————————————————- ————————————————- Financial Analysis Report ————————————————- Presented towards the partial completion of Financial Accounting at Indian Institute of Management, Bangalore Submitted by, Contents 1. Introduction – A Brief Description of the Company and the Industry2 2. Major Events in the period FY’09 – FY’103 3. Stock Price Movement and PE ratio3 4. Growth Rates4 5. Margin Analysis4 6. Turnover Analysis4 7. Analysis of Leverage5 8. Analysis of Short-Term Liquidity6 9.

Analysis of overall Profitability6 Executive Summary7 Appendix7 1. Introduction – A Brief Description of the Company and the Industry Incorporated in 1925, Raymond is the world’s largest vertically and horizontally integrated manufacturing centre and provides customers with total textile solutions from worsted suiting to shirting. Raymond has over 60 per cent market share in worsted suiting segment in India. Raymond’s business is divided into three major segments – textiles, files ; tools and air charter services, with the textiles division contributing to 77% of total sales during 06-07.

S Kumars, Arvind Mills, Century Mills and Bombay Dyeing are the major competitors of Raymond, with the gross margins of the 3 Indian companies – Arvind Mills, Raymond and Century Mills, averaging around 42% against the global average of around 22%. India is the 2nd largest textile economy in the world after China. Textile sector in India accounts for around 8% of GDP and, contributes 14% of the value addition in the manufacturing sector and more than 30% of the export earnings of the country. Raymond’s sales have declined during ‘10 by 2% whereas it had shown a significant increase in sales in ‘09 (9%).

The decline in sales has been due to poor domestic sales, low export volumes and high raw material costs in ‘10. Raymond’s growth rate was very high at around 18% for three consecutive years (‘05-‘08) but dropped down significantly to 4. 77% in ‘08-‘09. In the same time period, the textile industry’s growth rate also went down from 5% to -2%. The reason for such a sharp decline was the economic recession in the western countries. Demand for textiles dropped sharply in the domestic as well as international markets.

The market share of Raymond was increasing till ‘08-‘09 as Raymond’s growth rate was higher than the industry’s growth rate. But in year ‘09-‘10 Raymond lost a sizeable amount of market share as its growth rate went negative to -1. 68%. This was the year during which the company closed down its operations at its high cost Thane unit in December ‘09. Net profit margin is negative for the financial year 2009 (-4. 47%) and has marginally gone up to 1. 46% in the FY’10. Also Return on equity in FY‘10 was 3. 06% whereas it was -8. 58% in the previous year.

Also it is notable that the company’s return on equity is higher than its return on assets which stood at 2. 15 for FY’10. This implies that company earned more per rupee of shareholder’s funds than per rupee of assets. 2. Major Events in the period FY’09 – FY’10 * Raymond plans to achieve a total of 118 new store openings by the end of calendar year 2010. 88 of such stores have already been opened. * The operations of Company’s denim joint venture – Raymond UCO Denim Private Limited were restructured by closing down two of its heavily loss making subsidiaries in Belgium and USA in FY’09. The company closed down it highly cost inefficient Thane unit in December 2009 and convinced the majority of the workforce to opt for a voluntary retirement scheme. 3. Stock Price Movement and PE ratio Exhibit 1: Stock price of Raymond on BSE since Oct ’09 to present Stock Price: 356. 60 (Dated 4th Sep 2010) P/E Ratio (x): 87. 34 (Dated 4th Sep 2010) Over the last one year investors have shown a lot of faith in Raymond. After two lackluster years, Raymond made a strong comeback by streamlining operations, closing down loss making units, and embarking on an expansion spree opening 118 company retail outlets.

Their 1st quarter FY’10 results show that their YoY consolidated revenues have gone up by 23% and EBITDA by 27%. After the release of the quarterly results (30th July) stock prices went up from Rs. 230 to Rs. 396, a drastic rise of 72 % in just 15 days. Before this recent spate of events, the stock has remained relatively stable, having a maximum fluctuation of Rs. 50 over a period of two weeks. However, recently the stock has been very volatile. Comparing their P/E ratio with the other companies it feels that investors are expecting a lot from the firm.

But it also seems that the stock is overpriced and its value is going to stabilize at lower price during the coming month. 4. Growth Rates Net Sales of Raymond increased by 7% during 2008-09 due to a 13% increase in retail sales and growth in the sales of woollen products, which were due to an increase in orders from premium European customers. In 2009-10 there was a drop of 2% in sales. This was because the sales in the garment segment remained flat because of a lack of demand in developed markets and closing down of denim operations in US ; Belgium.

S Kumars on the other hand had a 29% increase in sales in 2008-09 due to better brand leveraging. (Refer to Exhibit Asset Growth decreased by 5. 6% in FY’10 because Regency Texteis Portugesa, Limitada (Regency), a wholly owned subsidiary of Raymond Ltd filed an insolvency petition in court under the local Portugal laws and its operations were closed in September 2009. Accordingly, the financial statements of this subsidiary have not been consolidated after September 2009. The net investment in this subsidiary has thus been reduced to Nil.

S Kumars in FY’09 had a phenomenal 60% increase in assets due to an increase in debtors, on account of greater sales, increase in minority interest and an increase in PP;E (KIADB, Bangalore) by leveraging debt from market. 5. Margin Analysis Gross Margin of Raymond is hovering around the 48% mark throughout the period of observation and is substantially higher than that of S Kumars, which is around 32%. Raymond being an established company has been able to leverage lower material costs from its suppliers than what S Kumars has been able to do. Also, Raymond earns higher margins by positioning itself as a premium brand.

EBITDA Margin for Raymond in FY’10 increased by 2 percentage points to 9. 2% due to streamlining of SG;A expenses. These expenses are still 4 times that of S Kumars, primarily due to greater expenditure of Raymond on advertisement, marketing and publicity. 6. Turnover Analysis Net Operating Asset Turnover in spite of being high for Raymond decreased by 4. 9% from 2009 to 2010. The primary reason for this fall is due to the increase in assets (in the form of Current Investments in Growth Option MFs) and sales remaining relatively flat in the period.

When compared with S Kumars, we found that Raymond is doing a commendable job as its Asset Turnover is 31. 4% greater than its competitor. This is because Raymond enjoys 9. 8% higher Sales and has a lower Accounts Payable head, which shows that the management is doing a very good job. Net Working Capital Turnover of Raymond is negative because its current liabilities are more than its current assets. Raymond has been on an aggressive expansion spree, opening over a 100 new outlets which have been funded by raising Short term Debt from the market.

A major dip occurs in 2009 when it increased its focus on this strategy, and as the new outlets start generating revenues, the Capital Turnover started increasing again in 2010. S Kumars has a substantially positive and higher Capital Turnover because of its conservative strategy, and though seemingly in a better shape than Raymond, can be accused of neglecting opportunities of growth. Average Days to Collect Debtors is relatively constant for Raymond in the period observed but is 2/5th of S Kumars. This again is a result of Raymond relying more on its own chain of stores from which collection is easier than third party retail shops.

Average Inventory Holding Period has decreased by 29% because it can easily push the finished goods to its own stores rather than keep it stocked at its factories. S Kumars on the other hand has no such opportunity and has an Inventory Holding Period, which is 3 times that of Raymond, thereby also reducing its ROCE. PP;E Turnover for Raymond has been relatively stable, the only dip coming in 2009, due to the loss making Thane plant, which was sold the next year leading to a rise. S Kumars is however more adept in this regard with a much higher Turnover, mainly on the basis of new and highly efficient machinery employed at its factories. . Analysis of Leverage Debt to Equity Ratio of Raymond shows that it is a fairly aggressive company. It had a major spike in 2009, increasing by 41%, due to raising debt from market to finance its expansion of company retail outlets. By 2010 however, it reached preexisting levels and remains very similar to that of S Kumars, meaning that both companies favor a similar formula for Long Term Capital Structuring. CFO to Total Debt for Raymond decreased from 2009 to 2010 due to a loss of cash flow on closure of some units, including one in Thane.

However, Raymond is in much better shape than S Kumars, which survived a negative CFO to total debt ratio (due to massive adjustments for loans and advances). Both Raymond and S Kumars have a similar Debt to Equity Ratio, but due to a largely negative CFO to Total Debt, S Kumars has a higher long term solvency risk. 8. Analysis of Short-Term Liquidity Current Ratio of Raymond has been constantly lower than 1 for the last three years, which exposes them to high liquidity risk. S Kumars on the other hand has been maintaining an impressive current ratio of over 1.

Interest Coverage of Raymond has been increasing on basis of increasingly stronger performance, but it pales in comparison to S Kumars whose ratio is over 10 times that of Raymond. Our selected company, Raymond, definitely appears to be a riskier firm than S Kumars. During the last three years Raymond has raised working capital and foreign exchange loans to support their expansion plan and cover up their foreign exchange losses. But the ratios have remained more or less constant as their cash and marketable securities have also risen with more investments in Mutual funds. . Analysis of overall Profitability Return on Equity decreased substantially from 2008 to 20009 due to a dip in profit margins. During FY’09, the company incurred a non operating income loss on foreign exchange of Rs 89 Crores and mark to market on investments of Rs 13 Crores. They also closed their USA and Belgium denim operations and recognized an exceptional write down on denim investments of Rs 230 Crores. Textile and apparel brands help up maintaining the sales levels. It also suffered a loss of joint venture becoming subsidiary.

Return on Net Operating Assets went from being in the red in 2009 to turning into black in 2010. During FY’10 the company did incur a onetime total cost of Rs 82 Crores due to VRS /Termination payments, loss upon liquidation of the subsidiary and provision for social obligation of impairments of asset of subsidiaries of Raymond Denim Company. However, net profit margins increased in FY’10 as it overcame the all the losses in FY’09 and had a gain on a joint venture become its subsidiary. Hence, its net operating margin and net profit margin increased. Executive Summary

Though the growth and sales of the company was substantially hit by the recession, Raymond has used this opportunity to streamline its operations, by reducing its average inventory holding period by 29%, hiving off inefficient units and closing down its loss making subsidiaries abroad. Post-recession, Raymond is on an expansion spree as it plans to open over 118 stores in the FY’10. Thus, not only has the company come out relatively unscathed from the recession, but it has also positioned itself appropriately for a period of high growth, greater than the industry average.

Currently the Raymond stock trades at a PE of 87, which is definitely on the higher side. Therefore we recommend short term investors to “Sell” the stock at current levels, as we believe that the upside for the stock is limited at current levels for the next 2 months. However, we maintain a “Hold” rating for long term investors, as we expect the stock to outperform its peers like S Kumars in the retail textile industry space. Also, long term investors can consider accumulating this stock at Rs. 310-Rs. 320 levels.

AppendixRaymond Income Statement (all figures in lakhs of rupees)| Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| 31-03-2010| Sales (Net)| 239615| 255949| 250783| Cost of Goods Sold| 127574| 130778| 131471| Gross Profit| 112041| 125171| 119312| R;D Expense| 0| 0| 0| SG;A Expense| 95038| 106127| 96282| EBITDA| 17003| 19044| 23030| Depreciation ; Amortization| 16886| 16655| 17654| EBIT| 117| 2389| 5376| Interest Expense| 9690| 13278| 12929| Non-Operating Income (Loss)| 13217| -2529| 12376| EBT| 3644| -13418| 4823| Income Taxes| 2138| -2047| 1105| Minority Interest in Earnings| 82| 59| 61|

Net Income Before Ext. Items| 1424| -11430| 3657| Ext. Items ; Disc. Ops. | 732| -11355| -8247| Preferred Dividends| 0| 0| 0| Net Income (available to common)| 2156| -22785| -4590| Raymond Balance Sheet (all figures in lakhs of rupees)| Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| 31-03-2010| Operating Cash and Market. Sec. | 38882| 55017| 61948| Debtors| 46414| 45886| 45098| Inventories| 66649| 59509| 56247| Other Current Assets| 8336| 8907| 7532| Total Current Assets| 160281| 169319| 170825| PP;E (Net)| 133457| 152905| 144770| Investments| 29190| 16357| 8085|

Intangibles| 10502| 2166| 1613| Other Assets| 27025| 30672| 25430| Total Assets| 360455| 371419| 350723| | | | | Current Debt| 146244| 181708| 168250| Accounts Payable| 33024| 37023| 35582| Income Taxes Payable| 0| 0| 0| Other Current Liabilities| 19622| 19536| 21069| Total Current Liabilities| 198890| 238267| 224901| Long-Term Debt| 5303| 1097| 958| Other Liabilities| 4432| 6965| 4423| Deferred Tax Liability| 6436| 2754| 2119| Minority Interest| 651| 674| 734| Total Liabilities| 215712| 249757| 233135| Preferred Stock| 0| 0| 0| Paid in Common Capital (Net)| 8225| 8225| 6138|

Reserves and Surplus| 136518| 113437| 111449| Total Common Equity| 144743| 121662| 117587| Total Liabilities and Equity| 360455| 371419| 350722| S Kumar’s Income Statement (all figures in lakhs of rupees)| Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| Sales (Net)| 174865| 226036| Cost of Goods Sold| 118019| 153853| Gross Profit| 56846| 72183| R;D Expense| 0| 0| SG;A Expense| 17471| 24883| EBITDA| 39375| 47300| Depreciation ; Amortization| 5282| 5793| EBIT| 34093| 41507| Interest Expense| 8933| 13881| Non-Operating Income (Loss)| 1005| 1508| EBT| 26165| 29134|

Income Taxes| 5606| 15341| Minority Interest in Earnings| 0| 1856| Net Income Before Ext. Items| 20559| 11937| Ext. Items ; Disc. Ops. | 0| -5720| Preferred Dividends| 0| 0| Net Income (available to common)| 20559| 17657| S Kumar’s Balance Sheet (all figures in lakhs of rupees)| Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| Operating Cash and Market. Sec. | 1260| 11278| Debtors| 80139| 120446| Inventories| 57945| 80795| Other Current Assets| 0| 0| Total Current Assets| 139344| 212519| PP;E (Net)| 38150| 63425| Investments| 0| 0| Intangibles| 137| 10114| Other Assets| 82942| 130024|

Total Assets| 260573| 416082| |  |  | Current Debt| 109053| 149973| Accounts Payable| 13637| 21357| Income Taxes Payable| 7351| 22248| Other Current Liabilities| 760| 3010| Total Current Liabilities| 130801| 196588| Long-Term Debt| 30450| 30450| Other Liabilities| 884| 1337| Deferred Tax Liability| 412| 1103| Minority Interest| 0| 23039| Total Liabilities| 162547| 252517| Preferred Stock| 0| 0| Paid in Common Capital (Net)| 46543| 31034| Reserves and Surplus| 51002| 132531| Total Common Equity| 97545| 163565| Total Liabilities and Equity| 260092| 416082| Raymond Financial Ratios| | | |

Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| 31-03-2010| Annual Growth Rates| | | | Sales| | 6. 82%| -2. 02%| Assets| | 3. 04%| -5. 57%| | | | | Profitability| | | | Return on Equity| | -8. 58%| 3. 06%| Return on Net Operating Assets| | -6. 94%| 2. 15%| | | | | Basic DuPont Model| | | | Net Profit Margin| 0. 59%| -4. 47%| 1. 46%| x Total Asset Turnover| | 0. 699| 0. 695| x Total Leverage| 2. 490| 3. 053| 2. 983| Return on Equity| | -9. 54%| 3. 02%| | | | | Net Operating Assets| 160281| 169319| 170825| | | | | Advanced DuPont Model| | | | Net Operating Margin| 0. 000| 0. 006| 0. 014| Net Operating Asset Turnover| | 1. 972| 1. 875| Return on Net Operating Assets| | 0. 012| 0. 027| | | | | Margin Analysis| | | | Gross Margin| 46. 76%| 48. 90%| 47. 58%| EBITDA Margin| 7. 10%| 7. 44%| 9. 18%| EBIT Margin| 0. 05%| 0. 93%| 2. 14%| Net Operating Margin| 0. 03%| 0. 62%| 1. 41%| | | | | Turnover Analysis| | | | Net Operating Asset Turnover| | 1. 972| 1. 875| Net Working Capital Turnover| -6. 206| -3. 712| -4. 638| Average Days to Collect Debtors| | 64. 9| 65. 3| Average Inventory Holding Period| 36. 898| 29. 375| 26. 319| PP;E Turnover| 1. 795| 1. 674| 1. 732| | | | | Analysis of Leverage| | | | Long-Term Capital Structure| | | | Debt to Equity Ratio| 1. 060| 1. 498| 1. 065| CFO to Total Debt| -0. 004| 0. 176| 0. 146| | | | | Analysis of Leverage| | | | – Short-Term Liquidity| | | | Current Ratio| 0. 806| 0. 711| 0. 760| Quick Ratio| 0. 471| 0. 461| 0. 509| EBIT Interest Coverage| 0. 012| 0. 180| 0. 416| | | | | Capital Market ratios| | | | Price-Earnings ratio| 143. 967| NA*| 29. 121| Price-Book ratio| 1. 416| 0. 931| 0. 906| Earnings per share| 2. 320| -18. 622| 5. 958| Book Value per share| 235. 815| 198. 211| 191. 572| * Since EPS is negative, the PE ratio fails to convey any value.

S Kumar’s Financial Ratios | | | Fiscal Year End (MM/DD/YYYY)| 31-03-2008| 31-03-2009| Annual Growth Rates| | | Sales| | 29. 26%| Assets| | 59. 68%| | | | Profitability| | | Return on Equity| | 9. 14%| Return on Net Operating Assets| | 6. 79%| | | | Basic DuPont Model| | | Net Profit Margin| 11. 76%| 5. 28%| x Total Asset Turnover| | 0. 668| x Total Leverage| 2. 671| 2. 544| Return on Equity| | 8. 98%| | | | Net Operating Assets| 139344| 212519| | | | Advanced DuPont Model| | | Net Operating Margin| 0. 129| 0. 121| x Net Operating Asset Turnover| | 1. 427| Return on Net Operating Assets| | 0. 173| | | |

Margin Analysis| | | Gross Margin| 32. 51%| 31. 93%| EBITDA Margin| 22. 52%| 20. 93%| EBIT Margin| 19. 50%| 18. 36%| Net Operating Margin| 12. 87%| 12. 12%| | | | Turnover Analysis| | | Net Operating Asset Turnover| | 1. 427| Net Working Capital Turnover| 20. 469| 14. 188| Average Days to Collect Debtors| | 159. 7| Average Inventory Holding Period| 106. 245| 76. 525| PP;E Turnover| 4. 584| 3. 564| | | | Analysis of Leverage| | | -Long-Term Capital Structure| | | Debt to Equity Ratio| 1. 430| 1. 103| CFO to Total Debt| 0. 073| -0. 207| | | | Analysis of Leverage| | | – Short-Term Liquidity| | |

Current Ratio| 1. 065| 1. 081| Quick Ratio| 0. 622| 0. 670| EBIT Interest Coverage| 3. 817| 2. 990| | | | Capital Market ratios| | | Price-Earnings ratio| 11. 969| 12. 395| Price-Book ratio| 2. 523| 0. 905| Earnings per share| 10. 193| 5. 446| Book Value per share| 48. 361| 74. 619| Sales| 31-03-2008| 31-03-2009| 31-03-2010| Raymond| 239615| 255949| 250783| S Kumars| 174865| 226036| 386094| Exhibit 2: Sales Growth figures| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exhibit 3: Sales Growth Comparison| | | | | | | | | Exhibit 4: DuPont Model

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