“And of course, the festivals are going to be very good because we are already seeing the early trends in our dealer franchise network. They are already asking about the product and saying the network that I have is spread over 600 cities. This shows very clearly that the demand for our products is going to be very strong. So we are quite optimistic about the entire wedding cycle and festival buying,” says Amit Agarwal, Group CFO, Raymond.
I would like to start with how you feel about the preparations for the entire festive season this time. I remember a conversation in 2021 and 2022 where he said, “Look, we are in for a great wedding season, a super Dussera and a fabulous Diwali and there was no looking back after that.” So are we in for a similar repeat, a great wedding season after Shradh, a good Dussera and a fabulous Diwali?
Amit Agarwal: I think I can reiterate the same thing again. As a country in India, we strongly believe in the festivals. We have a lot of purchasing power that goes into the festivals and then come the big weddings. And I think we are seeing very, very clearly that we have significantly less wedding dates in the summer. Most of the weddings have actually shifted to the winter and so we are quite optimistic about a strong wedding season. And of course, the festivals are going to be very good because we are already seeing the early trends in our dealer franchise network. They are already asking for the product and the network that I have is spread over 600 cities, which shows very, very clearly that the demand for our products is going to be very, very strong. So we are quite optimistic about the entire wedding cycle as well as the festival buying.

Your understanding of what you are sharing with us is crucial. While there are signs of some slowdown in urban India, in sectors like automobiles, you confirm to us that in the category you represent, namely branded apparel, shirts and suits, there is no slowdown at all.
Amit Agarwal: No, we have seen a significant slowdown in the last 12 months and if we look ahead, we see things recovering on a very strong basis. So clearly there will be a very strong recovery compared to the first half of the second half. And if you look at weddings, in terms of the wedding space, like Raymond, if I take the total wedding market for menswear, we have anything between 75,000-76,000 crore and if I take my retail value, it will be almost 5% of that. So we are enjoying that kind of market presence, market share in the wedding space, so that is also a good opportunity for us to get stronger.

The other thing I want to talk about is the brand diversification into the ethnic segment of the clothing you make.
Amit Agarwal: So if you look at it, weddings used to be typically one to two day affairs where people would typically wear a suit that was clearly our product that people would buy and then go to the weddings. Nowadays those weddings have gotten much longer, they’re between three and five days, and you wouldn’t wear the exact same suits for three to five days.

So people have started wearing Indian ethnic wear and for us it was a natural extension to expand into the ethnic space as well with a complete men’s outfit for the wedding. So we have opened over 115 stores across the country and this will be the first proper season where we will see a good response in our space because once again the franchises have been asking why don’t they keep this product with us as well or give me an ethnic wear franchise store so that I can complete the wardrobe for a wedding as well. I think that is something we have tackled. Our products are very popular, we source from over 20 different areas of the country and actually at a wedding you want uniqueness if I am wearing a particular sherwani or a kurta or something that has to be so unique that nobody in the whole circle is wearing the same so I think that is our main focus. And of course the quality is going to be very, very good. So we have a good response in the market.

But apart from that, do you think that the ethnic business actually has the potential to overtake the traditional suit and shirt business, as Nikunj pointed out?
Amit Agarwal: Actually, I don’t think it will be overtaken. But in terms of the increase in sales that we are seeing, I think it will be a much faster growth because we are planning to open more than 350 ethnic specialty stores because when you go for wedding shopping, you want a nice big store, maybe 1200-1500 square feet, and you don’t go alone, you have the whole family with you, at least four people. So you have to give them a proper overview. But it has a potential for very big sales, it can participate in that and that’s why we say when I look at the wedding segment, we clearly see that we can achieve between 12% to 14% year-on-year growth in the wedding segment over the next four to five years.

I want to understand the cash flow of Raymonds as the real estate business and other things are now separated. They have taken the real estate business off the balance sheet without taking on any debt but that business is being separated. The engineering business, I believe, will be part of the listed company which will ultimately be separated. So where is the cash flow of that business going because for the textile sector in itself, it is a very long cash flow or credit cycle that is always in play.
Amit Agarwal: So if you look at this, here’s what we’ve achieved: earlier, in the lifestyle business, we had a working capital of 110 to 115 days. We worked very hard, especially during the COVID pandemic, and after that, we were able to reduce it to about 60 to 65 days.

Currently, we always see higher working capital in the first half because that is the time when you manufacture, you get the stores and all your products ready so that in the second half of the year the sales can happen. So I think on an average you need between 60-65 days of working capital. But the big advantage is that last year in the lifestyle business we did EBITDA of 1100 crore.

Well, even if you have to see that with the expansion, with the 12-15% revenue growth in this business, you don’t need to borrow money because what we have done with the spin-off is we have made this company net cash positive. Based on that and the substantial cash flow that is being generated, there is no significant capex except for the apparel export business. We have a small capex of 200 crore, otherwise we don’t have a huge capex.

So we don’t see any real challenge in taking on debt or anything like that. Rather, it would be a company that generates significant free cash flow and would continue to operate at a total return of over 30% in the future.

(You can now subscribe to our ETMarkets WhatsApp channel)