Raymond is reducing its capital expenditure from ₹300 crore in FY 2016 to ₹250 crore this fiscal. The bulk of its capital expenditure last year was towards capacity expansion, renovation of stores and capital machinery.
The textile major is seeking better margins and returns on capital next year as its yearly profits dipped 18 per cent, from ₹113 crore to ₹92 crore.
Having heavily invested in segments such as Made to Measure, store expansion and renovation, it now wants to build scale across its retail formats, which include having 125 new stores under the Raymond Shop brand, next year.
“There would be 75 new stores and 50 old ones that would get renovated in the next four quarters. Most of the Made to Measure stores would be company-owned, while the rest of the Raymond Shops are likely to be expanded through franchises,” said Sanjay Behl, CEO-Lifestyle, Raymond.
Margin expansion The company is now seeking margin expansion and profitability for its branded apparel segment, where it has Park Avenue and ColorPlus as its leading brands.
“We need to get scale in Raymond’s ready-to-wear segment, and 10-12-per cent margin should be expected. There are structural impediments such as the 2-per cent excise duties on apparel above ₹1,000 and import duties on cotton garments, so we expect a gradual improvement on margins as there is a higher cost factor.”
Its largest apparel brand, Park Avenue, with revenues at ₹500 crore, is also expected to expand its footprint from the current 65 excusive stores.
“We have to invest to leverage Park Avenue as it still has the lowest ebo (exclusive brand outlets) count compared with other apparel brands and its presence is low in this segment despite being in the top 10 apparel brands in the country.” Behl said.
Besides, the export market has also been challenging for Raymond, where it competes with companies based in China, Vietnam and Bangladesh.
“Garment exports is a competitive scenario since there are far lower wage and power costs in other countries compared with India. We have to come up with sharper and innovative offerings in this segment.”
Consumer sentiment But, along with a challenging global environment, there continues to be subdued consumer sentiment.
“There are multiple factors at play when it comes to consumer sentiment. While inflation is low, it has not resulted in additional discretionary spends along with the overhang of the monsoons. Today, we are cautious when it comes to judging consumer sentiment,” he added.
However, Raymond witnessed one of its best fourth quarters in the past few years when it recorded a 162-per cent jump in net profit, from ₹21 crore to ₹56 crore.