How Singhania is navigating a 7-year turnaround at Raymond

Gautam Singhania is a man of few words.

For instance, when pressed for details on his mid-term plans for the 99-year-old Raymond Group, the 58-year-old third-generation promoter repeats a cryptic phrase: “Create shareholder value".

How does he plan to do that?

“We have a game plan on how to do that. But we'll talk about it when the time is right."

While Singhania is guarded about the finer details, the broad contours involve growing the lifestyle division's white-label garmenting business, expanding retail footprint and adding new product categories, scaling the real estate and engineering businesses, and eventually, splitting the group into three listed companies.

Raymond-branded apparel sold in India are made by the company's suppliers; at the same time, Raymond contract-manufactures garments for foreign brands, often called white-label garmenting.

Following a playbook

The company is closely following a playbook that Singhania and his lieutenants created at the outset of the pandemic outbreak. Back then, shuttered stores had dried up Raymond’s cash flows. Debt piled up. The chief executive of the company’s flagship lifestyle business resigned.

The top brains at Raymond then connected over Zoom calls to come up with the following plan—be among the top three companies in all businesses, exit those where they couldn’t be among the top three, reduce debt, and demerge the conglomerate once debt is under control.

“In 2020, we created a roadmap for a seven-year period," said Amit Agarwal, chief financial officer of the Raymond Group.

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The following four years have been well-documented. Raymond sold its fast-moving consumer goods (FMCG) business to Godrej Consumer Products, used the money to repay lenders, acquired engineering firm Maini Precision Products Ltd (MPPL) to scale its engineering business, launched multiple real estate projects, and finally set the wheels in motion for the demerger of its three businesses – lifestyle, engineering and real estate.

Stock surge

The markets have rewarded the company’s efforts. The Raymond stock doubled between the beginning of this year and July to over ₹3,150, before the lifestyle business was carved out. The stock has lost over 10% since the carve-out, closing at ₹1,894 on Monday.

“That was a heavy monkey on our back," Singhania said, referring to the debt reduction effort. "But you know what? Today, there's a different monkey on our back," Singhania said in an interview at his palatial South Mumbai residential tower that also houses Raymond’s flagship store.

“Today, our whole drive is: How do we create shareholder value? How do we grow? What is the next big thing?" he said.

The next big thing

Today, with a healthier balance sheet, Raymond is executing the next chapter from its playbook: Expansion.

The plan will play out differently across the three business verticals.

At the lifestyle business, which is soon to be listed as a separate company, Raymond Lifestyle Ltd, Singhania sees great potential in making garments for the west. It is in the middle of an expansion that would see its annual manufacturing capacity rise from just under 8 million to 11 million garments.

Singhania eyes the political turmoil in Bangladesh, the sub-continent's leading garments exporter, as an opportunity.

“I think it's a very big opportunity for India and especially companies like us, which are giving a total integrated solution," he said. “Maybe God played a part in it. We've just completed our expansion; so, we have capacities available to take advantage."

Raymond is focusing on expanding its store footprint, adding new categories like men’s innerwear and sleepwear, and relying on its core suiting fabrics business.

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Raymond plans to open 500 stores in the next three years, including multi-brand retail outlets, according to Agarwal.

The company's legacy engineering business was revitalized with the acquisition of Maini Precision Products last year. Raymond's ageing product range that included files and gears doubled with the addition of new categories including aerospace, defence and electric vehicles components.

The company is looking to scale the aerospace and defence businesses which have been placed under a separate company within the engineering business, Agarwal said.

Raymond will amortize its 100-acre Thane land parcel by 2032-33, according to Agarwal. Currently, about 40 acres is under development. The remaining 60 acres should be sufficient to build about 7 mn. sq. ft of saleable real estate, resulting in revenue of ₹16,000-18,000 crore over the next 7-8 years.

However, to diversify the business beyond the captive land parcel, the company has entered into joint development agreements in Mumbai. Under this asset-light model, properties are developed in partnership with their owners. The company is exploring expansion into Pune under the same model, Agarwal said.

The company expects to get the necessary regulatory approvals for demerging the real estate business by next year.

“Raymond has been walking the talk with regards to strategic value creation by selling the FMCG business, demerging the lifestyle business, shaping the real estate business, and establishing an engineering unit ‘Newco’ after the MPPL acquisition," analysts at Motilal Oswal noted last week. With the planned separation of the real estate and engineering businesses, the company can focus on individual growth strategies for both businesses led by professional management, they noted.

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Singhania and Agarwal stressed that professionals running the show will be an integral part of the Raymond group’s expansion plan.

For instance, Gautam Maini, the founder of Maini Precision, has been retained to lead Raymond’s consolidated engineering business as its chief executive.

“I think that is a very unique combination which we got. We got a promoter, who became also the manager of the business, and he drives it entrepreneurially with the resources and capital of Raymond," Agarwal said.

When asked what Singhania’s role will be as the promoter, he said, “Only shareholder value creation. That's my only focus."