After tough Q3, Raymond eyes manufacturing cost benefits from Ethiopia plant

After having faced a tough third quarter, Raymond expects to reap benefits from lowered manufacturing costs from its plant in Ethiopia where it has assigned a capex of ₹130 crore.

“About ₹50 crore has alraedy gone down in the Ethiopia plant which has a capex of ₹130 crore. The rationale behind choosing Ethiopia was to get cost advantages in terms of labour, power, duties,” said Sanjay Behl, CEO, Lifestyle, Raymond.

“Labour cost in Ethiopia is half that of in India, and the local government does not insist on investing in land and buildings. Power cost is also below ₹2 compared with ₹7 in India, and there are duty advantages when exporting to Europe and the US,” said Behl.

Raymond is also setting up a new plant in Amravati in Maharashtra with a capex of ₹200 crore.

In the domestic market, after demonetisation, the textile company expects business to get back to normal, for which it would continue to renovate and expand its stores.

“We have already spent ₹20 crore behind renovation of stores this year, and expect to spend another ₹70 crore with a maintenance capex of about ₹100 crore. Business is going to be back, for which there has to be a network of stores,” he said.

Raymond has 1,067 stores across all formats, with 47 stores in West Asia and the SAARC region.

With the cash-dependent wholesale channel getting impacted due to demonetisation, Raymond’s suiting and shirting segment faced negative growth during the third quarter.

“Suiting and shirting is largely wholesale driven; we felt the impact across the Raymond shops, multi-brand and exclusive outlets, with de-growth of 23 per cent and 11 per cent, respectively.”

The company’s consolidated revenue declined 5 per cent to ₹1,331 crore, and the net loss was at ₹16 crore for the third quarter ended in December. Even in branded apparel, which had witnessed 16-18 per cent growth in the past nine quarters, slowed down to 6 per cent during the third quarter due to the cash-crunch.

“While it will take about three months to restore the margins, demand is now crawling back, and Raymond is looking forward to the wedding season post January till mid-May,” Behl added.

Monetising the company’s real estate is also on the cards as certain clearances are in the process of getting government approval.

“We are getting regulatory approvals before making an announcement for real estate. We may develop it either by ourselves or through a joint venture. There is a team in place, and we are looking at all possible options for real estate.”

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