of that business.

So very clearly, we see that the business could grow. And we continue to evaluate the opportunities as we are looking about the new items investment. So we continue to evaluate opportunities and offers. And if something is absolutely appropriate and suitable, if we think it's appropriate, then the Board may decide and accordingly, it will be informed to everyone. And as far as the Ethnix is concerned, I will ask [ Sunil ].

[Sunil Kataria, executive]

Hello. Yes, Amit. Am I audible?

[Amit Agarwal, executive]

Yes, yes, yes.

[Sunil Kataria, executive]

Okay. So I think on the Ethnix space, I think it's -- we are coming back out of a pandemic phase and this really aims, during the first quarter when we were just scaling Ethnix. So I think it's early stages for us, but I can tell you what exactly has happened, which is pretty positive for us.

I think our design teams have come across and built a very distinct language -- design language for Ethnix' value and brand, and that is very distinctly placed from all other players in the market. So that is something which is obviously the starting point of Ethnix, the study of those product portfolio, which is unique, distinct and very well-liked by the consumer. So that, I think, has happened very well for us.

Secondly, I think the way we are pricing Ethnix, we are launching some very premium style design language products at a very mass premium pricing so that it can be affordable by consumers across parts of the country. So I think that's a very second distinct proposition that we are putting on the table, that we will have very high value-added designs, but we are not going to go super premium on our pricing. So that's the second piece which has happened that has got liked.

When we rolled out this collection to our partners during our trade show there, we have got a very positive feedback. In terms of stores, we have started scaling it from June. Already in the last 1 month, we have scaled up around 6 more stores. And in this quarter, you will see another acceleration in terms of our store, which as per Amit mentioned, we're looking at around maybe adding between June to December itself, well add up maybe another 70 -- or June to March, 70-odd stores. So that's the next phase.

And the fourth phase, which is right now beginning for us, is we have appointed a new advertising agency as well in Ethnix, and we are going for a fresh marketing investment, which will happen over the next 6 months of this year, where the intent will be to build the Ethnix by Raymond brand awareness and draw consumers towards the stores as footfalls. So I think that's a journey that we're going to cover. We just began this up, and we [ very ] believe that these are the factors should give us the right to win.

[Operator]

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

[Amit Agarwal, executive]

Thank you very much for taking the interest in Raymond Limited, and we look forward to talking to you in the next quarter.

[Operator]

Thank you. On behalf of Antique Stock Broking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.