Mumbai based apparel manufacturer, Raymond Ltd., is on a transformational path. The change is to bring in professionalism and increase shareholder value. So Gautam Singhania, CMD, Raymond Ltd., has taken some steps in this direction. Earlier in October this year, he stepped down as chairman of Raymond Apparel Ltd. Then in November, a group company, JKIT, sold 20 acres of land from its land bank. Now, in its most recent move to add shareholder value, the company has demerged its lifestyle business into a separate listed entity. The move will create a clear demarcation of lifestyle business (branded textile, branded apparel and the garmenting division) and other businesses (real estate, B2B shirting, auto components, tools and hardware, FMCG through associates and denim through joint venture), leading to the simplification of the group structure. Every shareholder of Raymond Ltd. will be issued the shares of the new company in the ratio of 1:1.
According to Singhania, for over three years now, the company has been relentless in building a future-ready organization, despite multiple challenges. “As we continue to build capacities for enhanced performance and delivery across verticals, demerging the core lifestyle business is an affirmative step towards that direction and this will also simplify the group structure,” he says.
Analysts are optimistic of these recent actions by Raymond. “The overall simplification of the group structure is a big positive and will provide a clear picture of the individual businesses,” reads an Antique Stock Broking report.
The demerger plan led to questions about the `Raymond’ brand name among some investors. So, after having consulted with industry and financial experts, the company arrived at an optimal structure in relation to ownership of brands related to the lifestyle business. So under the proposed scheme, along with the lifestyle business, `Raymond’ and all the other brands currently being used in textiles, readymade garments, retail business related to lifestyle business, tailoring services and allied accessories will be assigned to and owned by Raymond Lifestyle Business.
Consequently, once the proposed scheme is approved by the NCLT, Raymond Lifestyle Business will not be required to pay any royalty to Raymond Ltd. for its use of the brands. Raymond brand ownership for all the other business, (except Raymond Lifestyle) will remain with Raymond Ltd. “Consequently, the brand ownership of Raymond for all the Lifestyle related categories post-demerger will be with the demerged new lifestyle company. There will be no inter-company brand licensing rights or royalty contracts,” says Singhania.
According to Sanjay Behl, CEO Lifestyle Business, Raymond Ltd., as this iconic brand is nearing its 100th year of existence, the lifestyle business is at the cusp of scaling-up exponentially to leverage its true potential. “With this demerger, the lifestyle business will be well positioned to capitalize on the emerging opportunities through newer capabilities across the entire value chain of ‘fibre to fashion’,” he says.
In another development, Raymond Ltd. announced the allotment of preferential shares to JKIT, an associate company, against the infusion of net proceeds of JKIT land sale that was announced earlier in November. A total of Rs350 crore, from the 20 acre land sale in October 2019, will be used to repay the debt, thus deleveraging the group’s balance sheet. “As our balance sheet will get leaner, it will lead to a better profitability at the group level. The demerger of the Lifestyle Business will enable the demerged company, and the resulting companies to have focused strategy and specialization for sustained growth and the ability to attract investors for better access to capital,” says Sanjay Bahl, group Chief Financial Officer.