Companies

NBFC crisis needs to be fixed to drive consumption: Gautam Singhania

Forum Gandhi Mumbai | Updated on November 26, 2019 Published on November 26, 2019

Besides, sentiment also has to improve for consumers to spend, says the Raymond Chairman in an interaction

Over the last few months, Gautam Singhania has restructured the Raymond group in an effort to create more value for shareholders and to bring into sharper focus individual businesses. Earlier, he stepped down as Chairman from most of the group entities, and now Raymond Ltd has announced the demerger of its core lifestyle business into a separate entity that will be listed through the mirror shareholding structure. BusinessLine caught up with Singhania to find out what’s driving the change. Excerpts.

What has triggered the demerger?

The demerger has been done to create shareholder value. The old company will have the real estate and the residue companies, and the new company will have the lifestyle business, which will focus on apparel, garments, etc. The old company will have the real estate business, and we have announced the value unlocking there.

Raymond in its current form has a total enterprise value of approximately Rs 7,000 crore and you have said that the Raymond Lifestyle business itself could command a value of approximately Rs 7,000 crore. What is the roadmap for achieving that?

Today, the market cap of Raymond is above Rs 4,500 crore. But following the demerger, obviously the lifestyle business will get re-rated with the EBITA numbers, the conservative numbers will be significantly higher than the total market cap. Of course, it will be a residue market cap value for the rest of the businesses in the company, and it really depends on the investors we get for the rest of the company.

Have you started looking for investors?

No, we’ve just announced the demerger and once the company gets listed, things will be different.

Also read: Raymond to demerge core lifestyle business; shareholders to get shares in the ratio of 1:1

By when will lifestyle achieve a billion-dollar valuation?

I don't give any guidance on valuation, we will do what is required, and I think it is for the market to decide what's right and what's wrong, but we don’t have a set timeline.

Everyone is talking about a slowdown in consumption. Do you see any impact of this and how are you dealing with it?

There is no question that there is a slowdown in the market. Obviously, everybody's impacted, not only us. Auto is among the worst affected sectors.

It will take time to come back on track. We have to do some introspection, cut costs. I think in November we have seen a slight come-back. I don't think it’s going to come back in a great hurry, but you just have to stay the course and stay strong. Like I've always said, during a recession or slowdown like this, if the stronger guys feel the pain, can you imagine how it will be for the weaker people. I think we should really use it as an opportunity to strengthen ourselves further.

Has the cut in corporate tax helped?

It’s too early. It’s there, but I don’t know how much of it will get translated, it may be a small amount.

What more can the Centre do to drive consumption?

The consumption story is a big story, actually. You can lower GST, tax, etc, but, till the time consumption doesn’t pick up, I don’t see the problem going away. The NBFCs really fuel consumption in real estate and retail ... the NBFC crisis needs to be fixed. Sentiment, too, has to be good for people to spend, people are not spending today.

Earlier this year, you stepped down as Chairman of group entities to make it more professional, and now you have restructured the organisation by demerging Raymond Lifestyle. What is driving these changes?

Market value creation and shareholder value creation is driving these changes. The only thing that's constant in life is change.

Raymond’s lifestyle business comprises around 1,500 stores across more than 600 towns and cities. How many new stores will you roll out in the next two years and what will your geographical reach be then?

Tier 2-3-4-5, the market doesn't come to you, we have expanded in those markets. We are present in 500-600 towns, and that in itself speaks of the opportunity for the company. We are adding over 100 stores per year.

What are the new revenues you are looking at from your lifestyle business in the next two years?

Certainly over Rs 4,000 crore.

What is the status of your plant in Ethiopia? Has the unrest in that country impacted your plans?

Ethiopia is a strategically important investment for us in the long term. After 25 years of political stability, there was unrest, which was unfortunate. So there was a disruption, but now that’s settled.

It was completely unexpected. We went and invested there. Several American companies also invested there. Nobody saw the problem coming, but I think the problems are behind us. And I think Ethiopia is a strategically important investment for us, specifically for our US customers. We would think later about any expansion. It’s a little behind the target, but we will get there.

What are your plans for your real estate business?

We decided to develop 20 acres in phase one. That project is on track. In fact, we're ahead of commitments and the project continues to do well. I think we've come up with a good product at a good price in a good location. And keeping that in mind, I think we're cautiously optimistic this month.

Also read: Raymond sells 20-acre plot in Thane to Singapore retailer for ₹710 crore

What will you do with the balance 100 acres?

I am not a liberty to talk about it.

The real estate business is not doing very well at the moment, not only for you, but across the industry. Do you see that changing over time?

I think the industry is going through a very tough time, but we're doing very well. We've done far more sales than most people put together. And that's really a combination of the right product, the right price and right location. So we've done over 800 apartments in this market.

You had said earlier that you are targeting Rs 4,000 crore in revenue from real estate in 42 months' time. Is this on track?

Yes, we are on target, we will achieve our targets in the time we’ve committed. We started the project seven months ago, it’s easy to calculate.

At the moment, we’re only doing affordable housing, a very minuscule amount of the premium segment. We don’t plan to escalate the luxury business as of now.

FMCG businesses aren’t doing very well, with consumption on the lower side. How’s it working for Raymond?

We’re doing okay in our FMCG business. A strong double-digit growth. But we continue to focus on the Raymond philosophy of the right value for money and we’re gonna be okay.

In the FMCG business, larger players, including HUL and Marico, say that 6-8 per cent growth is the new normal given the economic situation. Do you agree?

We continue to do better than the market. No, we don’t resonate with the idea of the market, as we have a strong double-digit growth.

Do you plan to list?

We are in the business of shareholder value creation. When we see an appropriate value for the product, we will monetise it. It’s a work in progress.

About your engineering business, how is it doing?

Engineering is doing okay. Obviously auto is a little bit of an issue with the whole segment and the industry, but I'm sure it will bounce back. You'll see it come back this month. There's a lot of inventory corrections in the auto segment, but I think it will come back.

You had earlier said you would look to sell these assets. Have you started looking for buyers?

We have already sold off a few assets, which we've announced. We continue to look at doing things that will add to shareholder valuation. For the rest, show me the money. We are always open. I cannot give you forward guidance.

What is the valuation you are looking at for these two assets?

I am not at liberty to discuss that.

The lifestyle business is essentially focused on men. You said that Park Avenue women was doing fairly well. Any plans to make Raymond a more gender-neutral brand?

We’re testing it, it’s a small business and it’s doing good. But we're a men's brand. We're not a woman's brand. We've done a small amount of women's wear.

Published on November 26, 2019
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