Raymond Keen To Tie Up With Patanjali, Says Gautam Singhania
There's nothing better than a "swadeshi-swadeshi" tie-up, according to Raymond Ltd. Chairman and Managing Director Gautam Singhania who is keen on supplying to Baba Ramdev's Patanjali Ayurved Ltd., as and when homegrown toothpaste-to-cosmetics company enters the apparels business.
Raymond will be the preferred apparels supplier for Patanjali if they launch a garments segment, Singhania told BloombergQuint in an interview. "It's an exploratory discussion at this stage."
Raymond, which already dominates the men's suiting fabric market in India, expects its ready-made garment segment to match up to its fabric business in another five years, if not sooner, Singhania said.
Key highlights from the interview
- The fabric segment continues to present strong growth opportunities
- Domestic profile of customers will lead to growth in fabrics business
- Parx doing well in multi-brand outlets in India
- There is huge potential in Khadi clothing
- We have been supplying to Air Force, Navy; would like to be a preferred supplier to Patanjali once they foray into apparels and/or clothing
- Women’s wear is doing well under the Park Avenue Brand
- There is big market for traditional wear business
- Open to selling non-core business segments at a fair price
- Would not comment on Thane land development plans
Below is the edited transcript of the interview
The financial performance of the company over financial year 2016-17 and 2017-18 was muted. This year it’s expected to do much better than that. What is your expectation for the next year and a few years after that?
You have seen better performance over the last 9-10 quarters and that is the trajectory we are in. We come from the philosophy where we do the right thing and the results will follow. A lot of investment is gone into building brands, building retail stores. Product development has a huge thrust in this company. All I can give on guidance is positive.
Would you like to put numbers to it? What will deliver financially to the company?
I will not give you numbers but rather give you the macro picture. You will see growth in all the brands. Park Avenue is growing 30-35 percent. Parx is growing in that number and Raymond Premium apparel is growing. Our shirting business is growing; ‘Made to Measure’ is growing. You will see in next 40 days, we will be doing something extremely unique in the ‘Made to Measure’ space. Something that’s never been done in the world. We are very excited about this and we are continuously evolving ourselves.
You have 80 percent market share in the suiting business, right?
We do have a dominant market share.
That is your biggest revenue and profit contributor. What is your plan on being able to grow that market?
Contrary to what we believe that there will be natural transition from fabric to apparel, the cost of an apparel is more than cost of fabric and stitching it.
Second, the domestic profile of a person is so diverse from north to south and east to west, that there lies the opportunity to sell fabrics. Not only are we seeing our suit fabric business grow but we are seeing our shirting fabric business grow in cotton. We are seeing linen come up as a strong category. We went from outsourcing a small amount of linen fabric to establishing a facility to do linen fabric, which is in Amravati. We believe that fabric across will continue to do well. We are seeing a strong growth in it in a large base business, may be 7-9 percent. It will continue to be a strong space to be in.
Do you visualise the time when your apparel business will be the same size as your fabric business?
It will be. The growth rate in apparel business is far higher but the base is still small. At some point the lines will intersect, maybe in 4-5 years. But we keep evolving and revising our targets. So it could happen sooner. Twelve months ago, we didn’t put the thrust over ethnic wear which you are seeing today. The new ‘Made to Measure’ concept that we are working on will hopefully start mid-May and if that picks up traction, the game could change.
In the apparel business, what will it take to create the kind of iconic brand presence that Raymond is able to do it? Can you take us through the plans for each of the segments like women’s wear, traditional wear?
Raymond apparel is transcending in the same brand so I’m not worried about that.
Let’s take Park Avenue, it is the strongest brand in readymade apparel space, growing very strongly. Parx is strong in multi brand outlets. On many counts, it is already beating traditional established denim brands as the number one denim brand in those outlets. So, each brand is doing very well in those spaces. If I look at branded apparel overall, I don’t see why it shouldn’t grow 20-25 percent a year.
Margins in that segment are not up to speed, right?
We have been through an investment phase. As you scale, your margins will come. But we are focused on product and the distribution. I have no issues, the margins will come.
Let me look at the margins. Branded textile will do a margin of 14 percent or more. These are Ebitda margins. Branded apparels will be 4 percent. Garmenting is 9 percent. High value cotton shirting is 10 percent. When do you expect branded apparels to come close to 8-10 percent with the other fabric clothing business?
We are seeing an improvement quarter-on-quarter, and it is a dynamic situation.
On the list of many new things that you are doing is khadi. What is the growth potential? How big can that business become over a period of time?
We have really embraced khadi. The organisation has come together to do khadi. In fact, today is the launch of the official collection. There is huge potential.
Will it be a scalable business or a niche business?
Khadi is India’s USP. International brands do not offer khadi. So, why can’t I take Khadi international?
Is it more expensive?
There was talk that you are likely to be working with Patanjali. Were you exploring it?
I explored it. Whenever they do apparel, we would be a preferred supplier to them. We are already supplier to Air Force and the Navy. I did meet Baba Ramdev. Nothing like a swadesi-swadesi tie up.
Did you have any preliminary conversation with him? Will he be looking at fabric or white label apparel?
It is an exploratory discussion at this stage, nothing more than that.
Patanjali has had some very interesting success in traditional FMCG business. Will you think it will work in apparel and fabric business?
If it worked for him, it works for us.
What is the scope for expanding women wear? It is a niche part of your business but for many large companies comparable to yours in retail space, women’s wear has grown at gallop speed versus men’s wear.
Let’s talk brand wise. In Raymond, women’s wear is clearly a no-no. We have done lots of research and the male is very possessive about the brand. Research shows that he is clearly rebelled against getting into women’s wear in Raymond. It is very closely held by the male.
In Park Avenue, we have made an effort and we have a women’s range which has done well. We have started it not so long ago. But now that it is doing well, you will see it developing. Our women’s wear in totality is not more than Rs 50 crore.
What’s your vision for how large it can get, let’s say in three years?
It’s an add on and not a priority for us. At Rs 50 crore, even if I have 20 percent then it is Rs 10 crore. On an apparel basis, if I have 10 percent, then it is significantly more.
If you want to scale your branded apparel business, then don’t you think that women’s wear at some point needs to be 30-40 percent of that business?
There is still headroom in men’s apparel space. You might sell 100-110 shirts and say that you have 5-10 percent growth rate. But we make different types of shirts now like linen, cotton and poly-cotton shirts. Then you take product categories. In the Raymond brand, we have launched sweaters. So, can we do Rs 100 crore business? Why not. We have launched shoes which can become a big business. So, there are lots of headroom in men’s space which we still need to explore which will be the priority. Women’s wear is growing but while it looks like an apparel business, it is a completely different business.
Does ethnic wear have the potential to scale faster? Have you made the assessment in terms of growth?
We have plans. When we do something, we want to do the supply chain and all of it correctly. So, there will be a couple of years where it will be slow growth to settle the business. You don’t want to over commit and under deliver. 20 years ago, there was a brand which was launched which was so good in advertising and it was a fantastic brand launch but after two weeks it collapsed because there was no product on the shelf.
But does ethnic wear have the potential to become the substantial portion of branded apparel business?
Certainly. Manyavar is doing Rs 400-500 crore of sales. So, why can’t both of us do Rs 1,000 crore of sales? The market is there. Even if we take 50 percent of their business, it is Rs 250-300 crore of sales. We are being optimistic in saying that I’ll take his market and he won’t be happy if he hears me saying this but that’s life.
How much is your branded apparel business?
It is Rs 1,500 crore, all together.
You are saying you will do Rs 400-500 crore in the next couple of years from ethnic wear. What is the scope of the opportunity?
It is a wish list. When there is market, you need to aspire to be in 30-40 percent of the market. Otherwise, let’s not waste time. Whether, it will happen in two, three or four years, I don’t know. It is only our second season in the space. We are also learning a lot. We are very enthused by what’s going on and the reaction to our collection. We are also developing collections and it is also new business for us.
Which segments of branded apparels will lead growth rates of 20-22 percent? In which segment do you see fastest growth? What will help you restore margins?
In any brand, as the scale goes up, the margins come. Today, Park Avenue and Parx is growing very well. Raymond is a large space where apparel segment is new in this. Park Avenue is much older apparel player, Colorplus is slightly slower. Ethnics, khadi are in first season. A mix of this is giving 20-25 percent growth.
What are your plans for the FMCG business. What are the opportunities here on?
I am a shareholder and a board member, so that question should be asked to that management team. Having said that, FMCG space is very excitingThe Park Avenue brand in FMCG business is doing very well. We are also working on high end perfumes which I am personally involved in. FMCG is a good space to be in. We have a whole team in place and we are evaluating how we can expand our space there. You need to get new products. We have launched a shaving foam and we are looking at various other products which we can launch. Because under the Park Avenue brand, we want to give a whole gamut of products.
Will the overseas market will play a big role in this strategy? You are in several South Asian and Middle eastern countries in terms of retail.
There are two parts to the overseas market – one is the middle east and countries around India where we have our own retail presence, we have our own shop and we sell as Raymond brand. The other is international market which is Japan, Europe, America which are three big markets and then there are smaller markets. We are very bullish on it and that’s why we have made large investment in Ethiopia. The more China and America fight, it is better for us. Ethiopia is the least develop country and if China becomes more expensive, Ethiopia will be better off.
You can scale up faster.
We have just set up in Ethiopia. It has been not been a year but just about 10 months since Ethiopia is up. The first signs are very encouraging. Ethiopia has also some political turmoil like PM has changed. So, it is a little bit of wait and watch. We have the facility. We’ve got manufacturing in Bangalore. It is continuing to happen. So, we are comfortable for the moment. Already, we are 4th largest suit manufacturer in the world.
So, you don’t see Ethiopia scaling up?
It is a plan, but I can’t give you a timeline.
You are at about 1,000 stores and more in the country, in 600 cities. How much there is more to do in terms of store strategy? How differently will you do it?
You have to keep re-evolving yourself. We did 100 budget stores in last financial year. Can we double it this year? There are different formats of store opening like Style Play. There is new Made to Measure concept which I am working on now. Once its ready. Even if I do 10 of them this year, I want to get it ready and see how it works. That is high ticket item. It is changing the perception. I don’t want to talk about it much and let the thunder out. But I am very excited in designing it and I am working on it personally. I can guarantee that there is no store like that in the world.
Will your retail strategy be store heavy? Do you think this will be the big store-led category or your online presence will start needing more attention?
More than online it is large format stores and multi brand outlets. We have got big thrust in that. So, your large format store are seeing the range. Slowly, we are getting entry in the outside of our store distribution. There is co-existence. Online is on but it is still not very large.
What percentage of your sales you do online?
I don’t think even 1 percent.
Apparel is the biggest category for all e-commerce players like Flipkart, Amazon.
But it is discounted. We never discount.
Isn’t that where some of the scale is?
We price correct, but we don’t discount.
From several years, you have made effort to get off many non-core businesses. Is there any non-core business that you call off?
Show me the money and everything is for sale. We are in the business of generating shareholder value. Every business is on sale for a price. I have never shy away from selling businesses. I have done it for 20 years. We are in the business of making money and giving shareholder the return. I am the largest shareholder. So, the more the money shareholders make, the more I gain. So, I am clearly in the business of creating shareholder value.
So, you will be willing to sell tools and hardware?
Yes, at a price. I have demonstrated in the past. I have no problem. Show me the money.
Are you actively seeking buyers?
I won’t comment on it but we are very focused on creating shareholder value and we will do whatever it takes to create shareholder value. If you look at the stock performance of last several years, you will see that the company is changed. I can’t comment on speculation, but the intent is clear.
Part of your proposal includes developing your Thane land.
We will do whatever it takes to create shareholder value.
Are you planning to do it with joint venture?
I am not liberty to talk of what we are going to do with the land.
One thing where the conversation is not died down on is the rift in the family with regards to situation with your father.
I am not at liberty to talk about it.
This materialize regarding dispute in this building.
I am not at liberty to talk about it because of court orders.
Does that put this building in the dispute?
Whatever is going on is in the public domain. I am not at liberty to talk about it because the court has forbidden me to talk about it.
So, after the shareholder meeting, it is the thing of the past. From the business point of view, is it thing of the past?
It never impacted the management of the business. It is issue at the corporate level.
You were quoted as saying that it is only after the transfer of shares has happened you will be able to translate your vision for this company.
In Marwadi it says, Dhani kaun hai? Who is the person who is impacted? Then you can take non-political decisions. The buck stops here. The goods and bad are mine. I have been there and done that. I have been associated with many images in my life, like motor racing driver, socialite, party boy, good time Charlie and whatever. I am okay with it and nothing to hide about it. I am in a phase of life where I want to make a name and create a company of legacy which will left back as a national asset. Raymond is national asset. We are only custodians of it.
We impact 20-25 million people a year with our products and we make them feel good. We are custodians of that. There is no insecurity today. Nobody can take my job. When this happens to you, you will realize that you will take different decisions which are non-political. To a great extent, the company is fully professional. We have very good advisory board in place. Even a company like our FMCG business, I have stepped off as a chairman. There is no insecurity that I have to hold on as a chairman. Mr. Rajeev Bakshi is chairman and we have outside directors. The company is professionally run. Similarly, in Raymond the board is getting restructured all the time. There is so much governance coming into place.
There is so much fresh input coming in and everybody is open to listening. I am only involved as much or as little as I am required. I have many other things in life which I am doing. So, I am enjoying it. I am also in FIA now which takes my time. I am trying to see how can leverage that to bring business to my group. There are very interesting things going on there. In 3 years, you will see something dramatically different. We are working hard at it.
Watch the full conversation here.