Textile to engineering conglomerate Raymond on Thursday announced plans to demerge its core lifestyle business into a separate entity that will simplify the group structure as well as unlock potential shareholder value. Raymond indicated that the new company would hold its branded textile, branded apparel and garmenting businesses while the existing company would retain the group's real estate project, Thane land bank, B2B shirting business, engineering businesses of auto components and tools & hardware, denim and fast-moving consumer goods business.
The new firm will be listed with every Raymond shareholder getting one share of the new entity for every scrip held.
The resulting companies would have focused strategy and specialisation for sustainable growth and profitability, Raymond said. At the same time, the company also announced that it is looking to deleverage its balance sheet aided by a fund infusion worth Rs 350 crore from an associate firm. Raymond said it would issue equity shares as well as compulsorily convertible preference shares (CCPS) through the preferential allotment route to its associate firm, JKIT, in lieu of the funds that came as proceeds of a land sale.
The equity shares and CCPS will be issued at a price of Rs 674 per share, Raymond indicated in a stock exchange filing. Raymond's gross debt as on March 2019 stood at Rs 2,142.92 crore, according to Bloomberg data. Raymond chairman and managing director Gautam Singhania said the demerger would improve the balance sheet. "There is no doubt that there is a slowdown. I have always embraced slowdown in a different way. Sometimes, slowdowns help you introspect."
As on September 30, Raymond promoter group held 43.83% in the firm while the rest of the 56.17% stake was held by public shareholders. The firm indicated that after the preferential allotment, the promoter group shareholding will rise to 48.21%.
Raymond group chief financial officer Sanjay Bahl said the infusion of net proceeds of JKIT land sale in Raymond would help the group in debt reduction leading to better operational efficiencies. "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 specialisation for sustained growth and the ability to attract investors for better access to capital," he said.
As of fiscal year 2019, the lifestyle company had revenues of Rs 5,284 crore and an earnings before interest tax depreciation and amortisation (Ebitda) of Rs 601 crore while the existing company-predominantly a real estate firm - had revenues of Rs 1,549 crore with an Ebitda of Rs 101 crore, Raymond indicated.
For the quarter-ended September, Raymond posted a 32.27% year-on-year rise in its consolidated net profit to Rs 86.24 crore. The announcements were made to the stock exchanges after market closing hours. Shares of Raymond closed Thursday’s trading session at Rs 673.70, up 6.94%, on BSE.