Raymond Ltd

NSE:RAYMOND

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Raymond Limited Q4 FY '22 Earnings Conference Call hosted by Antique Stockbroking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijeet Kundu from Antique Stockbroking Limited. Thank you, and over to you, sir.

[Abhijeet Kundu, analyst]

Yes, thanks. On behalf of Antique Stockbroking, I would like to welcome all the participants in the Q4 FY '22 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 4Q FY '22 earnings call of Raymond Limited. I hope you have -- would have received a copy of our results presentation. I would like to urge you to go through the same along with the disclaimer slides.

Today, we have with us from senior management of Raymond, Mr. S. L. Pokharna, who is the Director of Raymond Limited; Mr. Amit Agarwal, Group CFO; Mr. Sunil Kataria, CEO of Lifestyle Business; Mr. Harmohan Sahni, CEO of Realty Business; and Mr. Jatin Khanna, Head of Corporate Development.

Now I would like to hand over the call to our Group CFO, Amit, who'll 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 of fourth quarter of fiscal 2022. Let us quickly reflect upon what the market conditions were during the fourth quarter.

Domestic markets regained buoyancy driven by optimism in consumer sentiment, opening up of physical workspaces and an uptick in tourism and hospitality. Although the initial weeks of the quarter were impacted due to concerns relating to third wave of COVID pandemic, we witnessed progressive recovery from second half of January to February followed by a sharp uptick in March.

This was fueled by opening up of physical offices and institutions, resumption of social gatherings and robust revival of wedding season in the coming quarter. As a result of strong recovery in people mobility, we witnessed a significant improvement in our store footfall, leading to healthy traction in secondary sales on high street stores and malls.

The resilience showcased by Indian consumers throughout the quarter and the busy wedding season in the next quarter gave a strong thrust to our primary channels. In the export markets, such as U.S., U.K. and Europe, in spite of slight spike in COVID cases early in the quarter, the demand momentum was maintained in both garmenting and engineering sectors as no major lockdown was imposed by any country.

We observed positivity in consumerism amidst the headwinds of inflationary pressure and rising interest rates. We are happy to share that this fourth quarter fiscal '22 we have delivered 2 successive quarters of record achievement in the last 10 years. It has been another outstanding quarter in terms of overall performance of the company.

The company has once again achieved numerous milestones leading to robust performance driven by strong focus on execution. It is a testimony to the fact that as an over 95-year-old strong brand loved by millions of consumers and a pan-India presence across businesses we have a resilient organization that has been demonstrating the grit to bounce back with renewed vigor quarter-on-quarter.

Let me now give you some of the key consolidated financial highlights for the quarter fiscal -- quarter 4 fiscal '22. Our consolidated revenues grew by 44% to INR 2,032 crores from INR 1,407 crores in the fourth quarter of fiscal 2022, the highest ever quarterly revenues. The growth was driven by a strong increase in sales across all businesses in both domestic as well as export markets. Besides highest-ever revenue, we also achieved highest-ever EBITDA of INR 358 crores with EBITDA margin of 17.6%.

This was driven by strong performance across most of our businesses as compared to previous year. Driven by strong performance, we reported highest quarterly PAT of INR 263 crores, which grew by 367% over previous year's PAT of INR 56 crores in the fourth quarter fiscal 2021.

Our continued focus on generating free cash flow has led to increase in the free cash flow by INR 203 crores, which helped in reducing the net debt by INR 165 crores, leading to a lower net debt of INR 1,088 crores as on 31st of March 2022.

During the [ company ], the company recorded certain exceptional items amounting to INR 111 crores which included -- which includes in apparel business, the company wrote off certain trade receivables amounting to INR 99 crore. We will discuss this in more detail in our Branded Apparel segment. Similarly, interest subsidy receivable on TUF loans was also written off during the quarter by INR 12 crores.

Let me now give you the key consolidated financial highlights for the complete fiscal year 2022. Fiscal year 2022 has been an year of significant achievements.

In our B2C business of Branded Textile and Branded Apparel having core brand strength and wide distribution network across the country, Raymond capitalized on the buoyant demand and strong consumer sentiment in second half of this financial year 2022. With work life coming back to the physical mode, coupled with strong wedding season, demand across our B2C businesses witnessed the growth impetus.

Branded Textile segment reported 77% growth from INR 1,572 crores in fiscal '21 to INR 2,789 crores in fiscal 2022. In our Branded Apparel segment, multiple initiatives such as store rationalization, cost optimization, consolidation of back-end processes were undertaken to improve the business.

This segment reported twice the revenues from INR 457 crores in fiscal '21 to INR 891 crores in FY '22 with an EBITDA of INR 43 crores in fiscal '22 compared to an EBITDA loss of [ INR 125 crores ] in fiscal 2021. Demand in international markets and robust momentum of export orders maintained in garmenting and engineering businesses, leading to sales increasing by 32% in Garmenting to INR 725 crores and 50% to INR 812 crores in the Engineering business, respectively.

In our Real Estate business, with the continued overwhelming response from the customers for our Ten X project with 78% of the inventory launched being sold. During the third quarter of fiscal '22, we launched premium residential project, The Address by GS, for which we have well received very inspiring response from the customers where within 5 months of launch, over 30% of the entire project has been sold.

At an overall level, our consolidated revenue stood at INR 6,348 crores, a strong 44% growth over previous year revenues of INR 3,648 crores. Highest consolidated EBITDA was achieved by -- with INR 881 crores and a margin of 13.9% during the year. In spite of several -- severe impact of second wave of COVID pandemic in the first quarter of this fiscal year, a growth of over 550% as compared to INR 135 crores in the previous year.

Our continued focus on cost optimization has enabled an overall cost reduction of INR 453 crores, which is 21% reduction from pre-COVID levels of INR 2,207 crores in fiscal '20 to INR 1,320 crores in fiscal 2022. Reported profit before tax of INR 413 crores in a year compared to a loss of INR 455 crores in previous year.

Reported highest annual PAT of INR 260 crores in last 10 years as compared to net loss of INR 297 crores in previous year. Over the last couple of years, the pandemic has impacted overall businesses at the backdrop of strong financial performance, especially during the second half of the year. For the year fiscal '22, the Board of Directors have recommended a dividend of 30% for the year.

Now let me discuss the fourth quarter operational performance in more detail. In terms of our revenues, in the fourth quarter of fiscal '22, strong growth was witnessed across all businesses, resulting in 44% growth from INR 1,407 crores in fourth quarter fiscal '21 to INR 2,032 crores in fourth quarter of fiscal '22.

In our B2C businesses of Branded Textile and Branded Apparel, all the trade and retail channels have shown stronger recovery resulting in these businesses. The Branded Textile grew higher than the pre-COVID level of fourth quarter of fiscal '19 as well by 6% to INR 886 crores. In our B2B businesses of high-value cotton shirting, we witnessed strong pickup in domestic demand, resulting in growth of over 31% compared to previous year. In our Garmenting segment also reported strong growth by 69%, driven by continued high momentum in key markets of U.S., U.K. and Europe. As far as our Engineering business is concerned, we have grown by 8% over previous year levels, driven by growth in domestic and export markets in various categories, including drills.

In our Real Estate business, we witnessed strong growth in bookings on the back of encouraging demand and fast-paced construction activity, leading to a sales of INR 321 crores which is 500% growth over the previous year. Let me now talk about the EBITDA and the operating cost. We achieved highest-ever EBITDA of INR 358 crores for the quarter, a growth of 82% over the previous year, and EBITDA margin stood at 17.6%, higher by about 360 basis points as compared to previous year.

This was driven by strong profitable performance across our B2C businesses of Branded Textile and Branded Apparel, high contribution from Real Estate business and well supported by other B2B businesses. In terms of our operating costs, the OpEx cost was INR 506 crores during the quarter, which was higher by 24% as compared to previous year level of INR 408 crores, primarily due to increase in the revenue by 44%. However, on a full year basis, with sustained focus on optimizing operating expenses, we have been able to lower the OpEx by 21%, which is saving of INR 453 crores from INR 1,750 crores in FY '22 over a pre-COVID level FY '20 of INR 2,207 crores.

On the working capital front, we continued our focus on efficient working capital management. Overall, our working capital decreased by INR 99 crores to INR 1,002 crores as of 31st of March 2022, as compared to INR 1,101 crore as on 31st of December 2021.

There has been an increase in the inventory mainly to address to the upcoming summer demand in the B2C business of Branded Textile and Branded Apparel and catering to the customer orders in Garmenting business.

Furthermore, in our Real Estate business, due to construction activity, there is an increase in inventory as recognition in income statement is based on POCM method. In the receivables, there has been a continued focus on collection and we have been able to further reduce the receivable days by 4 days to 39 days in March 2022.

From a cash flow perspective, driven by strong operating performance, we reported strong operating cash flows of INR 342 crores and a free cash flow of INR 203 crores for the quarter 4 of fiscal 2022. And also for the full year, despite the impact of pandemic in the first quarter and a few weeks of second half of this quarter through strong operating performance and working capital optimization on number of NWC day basis, we were able to reduce by 37% from 72 days in March '21 to 45 days in March 2022 based on quarterly annualized revenue basis.

Overall, we reported strong operating cash flows of INR 677 crores and a free cash flow generation of INR 380 crores for the full year. As far as debt is concerned, the gross debt stood at INR 2,066 crores as on 31st March 2022 as compared to INR 2,125 crores as on 31st December 2021. The cash and cash equivalents was higher by INR 108 crores at INR 978 crores as on 31st March 2022 as compared to INR 872 crores on 31st December 2021.

We were able to reduce the net debt by INR 165 crores, and our net debt stood at INR 1,088 crores as on 31st of March 2022 as compared to INR 1,253 crores as on 31st December 2021. Here, I would like to reiterate the fact that over last 2 years, which was a period impacted by multiple waves of pandemic, our strong focus on cost optimization and effective working capital management, we have been able to reduce the net debt by INR 771 crores in line with our deleveraging strategy. We also improved our debt structure through effective refinancing with 3- to 10-year maturities of long-term debt. Overall, we have been able to improve net debt to equity ratio from 0.75x in March '20 to 0.45x in March 2022.

Now allow me to take you through our business segment-wise performance. Branded Textile segment sales reported strong growth of 23% to INR 886 crores versus INR 722 crores in previous year.

In the suiting business, there was strong demand across all categories of wool blends, poly-viscose and gifting solutions. Our new collections catering to latest trends have resonated with our customers across markets. Offerings such as wool-rich blend has received strong response from our customers, and also there has been high demand for the premium gifting solutions designed especially for the wedding season.

In the shirting business, growth can be attributed to higher realization and better product mix. We continued to receive good response for new collection, including Vibez collection, our latest collection of vibrant shirting fabric addressing the need of casualization that are available across cotton and linen blends. Growth witnessed across primary channels and retail store network driven by strong momentum.

Secondary sales continued with higher momentum in Q4. In our TRS network, we witnessed the average transaction value increase of 14% compared to previous year levels, mainly due to improved consumer sentiment and increased footfall. Sales also picked up in primary channels due to upcoming wedding season.

The segment reported healthy EBITDA margin of 22.7%, marginally higher than previous year. We have been able to maintain high margins driven through operating leverage as sales increased by 23%. The product mix also improved as there was a higher proportion of high-value poly wool blend, better performance of gifting solutions, benefit from 2% to 4% price hike taken for certain categories in bookings done in mid of the year and by 2%, 3% taken in early January and operating cost optimization initiatives undertaken.

Branded Apparel segment recorded sales growth by 59% to INR 279 crores compared to INR 175 crores during fourth quarter of previous year, driven by strong consumer demand for our ready-to-wear apparel brand, and this is driven due to resumption of offices, social gatherings and upcoming wedding season.

Growth was witnessed across all channels. The segment reported an EBITDA margin of 11%, driven by better realization, improved gross margin and continued cost optimization measures. We are happy to share that this is the second consecutive quarter of double-digit EBITDA margin in our Branded Apparel segment. Over the last few quarters, our strategic initiatives, such as cost optimization, focus on consolidation of back-end processes and serviceability, store rationalization, channel-specific merchandise and online penetration have reaped positive outcomes. These initiatives have worked well and have made us leaner while enhancing our operational efficiencies.

We continue to focus on enabling growth through widening product portfolio, increase on online business, network expansion through franchise model, and as we continue to work on back-end consolidation for achieving further efficiencies. We have received an overwhelming response from our customers for our new collection in core product portfolio, casual category and category expansion in ethnic wear category.

Our stores network and LFS stores witnessed increased footfall and greater traction. Keeping up the demand for fresh collection with a quick turnaround of merchandise have become growth in trade channels. We've also received an overwhelming response for our curated special lines for e-commerce marketplaces.

Amplifying our reach through aggressive marketing campaigns in digital as well as in traditional media in targeted cities during festivals helped strengthen our brand and contributed to our sales. In the Apparel business, the company has written off trade receivables amounting to INR 99 crores due to COVID impact.

Let me explain. As we were aware that due to resurgence of multiple COVID waves, our channel partners were stuck with old inventory of prior COVID and COVID during the COVID period. Our channel partners were unable to sell these stocks, therefore, asked for support to clear the inventory in the channel pipeline. We were able to convince the trade partners to sell these inventories and agreed to share the discounts and to avoid the returns and avoid incremental logistics and warehousing costs.

Keeping in mind huge trade channel network, good profitability margin and high percent of shares [indiscernible], it was important to write off such an inventory and start fresh.

Retail network. As on 31st of March, we had 1,351 stores spread across 600 towns. Amidst the backdrop of strong consumer sentiment, we witnessed strong traction in secondary sales with significant improvement in average transaction value. The -- at our TRS shops the network reported 14% growth in average transaction value as compared to previous year levels.

With a strong focus on boosting the health of the company's overall retail portfolio and reinvigorating the retail strategy, we had initiated, in fiscal '21, store rationalization process of nonprofitable and underperforming stores. During the fourth quarter, we closed 60 stores, and currently, the process has been completed. While at the same time, we are continuously evaluating opportunities to strengthen our retail footprint, during the quarter, we opened 2 stores across Tier 1 to 4 towns.

Garmenting segment grew by 69% to INR 213 crores compared to INR 126 crores in previous year owing to strong momentum in export markets. Higher demand in bulk business and tailored clothing from existing customers and new customer acquisitions in U.S. and European markets have proper retail sales.

Additionally, China Plus One adoption by leading global brands and consolidation of vendors by some global brands and our elevation to critical supplier status has been instrumental in taking us ahead. The EBITDA for the quarter in the Garmenting segment was INR 7 crores, while it improved from an EBITDA loss of INR 3 crores 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 impacted the margin for the quarter. High-value cotton shirting segment, sales grew with -- by 31% to INR 175 crores compared to INR 133 crores in the previous year due to higher cotton fabric sales in the domestic market as strong demand from B2B customers continued.

The segment reported an EBITDA margin of 8.5% for the quarter, impacted mainly due to higher increase in cotton prices.

Now the performance of the Engineering business, which was consolidated under JK Files & Engineering Limited in the last quarter was -- on an aggregate basis, sales grew by 8% to INR 205 crores as compared to INR 189 crores in the previous year.

Sales growth was propelled by strong performance in the domestic market and in export markets of U.S., Europe and Asia, led by drills, ring gears, water pump bearings. On an aggregate basis, the business reported lower EBITDA margin of 16.4%, mainly due to increase in steel prices and freight costs, which were partly offset by higher productivity and efficiency.

Steel prices have been in an inflationary trend, and we have been able to largely mitigate the impact with strategic buying during Q3 and early Q4 to cater to the entire Q4 demand. Also, as stated, we have the ability to pass on the same even though with a small time lag.

Real Estate segment. It grew by 495% to INR 321 crores from INR 54 crores in the previous year. There has been a sustained momentum in demand in the overall real estate sector with key demand generators being affordability and rising income levels. The EBITDA margin stood at 17.4% as there has been an impact of increase in the input prices, mainly steel and cement. Our Real Estate business witnessed growth due to a higher number of bookings in both the projects.

Our first project, Ten X, received 146 bookings in the fourth quarter of fiscal 2022 resulting in total of 1,909 units booked at 31st March 2022, which accounts for 78% of the total inventory launched with a booking value of INR 1,887 crores.

Our new premium residential project, The Address by GS, which was launched in third quarter of fiscal 2022, continued to receive strong response from customers with 62 bookings in the fourth quarter fiscal 2022. The total bookings made for this project accounts for 179 units, which is also 78% of the total inventory launched with a booking value of INR 400 crores.

On the construction front, fast-pace construction activity continued in all 10 towers of the Ten X Habitat project. In -- on the next project, which is The Address by GS project as well the construction activity has started.

Let me give details about the construction. In the Ten X project, the tower-wise construction status is as follows: the terrace slabs have been completed for the tower 1, 2, 3, 4. 30th slab completed for tower 5, 30th slab completed for tower 6, 32nd slab completed for tower 7 and 28th slab completed for tower 8. And tower 9 and 10, first slab has been completed.

As far as our second project, The Address by GS is concerned, the excavation and foundation work is in process. As the revenue is recognized on percentage completion method, in this quarter, we have started recognition of revenue on the premium project, The Address by GS. The revenue contribution from this project is approximately INR 46 crores in this quarter.

Let me take a moment to give you an update on the consolidation of the business undertaken. Consolidation of the Engineering business and the status of ICO. During the third quarter of fiscal 2022, we have done the consolidation of the Engineering business. Post consolidation Ring Aqua -- Ring Plus Aqua Limited became also a subsidiary of JK Files & Engineering Limited.

This consolidation is expected to bring in synergies in terms of product applications, business development, sourcing of raw materials, logistic services and overall administrative purposes. In line with our stated strategy to monetize the business and deleverage Raymond Limited, JK Files has filed a paper -- filed for DRHP with the regulator and for performing an offer for sale of shares held by Raymond Limited and received already the regulatory approval. Now, we are in the process of filing an updated DRHP -- UDRHP with FY '22 audited financials. We will update you as we progress ahead on the same.

As far as consolidation of B2C business including Apparel into Raymond Limited is concerned, that is completed post the approval of the NCLT. The desubsidiarization of the Real Estate business, which the Board of Directors approved -- the Real Estate business division to be subsidiarized into wholly owned subsidiary has -- the scheme has been filed with the regulator.

Now let me talk about the current status of operations and the near-term outlook. We expect consumer demand to stay strong with high number of weddings coupled with social gatherings and opening up of physical workspaces. This will drive healthy footfall and thereby secondary sales. We are optimistic that the buying patterns would maintain on an overall basis. This is evident from the fact that all our trade channels are showing good signs of recovery and growth.

Today, Raymond, with its strong brand equity and the nationwide presence in the 600 towns and cities, is the market leader in the menswear space. With continued innovation through our strong design, product development capabilities supported by vertically integrated manufacturing facility and focused omnichannel business, we are emerging stronger than ever before to unleash the growth potential in the Indian market.

In the Garmenting segment, export levers continue to be China Plus One strategy and the global retail industry is undergoing consolidation. From a raw material perspective, wool prices and poly-viscose have been stable, and we expect them to remain there. As we all are aware that the content prices have increased by over 100% in the last 1 year and given the commodity markets are higher, we expect the cotton prices to stay at the higher level.

In the Engineering business, we are witnessing a healthy domestic retail demand in consumer sector and higher export demand mainly in the Industrial segment. We expect steel prices to soften. However, freight cost continues to remain close area of monitoring as there is a shortage of containers, which is resulting in delay in shipments as well as higher freight costs.

From a long-term perspective, we are focused on consolidating market leadership, particularly in the industrial files and automotive segment increased wallet share with the existing customers, increased presence in nonauto export market and continue to build relationship with our white label customers for the engineering consumable products.

We are expanding existing manufacturing capacity across product categories of cutting tools, ring gears, water bearings, pump bearings. In the real estate market, we expect the growth momentum in residential market, the commercial and retail markets to be maintained at a healthy level. The construction activities are in full swing in both of our projects, and we stay on course to deliver the first 3 towers of the Ten X Habitat ahead of RERA timeline by nearly 24 months.

Recent rate hike by RBI of 40 basis points, 1% metro cess imposed by central government, an increase in input prices are closely monitored. Additionally, our relentless focus on liquidity management through cost reduction initiative and net working capital optimization, we aim to become a net debt-free company in the next 3 years. We look forward to your continued support in our journey. Thank you very much. We are open for questions now.

[Operator]

[Operator Instructions] The first question is from the line of Biplab Debbarma from Antique Stockbroking.

[Biplab Debbarma, analyst]

Sir, my question is on real estate. So sir, I was just checking the numbers. And you mentioned about the EBITDA margin of 17%. And if we do a ballpark calculation of, say, 4,500 construction costs, another 1,500 per square feet of approval and a premium because it's Thane, it won't be that expensive, assuming that, and your selling rate is INR 11,000 or between INR 11,000 to INR 12,000 per square feet or INR 10,000 to INR 12,000. So ballpark it comes -- it should be -- the margin should be around 40%, 45%. And that's the normal margin for real estate projects where you have the land is at historical cost for other developers. So I was just wondering whether I'm missing something or not? That's my first question, sir.

[Amit Agarwal, executive]

Yes. Harmohan?

[Harmohan Sahni, executive]

Yes. So this is our maiden project. So there is a lot of costs that we've incurred as far as the branding is concerned. And you are probably seeing the impact of that. Also, the entire organization, which has been built is for this 1 project just now.

And as we add a number of projects, you will see the margins improve over the -- in fact, if you see last year, the margins were 15%. And this year, the margins are about 21%, if you see for the year as a whole. And you will continue to see an improvement going forward also.

[Biplab Debbarma, analyst]

So sir, what other costs on per square foot is eating our -- eating away our margin in real estate?

[Amit Agarwal, executive]

Yes, you see the fundamental is [ whichever ] the cost you mentioned about the construction costs, there are 2 fundamental differences. One, the price at which you sell is on a built up or super built up. Today, we talk about [indiscernible].

However, the construction which you need to do is on a larger base. You have to construct the parking space, you have to build the amenities. So effectively, the cost of construction is higher compared to a direct construction cost, which becomes a livable area. So you have to consider everything. And we have considered everything in this project. And we are further refining and the impact in this quarter is primarily, as I mentioned, is about the increase in the cement and the steel prices. So that has impacted in the quarter, and we have taken a further price increase going forward from April onwards.

And let us also understand this is a 1 BHK, 2 BHK, which is in the affordable segment. So the pricing of an affordable segment is comparatively lower compared to a 3 and a 4 BHK.

[Biplab Debbarma, analyst]

Anyway, I was just considering on a per square feet basis, because this is the industry standard. Okay, fine, moving over from this point. The second point is on the -- your -- the -- in MMR region, we're expecting a lot of incremental supply. And if you -- many of them -- especially in Thane markets, many of them are reputed developers like Raymond. So -- and on the cost inflation that is going to -- that is eating our margins, we are -- many developers tend to pass on the cost to the customers. But to what extent are you able to pass on the cost -- 100% of the cost inflation to the customers? That is my second question.

[Unknown Executive]

Yes. The answer to that is yes, we have managed to pass on the entire cost which is there to the customer. In fact, if you see the wage increase in the economy is expected to be in the range of about 10%, 12% and the pricing increase in real estate is about 6%, 8% across the board, if you see, amongst the branded or known large developers. And we have also taken a similar increase in prices. So the Q4 impact that you're seeing, you will see a pullback on that impact from the next quarter. So we will go back to our earlier margin of about 20%, 21%.

[Amit Agarwal, executive]

There's always a lag because what happens is you buy the scheme, you are not changing the price from tomorrow. When we had launched The Address by GS, which was already on a decent pickup. So the market also has to settle down. So we have been taking a price increase, and we feel very confident that whatever be the price increase on account of steel and cement will be passed out and rather we have passed out during this quarter.

[Operator]

We'll move on to the next question that is from the line of Abhijeet Kundu from Antique Stockbroking.

[Abhijeet Kundu, analyst]

Yes. So from my side, primarily, I wanted to know your strategy in Branded Apparel going ahead. You have shown a very good improvement in profitability through cost cutting. Now -- and then you are adding up stores. So in terms of brands, which brands would really drive the growth? Some perspective on that.

[Amit Agarwal, executive]

Yes. So Sunil, why don't you?

[Sunil Kataria, executive]

Yes, okay. I'll take that. This is Sunil here. Okay. Sir, I just have been around 2 months here in the business. So I think I'll give you my early perspectives on the way we are looking at the Branded Apparel segment of the business.

So I think there is one very good thing, which has happened in the business, as you have seen in the Q4 results that the business has bounced back very strongly in a post-COVID year. So that augurs pretty well for the foundation of the business.

I think there are 2 parts to the business the way we look at it. One is what segments will -- what brands will grow within our current portfolio of the 4 brands. And then we're also looking at some new segments where we believe there can be a huge growth for us. So let me answer the first part.

So we have 4 brands right now within our Branded Apparel portfolio, which is Raymond Readymades, ColorPlus, Park Avenue and there's a youth brand called Parx. Right now, I think the -- I'm in the middle of doing a detailed brand architecture exercise, okay?

And I think in a couple of months, we would have pretty clearly outlined which brands would have what role to play. But the good part is that each of these brands have a very unique positioning in the market. Like, for example, Parx is a completely youth-centric, almost a streetwear brand; ColorPlus is a very iconic casual brand built on a very clear specialty product portfolio like chinos; Park Avenue has very strongly established itself in a formalwear men's, which can extend across both smart casual as well as office wear; and Raymond Apparels, obviously, as you know, stands for luxury essentials and premium formals.

So I think the broad positioning spaces are clear in my mind. It's just that we'll do this exercise and then try to define clearly as to how these 4 spaces will be taken forward for us. In terms of -- if I have to say -- I have to take a first cut on out of these 4, which 3 would be? I would say, definitely Raymond, Park Avenue and ColorPlus would be very growth areas for us. But at the same time, I see a huge scope for Parx being a very youth-centric brand, having a very specialized position.

Coming to another new area, which is a very important focus for us, which we're looking at is the segment of Ethnix and that's going to be a very important project for us going forward. And that is an area where we believe Raymond has a pretty strong right to win given the weddings, et cetera. And I think that is something we'll look forward also.

[Amit Agarwal, executive]

Yes. And you see, for us, what is critical, we have been following the omnichannel strategy, and that has really worked extremely well for us. And the other thing which we did is the merger of Raymond Apparel with the business of Raymond Apparel with Raymond Limited. So consolidating the B2C business under one Raymond Limited is going to augur very well. Similar strategies to be followed at the TRSs and the EBOs. So these things, as Sunil mentioned, will take the apparel business to the next height.

[Abhijeet Kundu, analyst]

Okay. Got it. And my second question was on the Branded Textile business. This quarter has shown very good growth. But over a 3 to 4 year -- from a 3- to 4-year perspective, or 3- to 5-year perspective, typically, this segment would grow at about 7% to 8%. What can be done? And how is the company working towards it to really grow it at, say, in low double digits? Is there a scope to grow it at low double digits? Or it's very well penetrated? Because even here you make very strong margins, great cash flow business, but -- I mean, so what is the -- what should be the growth trajectory that one should look at?

[Amit Agarwal, executive]

Yes. No, I mean this is very interesting. The Branded Textile is absolutely the strength of Raymond Group and it includes the suitings as well as the shirting. We are, by far -- suitings, no doubt, in the worst case, you own 65% market share.

In the shirtings, again, in terms of the branded, you are the #1 player. However, we see a great opportunity in the shirting because if we talk about we have seen that we can grow the shirting business exponentially over the next 3 to 4 years as we are getting more and more wholesalers onboarded with us.

And we are bringing new collections, as I talked about in my script, the Vibez, which connects to the youth. So these are some of the things which we are doing, and we see a good opportunity in terms of growth for our shirting business, which will enable us to get into a double-digit growth. And Sunil?

[Sunil Kataria, executive]

Yes. I think what Amit has said is pretty much bang on. I think shirting as I spoke -- as Amit has said without expanding for the huge headroom to grow for us. I think the market itself is huge and our brand has a huge equity, and I think we can gain a lot of market share there.

On suiting business, there's one perspective, which I would be looking forward is, I think given that even though we have 60% market share, we have seen as a very premium brand. And I think there is still scope for us to maybe push together -- forward a greater premiumization of the suiting business. And that, I think, could be a very interesting lever going forward for us.

[Operator]

We'll move on to the next question that is from the line of Mithun Aswath from Kivah Advisors.

[Mithun Aswath, analyst]

Hello?

[Amit Agarwal, executive]

Yes, please.

[Mithun Aswath, analyst]

Yes. Just wanted to understand in terms of your subsidiary Raymond Consumer, there were some reports of you potentially unlocking value. I just wanted to understand how much stake do you have in that business? And how has that business done this year in terms of revenues and profits? And is the news that we hear likely to happen sometime in the future? That was question 1.

Question 2 was since you're doing a lot of subsidiarization, do you think that the plan that we had maybe 18 months back pre-COVID of splitting the businesses is still a potential event maybe in the next 12 to 18 months? Because, obviously, there is a lot of value in Raymond, which doesn't seem to be still unlocked. So just wanted to understand your thoughts on that.

[Amit Agarwal, executive]

Sure. No, absolutely. So first of all, as just a housekeeping, we own 48.7% in the Consumer Care business as Raymond Limited. As far as the performance of this business, it's a very strong FMCG brand. It's a household name, Park Avenue deo as well as KS deos and the KamaSutra, the sexual wellness products is very, very well known with strong performance.

So as I look at it, just on an annualized basis, if we consider that delivers a revenue to the tune of INR 850 crores to INR 875 crores and delivering a decent margin on this business, and we see a significant potential on this business to take it forward because of the formidable brand which we have. And it is very well distributed between a combination of general trade, modern trade, over 650,000 points we sell across the country.

As far as what you read in the newspapers, you see, as a company, we continue to evaluate all opportunities which comes to us. We would not say no or yes to anything unless or until we have done our decent evaluation, which creates further shareholder value for all of you. So our focus is on that.

And as and when something meaningful comes up, we will communicate. But we continue to evaluate things.

As far as the demerger and the subsidiarization and such things is concerned, as we mentioned, we are following the journey in order to simplify the business, make it much more robust, more efficient and reduce the cost as you have seen that compared to the pre-COVID levels, we have reduced the cost in this year also with such a strong performance on the revenue by INR 500 crores. So our focus is also towards that. And whatever it takes us to deliver shareholder value, we will do that.

[Mithun Aswath, analyst]

Right. And one last question I just wanted to understand. On your Ethnix business, you have now a listed competitor. I just wanted to understand in terms of size and scale, how big would your business be? And wanted to understand in terms of margins, are you as competitive in the marketplace as your competition. And just wanted to understand if there is a potential subsidiarization of that business in the future as well that can happen.

[Amit Agarwal, executive]

Yes. No, absolutely. I think Ethnix is a great business for us. Obviously, we have started this business once again in a stronger manner. Today, the revenue is small. It is in that range of INR 70 crores, INR 75 crores. It is not very large. However, the gross margin in that business, the EBITDA margin is very, very high because first of all, it is something, which we get it done through our unique channel network. Second, we also get it in terms of sourcing of the products.

We have been in the business of manufacturing fabric for the last 97 years. So we know exactly what fabric needs to be required, what to be produced. So we see a growth opportunity. And as we have talked about earlier also, over the next 3 to 4 years, we are going to have at least 4x to 5x of this revenue in the next 3 to 4 years. And we are planning to open stores, and I will ask now Sunil to add more on to this subject.

[Sunil Kataria, executive]

Yes. So clearly, as I mentioned earlier also, this is a very important focus area for us. It's a very exciting and very large segment, and we have a right to win. In this year itself, we are looking at -- and the process is currently on in the first quarter itself, we are looking at opening up and reaching a footprint of roughly around 130 to 150 stores of Ethnix of our own.

This apart from that -- this is apart from the presence that we'll have, obviously, in some of the leading TRS channels of our own because we are looking at creating very large floor spaces of shop-in-shops within our large retail stores as well and also some LFS. So the whole plan is pretty strong and moving forward very actively.

[Mithun Aswath, analyst]

And just one last question. You mentioned that you want to be net debt free in 3 years. Isn't that very conservative because you are already looking to unlock value via your subsidiaries. So don't you think this could be achieved well ahead of that 3-year target?

[Amit Agarwal, executive]

We would be happier to do so.

[Operator]

The next question is from the line of Ritesh Badjatya from Asian Market Securities.

[Ritesh Badjatya, analyst]

So just my question is on the Ethnix side only. If you can throw some more light your plans on the Ethnix side, your focus mainly on the men's, women's or kid's side how it is initially or all the 3 categories you want to target?

[Amit Agarwal, executive]

Sunil?

[Sunil Kataria, executive]

Yes. Okay. See, clearly, the initial foray, I think in the first couple of years would be to, as Amit said, the brand has just started coming back strongly after COVID. The first focus is clearly going to men's apparels within the Ethnix, and we'll very sharply focus it at least for the next 2 years.

The plan is to, in this year, open roughly around, as I say, 150-odd stores and then double it up over the next 2-odd years. And this is a battle that we'd like to really win very strongly. And then later on, we'll evaluate whether there is a scope to take it to a women's wear or not.

One other thing, which we have also seen in the Ethnix segment, which is a very interesting point, which we believe we are very strong here is that normally the first perception which comes of Ethnix that it's only for wedding wear, et cetera. A large chunk of ethnic wear in India is in a regular daily to wear, which has happened even otherwise in a non-wedding season itself. So that's also a very important core part of this business.

[Ritesh Badjatya, analyst]

Okay, helpful. So just extending to this discussion only. What part of the pricing you are looking at? Is the premium pricing -- premium market in the Ethnix side you want to target or it is starting -- affordable segment you'll start with?

[Sunil Kataria, executive]

No. We're a premium brand. So we would actually peg ourselves roughly around, I would say, maybe 10% premium to Manyavar or in that range itself. So it will be, I'd say 1 to -- maybe in that big market. So we're not going to go very cheap. We are not because we are Raymond. And definitely, we see that will play in the premium segment itself. And I can tell you, we -- if you go down to our stores very soon, you'll see we have a very, very differentiated offering.

[Ritesh Badjatya, analyst]

Okay. So if you are planning to sell this through your recent network only or like you said, 120, 130 stores you are planning to open, so you need the additional capital also? What kind of capital allocation you're looking for this business in the next 2 to 3 years' time?

[Amit Agarwal, executive]

Yes. So basically, you see what happens is we have a mix of our own stores, company-owned and franchisees. You see, we are having a relationship with the franchisee group of more than 1,000 stores -- 1,400 stores all across the country. So we will have a combination between our own stores as well as with the franchisees. So it would not be a very significant capital, which will be required in order to be invested to open these stores of 120.

[Ritesh Badjatya, analyst]

Okay. And margin-wise, if you can comment compared to Branded Apparel side or Branded Textile, what sort of the difference in the terms of margin in the Ethnix side?

[Amit Agarwal, executive]

See, In terms of very clearly, Ethnix, you will not sell normally on a discount, whereas in the Apparel segment, you are selling an end-of-season sale, which is a normal feature of this business. In the Branded Apparel that is a very normal that you have twice end-of-season sale. So that brings your margins down in that business.

[Ritesh Badjatya, analyst]

Okay. Second question is on the garmenting side of the business. If you can explain some more what sort of the strategy do you have in the terms of customer acquisition. Which markets you're targeting now? Like you said, you have acquired some customer acquisitions. So if you can explain a little bit more what sort of the opportunity you're looking there? And what part of the sustainable margin we can expect in the next 2 to 3 years?

[Amit Agarwal, executive]

Sunil?

[Sunil Kataria, executive]

Yes. Okay. So there, I would say, as Amit mentioned, see, the context is the China Plus One context, I think, is a very, very strong tailwind, which is happening for this business. So I think we should keep that in mind. So there's a huge order books, which are coming out from the Western countries, which are looking for creating a base beyond China and a very stable base.

And we have actually -- we are very well placed because we have actually got the technical capabilities. It's a very skillful business with a scale and a technical capability to build it up. The 2 pivots that we're looking at is: a, within the markets which we are strong in acquire new customers; and second is also look at expanding to new markets. So it's both a mix of new customer acquisition as well as new geographies. We have already got a very strong base in U.S. and parts of Europe. So the first bet would be to expand to more new customers within the U.S. Parallelly, we're also looking at opening up new geographies in Europe itself.

[Amit Agarwal, executive]

Yes. And just to supplement what Sunil mentioned, you see, fundamentally this China Plus One and people have started to -- our customers have started to diversify beyond China. So there were some customers who were not coming to us because of the pricing point because they were able to buy cheaper.

Now they have realized that they have to come to us and pay our prices. And because of that, we have got some 4 new customers during the last year who have given substantial capacity to us, and it would reach at their normal level, almost 25% to 30% of our current capacity could be consumed by those.

Second, what has also happened is there are many retailers across the globe who have gone or consolidated and merged with some other retailers. Unfortunately, we were working with some of the retailers who have taken over some of the other retail businesses. So our size has increased further because of the increased buying. So these 2 are putting us and helping us to grow our Garmenting business strongly. Even in our Ethiopian business, which used to operate before pandemic, let's say, to the tune of 35%, 40%, 45% capacity, it has moved to close to 80%, 85% capacity utilization.

[Ritesh Badjatya, analyst]

Sir, on the margin side, what is the sustainable margin [indiscernible]?

[Amit Agarwal, executive]

You mean in the Garmenting business?

[Sunil Kataria, executive]

Garmenting?

[Ritesh Badjatya, analyst]

Yes. Garmenting, Garmenting.

[Amit Agarwal, executive]

Yes. Around 8%, 8.5% is a sustainable margin business.

[Ritesh Badjatya, analyst]

Okay. And sir, in the terms of capacity, like you said, 60%, 65% we are running it, right?

[Amit Agarwal, executive]

No, no. I said in my Ethiopian facility, we are running at 80%, 85%. In Indian facilities, we are in close to 90-plus percent.

[Ritesh Badjatya, analyst]

Okay. How many pieces of capacity we have...

[Operator]

Sorry to interrupt. Sir, may we request that you return to the question queue. There are participants waiting for their turn. [Operator Instructions] Next question is from the line of Punit Kabra, an individual investor.

[Unknown Attendee]

Yes. First of all, congratulations on this performance. I think being an investor in Raymond since...

[Operator]

Sorry to interrupt Mr. Kabra, sir, we're not able to hear you clearly.

[Unknown Attendee]

Just 1 second. Sir, first of all, congratulations on this financial performance. I think these are unbelievable numbers. Back in 2016, I think this would be our best-case scenario. So excellent. The question I have is these margins and working capital days improvement, how sustainable is this as you pursue growth? Because I guess in the last 2 years have mostly been around doing cost optimization, getting the cost structure right, cleaning up, store rationalization. But at some point, as you start pursuing growth, what do you think is -- are these margins, working capital days, are all of these sustainable? Or do you think these will take a dip as you pursue growth?

[Amit Agarwal, executive]

Look, 2 things fundamentally that even in the third quarter and the fourth quarter, we are achieving close to pre-COVID levels of revenue, but we have been able to demonstrate consistently that our cost is less. And what you will see a cost increase is going to be on the inflation side. But on a fundamental basis, at the fiscal '20 levels, we have taken out almost INR 400 crores of cost. So the inflation will be applied on the cost of, let's say, INR 2,000 crores on an adjusted basis of fiscal '20 and then you provide for an inflation. Otherwise, you would have provided on INR 2,400 crores the inflation. So that's number one.

Second thing, as far as the working capital is concerned, we have put in a huge amount of effort in terms of managing the receivables, the inventory which is very, very clearly demonstrated consistently after achieving these levels of revenue. So clearly, our endeavor is to maintain these levels of working capital. You will always have seasonality quarter 1 and quarter 2. But then over the years, you will achieve these kind of on an average basis, the working capital levels to these.

[Unknown Attendee]

Sir, so one difference when we say pre-COVID revenue at least for the organization as a whole, I don't think on a top line, we are still at the pre-COVID revenue per year as a whole. And if you take real estate out for a like-to-like comparison, then actually we are below the pre-COVID revenue. So sir, my question is, as you pursue growth and you want to cross the pre-COVID revenue ex of real estate, you believe these are sustainable numbers on a full year basis?

[Amit Agarwal, executive]

Yes. So you have to consider not a full year because you see the full year revenue has an impact of second wave of COVID in the first quarter. So if you exclude that, your third quarter and fourth quarter, which is more a relevant measure for your working capital is clearly pre-COVID levels.

[Operator]

The next question is from the line of [indiscernible]

[Unknown Analyst]

Hello?

[Amit Agarwal, executive]

Hello? Yes, please.

[Unknown Analyst]

Congratulations on a good set of numbers. Sir, I have 2 bookkeeping questions. So basically, our other income has increased this quarter. So is there any one-off item included in this? And secondly, sir, what would be the effective tax rate going forward?

[Amit Agarwal, executive]

So look, the other income is basically on account of the interest and certain asset sale, which we have done. So like one of our facilities is in Canada in the Engineering business, which we sold that has contributed to a certain asset sale. And as far as the tax rate is concerned, for going forward in the range of 24%, 25% would be our tax rate. Obviously, you will have cash cess less -- yes, cash cess will be less. It will be the tax expense.

[Operator]

The next question is from the line of [indiscernible] Capital.

[Unknown Analyst]

My first question is on receivables. I think we've written off around INR 57 crores of receivables in the quarter and INR 216 crores for the year. I just want to understand if we think this provides for everything or will we have to provide for some more? And if you could provide the number of receivable amount, which is greater than 6 months, which I think you disclosed in the annual report. So what is the amount of receivables as on March '22 greater than 6 months, please?

[Amit Agarwal, executive]

So look, as far as the receivable provision is concerned, this is a lot to do in our Apparel business, which was impacted severely in the -- especially in the MBO segment, as they were not able to sell. And the possibility was either to take back the material or share some of the discounts and the claims with these guys, so we took that latter approach because if we take the return, there will be logistic cost, administrative cost and selling it would have been difficult.

So that was the reason it was mostly sharing of those claims, which has been there, and it has been completed because I believe now the COVID is over. Now we do not see any further impact on the COVID. So that is settled and it's behind us. One second, we'll give you the numbers. We -- our -- Mukund will communicate with you one-on-one in terms of 6 months numbers. We don't have handy as of now.

[Unknown Analyst]

Got it. Sure. And my second question is on related party transactions, which, again, we report in our annual report -- and you obviously spoke about shareholder value creation. So -- and historically, when we compare our related party transactions to your other reputed companies, the amount of related party transactions we have with [indiscernible] are obviously significantly higher, including purchase and sale of goods. Do you think there is any plan to streamline some of that which should obviously enhance shareholder confidence and will also result in more shareholder value?

[Amit Agarwal, executive]

Yes. So basically, there is one activity, which the -- one of the promoter entities has created that facility in the shirting business, and that is why it has to be done through that facility because it makes no sense for us because there is a certain skilled workforce, certain equipments have been placed by those people. And therefore, that purchase of certain cotton shirting material happens through that facility. Rest all of the transactions which you see is primarily from Apparel from Raymond Limited to its subsidiaries.

[Unknown Analyst]

My question was that -- is there a way in which [Technical Difficulty]

[Operator]

Sorry to interrupt, sir, your voice is breaking up.

[Unknown Analyst]

No, my follow-up to that was that the amount is not small. It is a big amount. So is there any way we can, obviously, streamline that, do it through either a wholly owned subsidiary of the company or some -- the way it is done with many companies to just enhance confidence?

[Amit Agarwal, executive]

Yes. You see, it is at the arm's length. It is being audited, evaluated by a third party. So I don't see that it is the question of saying it can be done by an entity A, which is a subsidiary or an associate entity.

The point is very simple that they have put up a facility, which is being used and there is a skilled workforce in that entity, which we need to continue to perform. And at the end of the day, it is an arm's length transaction. And more than 25 years that has been in the business by doing that. So therefore, we have this whole knowledge sitting there.

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible] Capital.

[Unknown Analyst]

So just 1 more follow-up. In terms of the raw material price and the price increase, you attributed a bit to it, but could you just give what is the price increases that we've taken over the last few months? And given the way the cotton prices are increasing, do we think that we need to take further price increases in the coming quarters? Or is there any pressure on margins that we see?

[Amit Agarwal, executive]

I think excellent question. And look, the price of the cotton candy which used to be before 15 months in the range of INR 40,000, INR 42,000 a candy has moved up close to INR 97,000 INR 98,000 a candy.

However, if I look at my shirting fabric, what you really consume is a 200 grams per meter of a cotton shirting fabric. So therefore, what we need to increase the price in the range of 23%, [ 22% ]. And till March, we had increased the prices to the tune of 17%, 18%. And from May, June onwards, we've increased another 6% price increase so that it helps us to nullify whatever has been the increase in the cotton price over the last 1.5 years. So we are on that front.

As far as the wool is concerned, wool has been practically flat. PV, poly-viscose yarn, there has been a small increase in the prices of close to 15%, and we have been able to increase our PV product by close to 9% selling prices.

Even the wool because of the strength of the brand and the unique network, we have been able to increase also the price by 4%, 4.5%. So across the board, we are seeing -- as we speak today, we have been able to pass on between now and in the next 3 months all the price increases, which has been reflected on the cotton and the PV yarn.

[Operator]

Ladies and gentlemen, that was our last question. I now hand the conference over to the management for the closing comments.

[Amit Agarwal, executive]

Thank you very much to listening to us, and we will talk again in the next quarter. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.