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DIVERSIFICATION

The Complete Plan?

Flab-cuts in legacy fields like steel, a tab on the debt-situation, and the resolve to be a lifestyle brand-Raymond is ready to wear...

By Brian Carvalho

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Raymond's Gautam Singhania: Grooming for that lifestyle lookTill yesterday, he was known more for launching the Kama Sutra range of condoms and for his antics on the racetrack. But for Gautam Singhania, the nineties-during which his father Vijaypat reigned as Chairman and Managing Director of the Rs 1,357-crore Raymond-were a period of learning, more often than not the hard way. A product of the licence raj (in hindsight, you could call him its victim), Vijaypat pulled out all the stops to transform the textiles business he had inherited into a diversified growth machine. Grabbing every opportunity that came his way, papa Singhania plunged into the manufacture of Polyester Filament Yarn (PFY), denim, and cold rolled steel. He expanded a cement unit that had been thrust on him (by his father, Kailashpat), and for good measure, also flagged-off a charter air taxi operation.

You know what happened then. By the mid-nineties, diversification had become a bad word, as scores of Indian promoters who had put up piecemeal capacities in myriad commodity-based industries were rendered uncompetitive in the face of global-size capacities and cheaper imports. What's more, shareholder accountability hadn't yet become the mantra, and promoters treated their businesses as personal fiefs (many still do, but let's not digress). Raymond suffered, as did those who had invested in it. ''There was nothing wrong with our operations. It's just that the environment changed,'' shrugs Gautam Singhania, 36. ''For instance, PFY prices came down by a third. There's no way we could make money.''

Raymond's steel business lost over Rs 100 crore last year. The denim-manufacturing subsidiary, as of last year, had piled up losses of Rs 66 crore. The parent company had pumped Rs 42 crore as equity and Rs 89 crore as interest-free loans into the subsidiary, which is now being merged into Raymond. The company is deep in hock, to the tune of Rs 765 crore, as a result of which it forked out Rs 95 crore to its lenders last year.

An Unenviable Inheritance

The Rs 1,170 Crore 
Game Plan

Clear Rs 500 crore of the existing Rs 765 crore debt, fast
Acquire capacities in worsted textiles and denim
Buy out existing brands, in 'premium casuals' segment
Foray into womenwear
Invest in making Raymond a 'lifestyle' brand
Set up a chain of Raymond superstores

By the time Gautam Singhania took over as Chairman & Managing Director last fortnight, he and his father had got rid of much of the non-performing baggage. The PFY unit had been sold to the Reliance Group in September, 1999. Early this year, the cement plant was hawked-off to Lafarge for Rs 785 crore. And a few days after taking over, Singhania received a Rs 386-crore cheque from German steel major Thyssen-Krupp Stahl for yielding a 76 per cent stake in Raymond's steel business. The total deal is worth Rs 412.26 crore, with Singhania picking up Rs 25.40 crore in the new company in stock. ''We've taken some hard decisions, and come out stronger,'' says Singhania. ''This year we will be sitting on Rs 1,170 crore,'' he beams.

So what Singhania is now left with is the worsted textiles business, where the company claims to have a 40 per cent marketshare, ready-made menswear (with formals brand Park Avenue, Casuals brand Parx, and premium brand Manzoni), and curiously, a division that makes files and tools. Singhania says files and tools ''is a core business'' because Raymond commands 75 per cent of the Indian market and 40 per cent of the global pie in the business. But this also means that there are few players in this business. What's more, it's worth just Rs 250 crore globally, and Singhania admits that if he finds a buyer-at the right price of course-he'll sell. But since the chances of that could be close to one in a million, the files and tools division is being granted 'core' status at Raymond.

Right now, though, it's what to buy that's his primary concern. But it's not as if all the sales-proceeds can go into acquisitions. Singhania has ambitions of making Raymond a zero-debt company. As a first step he plans to clear Rs 500 crore of the Rs 765-crore debt this year itself. The rest, yes, can go into acquisitions.

Potential Acquisitions

But what does he want to acquire? If you listen to Singhania, it could be any business that's part of the core-which means capacities in worsted textiles and denim (where prices are once again on the upswing, by 25-30 per cent), as well as ready-made brands, either formals or casual-wear.

Raymond has built a strong presence in the formal mens-wear segment, where last year its flagship brand Park Avenue had Rs 110 crore of the estimated Rs 1,000-crore market. But competition is creeping up on the company. Peter England, for instance has Rs 70 crore of that market, Zodiac Rs 65 crore, and Louis Philippe and Van Heusen together, Rs 100 crore.

Singhania, for his part, is in two minds. On the one hand, he says that he will buy if the value is right. But if the price tags are obscene, he prefers building his own brands. As an example, he points to the Manzoni brand (shirts priced in the Rs 1,500 range), in which the investment has been just Rs 35 lakh so far. Singhania isn't interested in acquiring retail networks, as he feels Raymond is well covered, in 110 cities by 250 shops and 30,000 retail points.

Where Raymond does not have a presence, as Group President Nabi Gupta points out, is in the 'premium casual' segment-read a brand like Color Plus. Singhania says that going by the deals in the recent past in the textiles, he would be interested in acquiring Color Plus for a valuation that's close to its sales, of Rs 36 crore. But Color Plus has made it clear that it's not keen on selling-certainly not at that price.

If Singhania feels that brand-building is a better-and more cost-effective-option than acquisitions, he'd better get into the act soon. Whilst competition in the formals segment is hot, in the Rs 1,200-crore casuals market, Raymond's Parx range lags behind names like Lee, Allen Solly, and Levis.

Raymond has the cash today, but will it be content just earning interest on it? After all, the company is guaranteed at least 10 per cent annually on the Rs 386 crore it has received from Thyssen, which is a sharp turnaround anyway from the Rs 100-crore loss of last year. The cement sell-off, too, will assure Raymond is earning some return on investment, unlike in the past.

Gupta vaguely suggests that Raymond will now focus on the 'lifestyles' business, and that it will become a 'lifestyles brand'. A foray into women's wear is being contemplated, but Gupta says that the final game plan will be frozen only by September 30, 2000, after the conclusion of an internal 'strategic exercise'. Clearly, Raymond has the money, now it needs ideas.

 

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