Friday, June 20, 2008

Raymonds – Doesn’t feel like heaven

I was running through the Raymond balance sheet for 2007 – 08. The company closed today at about 224 and has a 52 week high of about 474. It is trading around the 52 week lows. It caught the fancy of the markets with the real estate story.

The company has two divisions Textiles and the Files & tools division. The company hived off its denim business which was losing money into a joint venture. Sales was up for the year from 1374 crores to 1460 crores but profits were down from 201 crores to about 66 crores.

Now comes the interesting part ….

1) In the Directors report with respect to the textile division performance ( which is 85 % of the company), the management states and I quote

“ The growth in revenues was largely due to increase in volumes. High wool
prices, employment cost increases and issues in the ERP implementation has
resulted in decline in profit before interest and tax of the division from Rs
228 crores to 166 crores)”.

I can understand raw material cost increases and employee costs ( which went up from 225 crores to 233 crores - just 8 crores). Compared to this rent went up from 20 crores to 38 crores.

But the brilliant one is dip in profits because of teething problems in the ERP implementation :-). I have mixed emotions on this one. This really takes the cake.

2) The company has quoted investments of over 1000 crores invested in about 100 odd stocks and they traded in about 45 odd shares through the year. If I wanted a equity fund manager I would go to a mutual fund and not to Raymond. It would be wiser for the company to repay about 800 crores that it has on its balance sheet as opposed to dabbling in the stockmarkets.

3) In such tough times one would expect the company to work towards cutting costs. Well the company has a Aircraft on its balance sheet worth 98 crores. Maybe they have to fly the fabric in the skies to make it feel like heaven.

Lol and behold guess what … They bought 67 crores worth of boats and water equipment this year. I am speechless. Well Mr Singhania’s Page 3 lifestyle surely feels like heaven.

I don’t own stock in Raymonds and don’t intent to change that.


Anonymous said...

Nice post. Great example of how promotors and management make hay at the expense of the shareholder. Also a balance sheet provides insight on how much is the management wanting to disclose and educate the investor. Infosys and other IT companies have great standards on this.


Ninad Kunder said...

Hi Rajiv

You are right on the IT industry. I guess Infosys set the bar and the industry followed.

I always believe that though there could be great value in a company, it is critical to ascertain whether that value will accrue to the promotors or the shareholders.