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“Raymond Q2 FY 2016 Investor Conference Call”

October 29, 2015

ANALYST: MR. SREEKANTH P.V.S. – ANTIQUE STOCK

BROKING LIMITED

SANJAY BEHL:

MR. M SHIVKUMAR – CHIEF FINANCIAL OFFICER-

RAYMOND LIMITED

MR. SANJAY BEHL – CEO OF LIFESTYLE BUSINESS-

RAYMOND LIMITED

MR. VISHAL JAIN – HEAD INVESTOR RELATIONS-

RAYMOND LIMITED

MS. SEEMA KHATRI – INVESTOR RELATIONS-

RAYMOND LIMITED

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Moderator: Ladies and gentlemen, good day and welcome to the Raymond Limited Q2 FY 2016

investor Conference Call, hosted by Antique Stock Broking Limited. As a reminder all

participant lines will be in the listen-only mode and there will be an opportunity for you to

ask questions after the presentation concludes. Should you need assistance during the

conference call please signal an operator by pressing “*” then “0” on your touchtone phone.

Please note that this conference is being recorded. I would now like to hand the conference

over to Mr. Sreekanth PVS. Thank you and over to you Sir!

Sreekanth P.V.S: Thank you. Good evening ladies and gentlemen. On behalf of Antique Stock Broking, I

welcome you all to Q2 FY 2016 post results conference call of Raymond Limited. I take

this opportunity to thank the management of Raymond for the call. I now hand over the call

to Mr. Vishal from Raymond Limited. Over to you Sir!

Vishal Jain: Thank you Sreekanth. Good afternoon everyone and thank you for joining our Q2 FY 2016

earnings conference call. I hope all of you would have received a copy of our results

presentation and for those who have not it is available on our website www.raymond.in

along with our investor relations policy. I would urge you to kindly go through this along

with the disclaimer slide. We have with us Mr. Shivkumar, CFO, and Mr. Sanjay Behl –

CEO of Lifestyle business. I will now hand over to Shiv before we open up for Q&A. Over

to you Shiv!

M. Shivkumar: Good afternoon. Thank you for joining us. The second quarter of financial year 2015-16

witnessed subdued consumer demand with extended end of season sale for the Diwali

festival is delayed by 20 days this year compared with last year.

Our consolidated Sales for the quarter grown by 3% to Rs.1492 Crores, EBITDA for the

quarter declined by 18% to Rs.149 Crores and the margin stood at 9.9%, decline in

EBITDA is on account of higher ASP spends Rs.12 Crores, sustained investment in retail

network expansion and store renovation Rs.12 Crores, besides under performance in the

engineering businesses about Rs.8 Crores.

During the quarter, we have made a provision of Rs.32 Crores towards impairment in the

carrying value of the forging business assets held through auto component business. This

has been reported as an exceptional item and being a non-cash item, it does not have any

impact on our business.

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Our consolidated net profit for the quarter stood at Rs.9 Crores vis-à-vis Rs.68 Crores in the

last year.

Our consolidated sales for the half-year ended September 2015 have grown by 2% to

Rs.2601 Crores. EBITDA for the half year declined by 10% to Rs.220 Crores and the

EBITDA margin stood at 8.5%. Our consolidated net loss for the half-year ended stood at

Rs.4 Crores compared to profit of Rs.35 Crores in the last year.

Capex for the half year stood at Rs.169 Crores comprising of Rs.90 Crores towards

capacity expansion in Denim and Shirting business. Rs.28 Crores toward acquisition of

Robot System which is the garmenting business in Bangalore and the balance pertaining to

store rollout and maintenance capex.

Our net debt during the quarter increased by Rs.320 Crores and stood at Rs.1744 Crores

and net debt equity stood at 1.14. Increase in debt is partly due to capex of Rs.169 Crores

and partly due to increase working capital requirement phenomenon, which is temporary

due to season build up of inventories.

Our net working capital levels increased marginally and stood at 119 days as against as at

September 2015 compared to 116 days last year. Our annualized ROCE for half-year ended

September 2015 is about 7.8% compared to 9% last year.

Business performance, coming to individual business performance in the branded textile

segment sales during the quarter has remained flat at Rs.697 Crores, B2C Shirting Fabric

continues to gain traction and grew 15% during the quarter led by volume growth of 9%;

however Suiting Fabric business declined marginally by 1% due to volumes.

Export constitute 14% of sales, EBITDA margin declined by 1.1% to 18.5 for the quarter,

margins were impacted due to increased proportion of B2C Shirting, higher promotional

expense and sustained investments in retail, renovation and brand building.

In the branded apparel segment we have seen topline growth of 16% during the quarter led

by growth across all brands, our formal brands PA and RPA has been given good traction

and grew during the quarter in excess of 18%.

Raymond MTM has been gaining good traction and grew by 38% to Rs.12 Crores during

the quarter As of September 30; we have 106 MTM stores including 65 Shopping Stops

compared with 82 as of September 2014.

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Blended sales across secondary channel, EBOs and LFS during the quarter grew by 15%

year-on- year. Our e-commerce sales through online channel partners have been to the tune

of about Rs.6 Crores during the quarter. Loss at EBITDA level in the branded apparel

segment is due to investment and retail network expansion especially MTM besides lower

gross margin.

Coming to the retail channel our exclusive growth network of stores stood at 1017, like-to-

like secondary sales growth has been 6% during the quarter. Secondary sales throughput

across the entire network of stores grew by 11%. During the quarter, we opened 17 stores

and closed 15 nonperforming stores on a half-year basis we opened 37 stores and closed 23

stores. We completed 10 stores renovation during the quarter, additionally 24 stores are

under renovation as at September 30th with 51 stores having been renovated till date since

July 2014Same stores sales growth for stores post renovation has been in excess of 25%. At

the end of this fiscal year we expect to complete renovation of 100 stores, which we set out

to during July 2014.

Garmenting segment grew by 5% to Rs.158 Crores led by higher volumes, EBITDA grew

by 7% to Rs.17 Crores due to higher capacity utilization, acquisition of Robot Systems with

capacity of 1.26 million pieces per annum was completed on September 10 for total

consideration of Rs.28 Crores.

B2B Cotton Shirting business grew by 22% to Rs.130 Crores led by volume growth in the

domestic market excluding one of income of Rs.6.4 Crores towards electricity duty refund

for the same period which we received last year, EBITDA improved by 14% to Rs.13

Crores, capacity expansion project of 10 million meter is on track and we expect to

complete it by end of December.

Our Denim business degrew marginally by 1% to Rs.231 Crores; however, EBITDA

improved by 12% to Rs.27 Crores due to lower cotton prices, capacity expansion project of

9 million meters is on track and expect to complete it by March 2016.

Tools and hardware segment performance has been impacted due to subdued domestic and

export market. The auto component segment performance has also been impacted due to

unfavorable product mix depreciating euro and loses in forging business.

To sum up, we are hopeful of improved performance in H2, we remain confident about the

strategic direction of our business and will invest for growth through brand building,

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modernization, expansion of retail network and also capacity expansion on the export

driven business.

Thank you we are now open to questions.

Moderator: Thank you. We will now begin the question and answer session. Ladies and gentlemen we

will wait for a moment while the question queue assembles. The first question is from the

line of Resham Jain from B&K Securities. Please go ahead.

Resham Jain: Thank you Sir for the opportunity. Sir I have few questions on Worsted fabric business. Out

of the total 38 million meters what we have in Worsted fabric, what is the total capacity

utilization currently?

Sanjay Behl: 100%.

Resham Jain: What is the capacity utilization in worsted fabric business?

Sanjay Behl: 100% close to everything, by every, all three factories are running three shifts a day, 365

days a year.

Resham Jain: Okay and out of the total worsted fabric sold by Raymond out of that how much is in house

and how much is outsourced?

Sanjay Behl: Are you talking worsted fabric about?

Resham Jain: Worsted fabric.

Sanjay Behl: Worsted is blend of a polyester and woolen fabric.

Resham Jain: I mean suiting fabric sorry?

Sanjay Behl: In terms of suiting fabric there is varying capacities in varying amount of processes that we

have, so we have about 35 million meters of finishing capacity, so out of the 43 to 44

million fabric that we do in a year about 35 million meters finished inside Raymond and the

rest is finished outside Raymond and that could be either traded goods that we would

import either from any part of the world or would be finished outside Raymond, which is

largely PV fabric. In terms of spinning, our capacity is close to 22 million meters, so you

can say 50% of spinning of Raymond textile fabric which is a suiting fabric, which is sold

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and done in house. Varying capacities are between 22 and 35 million meters in terms of

dying, in terms of finishing, various processes.

Resham Jain: Right and any pressure you are seeing in the margins of suiting business especially what we

are hearing is that there are lot of imports which is happening at a much lower price than

the Indian players anything for Raymond specifically, which need to be?

Sanjay Behl: One thing which is worrying us, our space has a potential risk in the category is the extent

of import, which is happening from or I would say dumping, which is happening from of

Chinese fabric in India and that is coming at far lower end. They are coming through

various routes, because India has a duty on the Chinese import to about 30% or so, in this

space it comes not through direct channel, but finds its way via Bangladesh and then that

does impact the overall realization from the market for various suiting, so that is one

component which is there, other than that it is not the alarming trend, whether it is an Italian

fabric, which is available in India or a apart of European Acoustic fabric which comes to

India from various channels it is more or less okay, but I think this whole increase that we

are seeing currently is on the, typically the lower to medium belly market and thankfully

Raymond does not have a strong presence there, but it does get impacted even then, which

is at the lower in the medium belly of the market where we are seeing some re-routing of

Chinese fabric either through some other means or via Bangladesh.

Resham Jain: Thank you Sir.

Moderator: Thank you. The next question is from the line of Nihar Shah from Enam Holdings. Please

go ahead.

Nihar Shah: Sir, just a couple of question from my side, you know, can you may be give us some

qualitative or quantitative data points on, what has been the delay of Diwali impact on the

results and if I have to sort of normalize for that, how the results might look?

Sanjay Behl: Qualitatively the feel is that typically we would work on 45 days prior to Diwali in terms of

dispatches for Diwali season, so last year Diwali was on October 22, most of the September

would have got consume with high value fabric full price sales for Diwali being dispatched

by the end of quarter two, in this case, half of the benefit will come in September about half

of that will go. But I cannot give a quantified guidance on this specifically because it totally

depends on order to orders and channel member to channel member there, but it does have

a reasonable impact for company like Raymond which does have a little higher seasonality

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compared to industry when it comes to Diwali and wedding seasons. So that would be good

qualitative feel that it have a reasonable impact on that and that impact you would now see

coming up in this quarter.

Nihar Shah: How have you seen sort of the early indications from the festival season compared on a

year-on-year basis?

Sanjay Behl: I think the festivity started early October on the sense of that we saw traction, retail traction

was towards sharp during October 12 or 13 period in India and then really building up from

thereon. So second week October we have started seeing a pickup in retail footfall. A retail

footfall has picked up by anywhere between 12% and 15% across the country for our kind

of industry. So this is the third weekend we witnessed most sharp spike in retail footprints.

Our observation is that it has achieved a double-digit growth for almost entire business at

least consumption led businesses.

Nihar Shah: So it is a double digit same store sort of sales growth that we sort of expert at least for Q3?

Sanjay Behl: Yes in terms of pre-Diwali that is the kind of impact whether it redeems post Diwali for

another six to eight weeks we do not know but we can say that three weeks prior to Diwali

every weekend we should expect we had about three of them and we will have another one

or two big weekends coming up. So we are having about a double-digit growth in both

footfall and consumption.

Nihar Shah: My second question is just a data point. Just wanted to get an idea of what is the capex plan

for the second half of the year and then may be if possible even for next year?

M Shivkumar: We also said at the beginning of the year we will be somewhere about across the group will

be 250 to 275 Crores and I still maintain that at this point of time.

Nihar Shah: So the second half in terms of capex intensity is a little bit lower than the first half of the

year?

Sanjay Behl: Primarily because shirting is over, which is the large capex which was planned. 150 Crores

of expansion was towards shirting this year and I think that as Shiv has indicated in the

opening statement that by December we would have got full capacity commercially kind of

started. So that is a phasing issue no more than anything else. I think its going to be within

the region of 250 to 275 Crores is what was the earlier guidance.

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Nihar Shah: My last question is once the 100 stores that you are planning to renovate sort of ends by the

end of this year is there a plan to sort of pause and consolidate or do you want to sort of

continue with that going to may be next 50 or 100 stores as well?

M Shivkumar: Sanjay, I will just take this question. I said 100 this is beginning. This is we are referring to

the renovation of the existing store Raymond Shop we have completed 51 stores & 24 are

renovation the balance 25 will happen in H2 that is how it is makes up to 100 for the year.

Nihar Shah: Beyond that 100 that do you wanted sort of see how the performance of the renovated

stores sort of sustains or do you have enough data points to say this is been a good strategy

and you would like to continue and sort of expand the renovation plant.

Sanjay Behl: Shiv did mention the like-to-like store growth of upwards of 25% and this is the data for 51

stores ranging from a year to six months growing a 25% like-to-like. Sales growth is

definitely a strategy which is working because initially when we started we had a three-year

plan to do 250 stores at a guidance of 15% like-to-like that is how the business model was

built in. The biggest 100 stores knocked off in the first year of our renovation plan out of

the three years and we get 25%. So there is every reason for us to really feel confident

about the kind of growth we are getting and continue with this program. So we see us

continuing next year with almost similar amount of exertion about 25 to 30 stores we got on

average per quarter but it does not get phased out equally every quarter because of the lean

periods which are two out of the four quarters for us. Specifically we would look at about

60 to about 80 stores in a year happening for the next two years beyond next year.

Nihar Shah: Thank you so much and good luck for the quarters ahead.

Moderator: Thank you. The next question is from the line of Ali Asgar Shakir from Elara Capital.

Please go ahead.

Ali Asgar Shakir: Thank you Sir for giving me the opportunity. First of all Sir just wanted to understand in

your apparel business what is the quantum of EBITDA loss that is due to the MTM

business as well as ad expense increase and a follow up with that is that what is the

breakeven point in terms of the store count or revenue base where MTM will turn

profitable?

M Shivkumar: The first one the MTM is about 10 Crores and on other & 7 crores on account of margin

because of the season related sales we had discount season and all that. The total shrink has

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been 12 Crores profit versus 5 Crores loss 17 Crores. So 10 Crores is explained in the form

of MTM and balance some extend of stores, something on margins and also expansion all

put together.

Ali Asgar Shakir: If I got the amount right 10 Crores is the loss due to MTM you said right.

M Shivkumar: Yes that is right.

Ali Asgar Shakir: Ad expenses and what did you say I did not get that point is?

Sanjay Behl: Gross margin, 7 Crores additional that is the swing component filling into the shipped

number is on account of three things. It is very minimal on account of A&P increase in

apparel business, it is largely on account of extended EOS sales, combination of channel

mix and the product mix. These are the three things which have contributed to about a

percentage and half dilution in operation margins for the business that is about 7 Crores

there. The second question was about MTM and you said we have bought 100 stores and at

what level of stores do we see a breakeven is that your question?

Ali Asgar Shakir: May be revenue however you look at it where do we see what would be the point where we

think that we will breakeven.

Sanjay Behl: I think a lot of times breakeven is a little bit the management call more than a market

condition because if we say that okay we are happy with the kind of elasticity or the extent

of critical mass for this business we can always control our investments and operating

expenses and make the business breakeven but considering as to where we are looking this

business to grow, we will continue to invest for the next two years in retail expansion, in

brand building, in product investments there this 100 stores will look more like a 250 kind

of a store mass before it really starts kicking on, because the idea or the internal operating

strategy is to build scale for this business, primarily on account of three, four factors. One,

it is the highest realization for Raymond at this point of time and It will continue to be so

because it is totally positioned at the premium end and average selling price of the suite is

of upwards of Rs.30000 for Raymond Made to Measure. So that is really is a huge benefit.

The second thing strategically which complements this business and a reason why we are

investing so aggressively in this business is we get benefited by the value chain model from

the fabric end to retail end. So a lot of stock actually which get converted into Made to

Measure on a body of the customer is actually Raymond fabric whether it is a suiting,

trousering or a shirting fabric so you get a value chain margin advantage as a second

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benefit. The third benefit is that retail expanses are optimized on a very large universe. So

to that extent my fixed cost remaining same and variable cost getting benefited in terms of

my company owned and company operated outlet at least to start with itself is a huge

benefit of optimizing for the square feet area that I have already in my exclusive brand

stores. So there are these fundamental reasons why we are saying that this business needs to

be scaled up like any business and you would agree that which has a 50% to 60% gross

margin profile if you want to breakeven we can just decide that okay this is the point at

which we want to stop spending for the retail expansion and we want to pretty much start

juicing and milking that current portfolio and we will make it profitable but that is not at

least at this point of time. So if it is a guidance that you are seeking you are looking at

anywhere between four to eight quarters before you start seeing a reasonable amount of

breakeven margins approaching for the business because that is when we would have

reached a critical mass first level scale that we want for this.

Ali Asgar Shakir: This 250 stores that you said as a target that should be achieved in the next four to eight

quarters I mean what should be that timeframe?

Sanjay Behl: It is exactly four to eight quarters. We will be adding 25 to 30 stores a quarter and it would

take us at least six quarters if not less to add 250 stores.

Ali Asgar Shakir: The next question I have is on your store addition. So there is a healthy store addition of 17

stores but the net increase has been flat due to the 15 closures. So in that context how do

you see our retail expansion strategy taking shape?

Sanjay Behl: In fact I am actually encouraged to see that number because what we are doing is we are

really pulling down the tail very, very aggressively and in fact we have come down to the

end of the tail now. The guidance that we are working on if any stores which is more than

two years into operations we want to work out a 90% to 95% stores to be profitable unless

there is a very specific reason for it to have a value for the store to exist at an operating loss

and there is some other way to compensate in terms of justifiable return from the store so

clearly while you seeing this aggressive number and you will see not just this quarter but

actually take the last six or eight quarters, this number would be upwards of 100 stores that

have been shut down, which is really the tail have been completely kind of taken away and

this number will progressively keep coming down. So the net delta that you would see of

net store addition will go up because the topline number of new store will go up and the

bottom store almost kind of cleaned up now.

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Ali Asgar Shakir: How do you see the growth outlook in your textile business? Would you attribute a

weakness in textile business to the sharp industry shift towards readymade garment which

would imply downward trend to continue or is this quarters low growth more only due to

Diwali shift and we can expect better growth in coming quarters?

Sanjay Behl: It is not a straightforward either or kind of an answer. I think a combination of both and lot

more what you said but just to put it simplistically for this call, I am not as respondent on

textile as in sectoral shift that you talked about. I think textile business has a significant

amount of leverage to be exploited from Indian market perspective and I am not saying

quarter-to-quarter, I am talking about sectoral perspective here. So even in long-term I see a

lot of growth still there because the value of textile as a competitive price value still

continues to be far more favorable than apparel. There are other reasons why apparel will

continue to be a majority part of the wardrobe and will continue to grow in Indian

consumption story by a strong double digit and we are also party to that growth with our

portfolio brands but textile growth will be aided by apparel growth since we are the

preferred fabric supplier given our manufacturing capability and continuing to grow to

cater internal demand as well as the external industry demand. Then there are Made to

Measure kind of propositions which are growing and can take a lot of feed into suiting

fabric inside that business then there could be custom tailoring that is really handled with

the kind of stores retail footprint that we have, it is only Raymond which has over 800

Raymond Shops with tailors inside the shop is a proposition. So if we can close that

proposition well then there is still a huge amount of fabric value yet to be exploited. So that

is on the generic level answer to the question that you said on readymade versus fabric. On

specifics going forward do you see an improved performance going forward with festivity

Diwali kicking in the answer to that is yes. The quantum of that we cannot of course at this

point of time provide you on this call but we do see some upside coming because of one

Diwali, second wedding season in India, which is a fairly prolonged wedding season, which

is going to start starting November. We do see some positive upside to this business.

Ali Asgar Shakir: Just last bookkeeping question, if I may just slip in. What is the net revenue impact of the

stores under renovation during this quarter after adjusting the 20% like-to-like growth that

you see in renovated stores? Sir I am saying that because of the amount of stores that have

remained closed during this quarter on a YoY basis?

Sanjay Behl: Net revenue it is still in double-digit positive revenue growth because what get shutdown it

is only 2% of the total stores and what is growing is a very strong part. So 100 stores

contribute to about 25% of revenue the one which or the 50 stores contribute to about 15%

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to 20% of the revenue of the total retail universe growing at 25% plus and what is shutdown

is only 2% of the total store. So net impact is still extremely positive. In fact this is the

higher year of the retailed growth in Raymond on both like-to-like and overall store level.

Ali Asgar Shakir: Thank you.

Moderator: Thank you. The next question is from the line of Anita Rangan from HSBC Asset

Management. Please go ahead.

Anita Rangan: Good afternoon. Just wanted to know in terms of the tools and hardware and auto

component business I mean what is the visibility because already you have taken

impairment on one assets and it is actually being a drag on the overall consolidation

performance. So at some point are you looking at divesting this business or selling it and

realizing value? How do you plan to take this forward because you said typically non-core

for the existing textile business?

M Shivkumar: There are two things. One is Tools & hardware and Auto component. What we have taken

decision for impairment is one part of the Auto component r the other part of the auto

segment business is intact; having said that we have got its own problems on account of

export front and also the depreciating Euro. Euro used to be about 85 and now it went to 65

now about 71 that is part of the issue. Apart from that there was a demand pull down in

most of it so it will take about eight quarters before it comes back to its original growth

trajectory.

Anita Rangan: Sir there is no plan to like sell this business or like divestment or anything like that?

M Shivkumar: We always look at shareholder value all the time non-core has also stated those businesses

which are not which are profitable it cannot scale up or those which are not profitable we

will consider divesting.

Anita Rangan: Thank you.

Moderator: Thank you. The next question is from the line of Dhruv Brijka from Crescita Group. Please

go ahead.

Dhruv Brijka: Thank you for the opportunity. I would like to ask that the cotton shirting business, which

will be expanded to the tune of 10 million meters capacity how are you planning to fund

what, is the funding metrics for it.

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M Shivkumar: We have funded through the banking channel and lot of it is available through the loan

mechanism, which gives us substantially lower interest cost for the funding.

Dhruv Brijka: If you can just give me a number what is the percentage of loans or the internal accruals

that has been taken into account for this?

M Shivkumar: The loan is going to be whatever we spend 80% of it will come under the TUF scheme and

TUF scheme has got subsidy both with respect to capital subsidy and the interest rate

subsidy. So for the loans that we are talking about these loans come at about 5% lower than

the rate that we would have normally taken in the other process and balance are all internal

accruals.

Dhruv Brijka: Okay the rest is internal. What is the total amount, which has been put into this capacity

expansion?

Vishal Jain: We are looking at spending somewhere close to around Rs 130 to Rs 150 crore depending

on the project going on. So that should be the size of the project.

Dhruv Brijka: Similarly for the Denim expansion that you have planned 9 million meters till March 2016

what is the total expansion in terms of like if you put that?

Vishal Jain: For that we would be spending close to Rs 100 to Rs 120 Crores.

Dhruv Brijka: Would it be same like for the cotton shirting the metrics distribution?

Vishal Jain: Yes.

Dhruv Brijka: Just one more thing if I did not get the numbers of for the store additions for this quarter,

was it 70 store additions?

Vishal Jain: During the quarter basically we added 17 stores and during H1 we added close to 37 stores.

Dhruv Brijka: Okay 17 that is 17 right.

Sanjay Behl: Yes.

Dhruv Brijka: Thank you so much.

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Moderator: Thank you. The next question is from the line of Mahantesh Maralinga from Finquest

Securities. Please go ahead.

Mahantesh Maralinga: Good afternoon. Just had a couple of questions. Just clarify that on the decline sales was

mainly partly due to the shift in the festive season from October onwards to November in

the textile business. Is it the reason for a slowdown in sales?

Sanjay Behl: It is one of the reasons.

Mahantesh Maralinga: Because it was they growing at a healthy Q4 FY 2015 at around 22% to 26%. The last two

quarters in Q1 and Q2 the growth rate has sharply come down to 5.3% year-on-year and

negative in Q2. So just attribute to few factors that is the reason for that?

Sanjay Behl: That is one of the reasons. The other big reason is also that we have changed I think this is

what we talked about last quarter also that we are looking at profitable mix more than a

volume and a revenue both right now. The focus is actually shifting to overall profitability

and for that we have discontinued a lot of low value lines of segments we have

discontinued as product categories that is also impacting.

Mahantesh Maralinga: But your margins have been remaining at the same level instead of discontinuing the low

margin products?

Sanjay Behl: I think the shirting business and the blend between shirting and suiting business if you see

the shirting business has grown 25% in first half and suiting business is actually been under

marginally down. Shirting business has lower ASP and the gross margin compared suiting

business. So again what is the right picture is the absolute margin rather than looking at the

percentage gross margin that has grown by 7% in first half.

Mahantesh Maralinga: Which margin grew by 7%?

Sanjay Behl: Fixed margin at absolute level has grown by 7% in H1 compared to the percentage gross

margin if you look at obviously it will have a mix impact of shirting and suiting.

Vishal Jain: So basically if you look at the absolute EBITDA for H1 versus last year it has grown by

7%.

Mahantesh Maralinga: Okay it is 100 basis points or 7% points.

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Sanjay Behl: 7%

Mahantesh Maralinga: Coming to the brand Apparel segment it has been weak for the past two quarters. So it is

mainly due to the advertising a store rollouts or due to the weakness in the consumer

sentiment and the lower discounting or higher discounting of that?

Sanjay Behl: Apparel segment the story is for getting a higher than the industry rate of topline growth.

Last quarter and this quarter if you see it has grown at 16%, H1 has grown at 17%. This is

significantly ahead of the revenue growth profile of branded segment players in Apparel

industry. All the four brands have grown double digit this first half. Park Avenue has grown

by 25% in first half. Raymond has grown by 20% in first half. These are significantly

higher topline growth, which means consumer acceptance of our brand extremely high.

ColorPlus has grown 10%. Parx has grown 11%. So all our apparels brands have grown

double digit. Now looking at the operating margins the reason has already been explained

in terms of reconciliation is the combination of factor. One is continued investment in retail

which has already been talked about partly coming on Made to Measure account, partly

coming on account of the renovating ColorPlus, Park Avenue and expanding our retail

universe and this strategy is not going to change. So you should not expect a very dramatic

shift in overall Apparel mix of performance in the next four to six quarters. The story will

continue to be a strong double-digit growth and in terms of continued investment whether it

comes in retail, brand, channel that we will continue to make. So to me I think it is a

strengthening of performance if you look at a little longer term perspective from Raymond

perspective from 2008-2009 to 2013 as one period of helping the last six quarters, this is the

eighth quarter or seventh quarter of strong double digit growth across all four brands for

Raymond Apparel portfolio. So that is significantly healthy kind of sign in terms of

consumer acceptance of a product. Managing margins I think is going to take sometime in

terms of giving you the return on this investment in this investment we think strategically is

the right thing to do in retail expansion, in renovation of retail, in brand building, which

will continue to grow over the next quarters.

Mahantesh Maralinga: But when do you see some meaningful margins coming out of the business I mean at least

around 3% to 4%, 6%?

Sanjay Behl: Meaningful margin you take a competitive benchmark and if you take any of the

competitive benchmark they came at a revenue scale of 1.5 to 2 times of where we are.

There are companies which are market leading companies that took 20 years to get you

even positive EBITDA or operating margins and as we are talking about Raymond with the

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strong brand portfolio. So to me I think a meaningful margin is that is what we are looking

at in our Apparel segment separately. We are in the current phase of building our Made to

Measure business. We are in the current phase of building Raymond critical mass we are

very strong on Park Avenue and formal segment however we feels that there is going to be

growth. So I would say pretty much four to six quarters you should take before you can get

substantive margins

Mahantesh Maralinga: So from Q1 FY 2018 you are looking at some profits being made from your business?

Sanjay Behl: In terms of gross margin profile it is already one of the healthiest in the country than any

brands.

Mahantesh Maralinga: In terms of EBITDA I am talking of?

Sanjay Behl: EBITDA is a decision, again as you want to get from the fact is management decision but

you are right it take up at least four to six quarters from today.

Mahantesh Maralinga: Broadly if I take a timeline it will be around Q1 FY 2018 alone whereas you can see some

margins coming in from the businesses?

Sanjay Behl: In terms of substantial margin yes you can say that it could take 1.5 to 2 years.

Mahantesh Maralinga: Coming to the brands sales can you just give me the actual numbers from the different

brands this quarter?

Sanjay Behl: In terms of real actual absolute growth?

Mahantesh Maralinga: Yes absolute value.

Sanjay Behl: It was 146 Crores for Park Avenue, 76 Crores of ColorPlus, 64 Crores of Raymond Apparel

and 43 Crores of Parx.

Mahantesh Maralinga: Okay 146 Park Avenue, 76 ColorPlus, Raymond Apparel 64 and Parx 43 right?

Sanjay Behl: Yes 329 Crores totally.

Mahantesh Maralinga: Okay and coming to the impairment like going ahead do you see any impairment from the

other part of the auto business also coming into play or these are only core that you saw

some impairment there?

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M Shivkumar: We will not have any more impairment based on the current business viability and

sustainability of margins there is nothing further we may need to provide for it.

Mahantesh Maralinga: Coming to the ad spends just quantify the ad spends in H1 this year and H1 last year?

Vishal Jain: So the ad spends are actually gone up by 29 Crores to 110 Crores in H1 this year.

Mahantesh Maralinga: So 29 Crores higher than last year right.

Sanjay Behl: That is right.

Mahantesh Maralinga: If you take quarter-to-quarter and since Q2 to last year Q2.

Vishal Jain: We are up by 12 Crores.

Mahantesh Maralinga: What was the ad spend in Q2?

Vishal Jain: 56 Crores.

Moderator: Thank you. The next question is from the line of Rahul Khandelwal from Systematix

Shares & Stock Brokers. Please go ahead.

Rahul Khandelwal: Sir I just want to know more about the Robert Systems expenditure that we have made what

is it for and how are we utilizing that?

Sanjay Behl: I will tell you what is it is for in terms of utilizing the specific numbers, I think Shiv has

already told you the consideration value 28 Crores has been made. That is called Silver

Spark, which is subsidiary of Raymond. It has been done to expand our capacities of suiting

and jacketing capacity by another 1.2 million units per year. This capacity makes us the

largest manufacturer or largest converter when it comes to jackets and we will have the

largest capacity in India. Most of this capacity is currently we are servicing the internal

Raymond demand but a very large portion of this is actually for export purposes.

Rahul Khandelwal: When you expect these to start contributing to revenue?

Sanjay Behl: Started already running facility. September so this month it will contribute already.

Rahul Khandelwal: Any advice on the raw material cost especially in cotton because I know it is pretty low

currently going ahead do you still expect these to stay similar?

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Sanjay Behl: Commodities I think cotton is a pretty much as you rightly said has already come to the

crux there and it is likely to say in the second half. So our estimate is pretty much in the

same guidance of first half will sustain. We do not expect it to bounce back to or increase

any further and so is our guidance for raw materials like wool or polyester. Quarter cost are

the guidance for our second half also.

Rahul Khandelwal: Okay and just a last question on the e-commerce. Any guidance on whether you are

planning to enter into e-commerce or how you are planning to contract against that?

Sanjay Behl: We are present on all the top market places today. We have all the five of them in fact if

you take whether it is Snapdeal, Amazon, Flipkart, Myntra, and Jabong you will find entire

Raymond portfolio products placed and positioned across all these marketplace players.

Quarter two we had six Crores sales coming from e-commerce and we can pretty much take

a nominal growth given that we are not discounting our portfolio on these sites and we are

continuing to maintain our market price. You can take a nominal growth on this number

and then calculate whatever is going to happen as we go forward.

Rahul Khandelwal: Thank you so much.

Moderator: Thank you. The next question is from the line of Abhishekh Rangnathan from Ambit

Capital. Please go ahead.

Abhishekh Rangnathan: Thank you for taking my question. Couple of them; one is on the

inventory in which side have we seen the inventory build up which side of the business is it

textiles, fabrics B2B?

Sanjay Behl: It is actually more on side of textile because the dispatches, which typically would be high

value dispatches, would get off to with Diwali season there. So something, which happened

in last year September, is likely to happen more in October. So, just a marginal difference

not much.

Abhishekh Rangnathan: Actually if you look at the standalone textile, standalone balance

sheet reflects a higher jump in inventory than the consolidated. That is where my question

came from. Other way round actually standalone is just minimal the standalone jump is 35

Crores the surplus in the other subsidiary?

M Shivkumar: It is also Apparel. Because in the working capital in inventory specifically in the Apparel

business for the upcoming season.

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Abhishekh Rangnathan: So it is a festive season build up?

Sanjay Behl: Yes festive season build up.

Abhishekh Rangnathan: The second thing on MTM. So you mentioned that MTM made

losses for this quarter or opening of stores we are continuing opening of stores and MTM

contribute to losses. You added about some four or five stores this quarter. So is that the

reason or the entire portfolio of store is not actually not really contributing profits at this

point of time?

Sanjay Behl: 70% of the store portfolio is under one year. So it is like it is not these four stores, which

have contributed to such a massive loss, and this stores which have come up a quarter

before, two quarters before, three quarters or four quarters before because it will take some

time they will end up making money for us. So typically a store benchmarking would take a

two to three year or operating breakeven kind of benchmark for our kind of industry is

considered to be present so I think 70% of the MTM new stores have come up in the last six

quarters and are still yet to be profitable.

Abhishekh Rangnathan: In terms of your roadmap of 250 stores on EBO side after 250 stores

what? I mean you mentioned that you want to benchmark with a competition here after

adding 250 stores from year on you will be around 450 to 500 Crores or may be after

conclusion you will still pay around 450 stores. Is that the scale you want to reach? Is that

the network of EBOs, which you aspired to have across the brands. What is the target,

which you would want to actually get the brand on far, or almost the same size that

benchmark competition etc?

Sanjay Behl: These benchmark of competition I do not think physical store is the only possible way to

really reach there. So there is no ways that we have benchmarking about number of stores

to competitors to reach the sales. We are looking at the first cut in the first two years, three

years which is we said by 2018 and kind of number you have mentioned is the right number

that is where we would like to reach and we would like to then parallelly we are working on

the digital commerce as a channel and as a provider to meet specifically Tier IV, Tier V

town kind of requirement. So we are looking at a customized omni channel model and I use

the customize as a prefix to that because we will have to really have our own kind of flavor

of what kind of omni channel balance do we need for our industry and specifically for suite

of products and services and I think is not just a store alone and it is going to be the digital

commerce. It is like one of the services if you go and book your appointment for Made to

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Measure in which you have what we call it a concierge service where you actually book an

appointment and we reach to your place of convenience and your time of convenience, your

place of preference to take your measurements and to deliver that to your place or

preference whatever the way you call it. So there are one of the other services, other retail

avenues reaching through with the Smartphones, through Tab, through digital platforms or

through things like book an appointment and we will reach you instead of you reaching us,

which also will build a tremendous amount of penetration for our kind of products services.

So it is not a strictly comparable portfolio that Raymond has with most the competitors. So

we are really projecting forecasting about where are we likely to kind of head versus other

people. Our objective is definitely not to match the numbers of competitors when it comes

to number of doors but definitely the throughputs from our doors as well as other revenue

that are possible in this digital age we would exploit everything and see what is the best

blend and the most cost effective blend for us to reach most of our customers and the target

group, people.

Abhishekh Rangnathan: The reason I asked is that we do not necessarily have to open any

more stores thereafter. I thought the idea was actually to build your own store portfolio and

then actually get into franchising piece, which you are very familiar with as a business. So,

any ideas of franchise EBO network is what I was actually trying to get to.

Sanjay Behl: That is the part of businesses also. Even this may be still part of franchisee. Physical reach

could be company owned as well as franchise owned both, even now in these stores we are

building all these numbers that you are looking at half of them are franchise only, even new

stores we talked about.

Abhishekh Rangnathan: Again 250 odd stores which are going to open and half of them are

franchisee?

Sanjay Behl: Easily, we may not know.

Abhishekh Rangnathan: One number which I misses the capex breakup if you could actually

share what the capex has been and the breakup for the same?

Vishal Jain: So basically to look at in the H1 we spend closed to 170 Crores. For the capacity expansion

we have spend close to 120 odd Crores, which comprises of the shirting capacity expansion

and Denim capacity expansion and acquisition of the Robert System and Rs 10-15 odd

Crores on the stores rollout and the balance is on account of the maintenance capex.

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Abhishekh Rangnathan: So 120 on capacity expansion and the robotics Robert acquisition all

put together?

Vishal Jain: Yes.

Abhishekh Rangnathan: And about 10 Crores?

Vishal Jain: Rs 10 crores for Stores roll out and 30 Crores for regular maintenance capex.

Abhishekh Rangnathan: Last question if I may Sanjay is that on the product portfolio is there

in many things achieving these growth on a back of investment in the store network on

A&P what are the changes which have taken place on the product side in terms of mix, in

terms of positioning, in terms of diversity let us say accessories and so on. What are the

changes, which we are seeing and we are likely to see?

Sanjay Behl: What you are seeing or what is currently undergoing in product positioning is that we are

moving away from mass premium positioning for Raymond Apparels to bridge to luxury

position in the mind of consumer and from a being a formal kind of largely set up to more

classic heritage and formal set of Raymond Apparels from just being short trouser, jacket

kind of a largely settlement to a full wardrobe solution and service company for Raymond.

So that the fundamental shift that you will see transitioning from three to five years on

Raymond, a journey which is underway for the last about eight quarters already for us and

that is giving us strong 20% kind of target every quarter after quarter as you are seeing in

terms of Raymond Apparel. We have discontinued 20% to 30% of lines in Raymond

Apparels, which are lower price point and exited them completely. So all shirts under

Rs.2000 price point in Raymond have been exited as a decision and we will only invest in

high count. We will only invest in better fabric, we will only invest in bridge to luxury kind

of blend structures and design portfolio for building our Raymond Apparel brand and this

not just a product but also the retail. The future of Raymond retail is going to be a store

with very different kind of look, feel, ambience and experiential including the technology

integration that is going to happen. In Park Avenue we are taking fashion formal position

there. Again we are going behind wardrobes the big change that you would likely to see

next season as we go. It will be representation of the Park Avenue dress casual the casual

kind of Park Avenue. There is already a new advertising on air right now, which actually

clarifies the brand position of Park Avenue, which actually showcases the entire wardrobe

not just in fact we are looking a larger piece of the pie including accessories which you

mentioned and FMCG and deodorants and how would bring this pool, Park Avenue Male

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which is more like to work hard and place order kind of a position if I have to put in a very

generic way. So that is really the Park Avenue position, which is happening. A little more

agile, contemporary younger and less in terms of the scale when you see the classic heritage

of Raymond this is going to be a different cut of the brand. On ColorPlus we are focused

very clearly on three fundamental functional filters. One is color, second is craftsmanship

and third is comfort. So that was three Cs for ColorPlus. Again there is a huge campaign

actually currently on air and you would seen may be one or three or may be two out of thee

commercials running there. All three of them are in air, one is on comfort, one is

craftsmanship and one is on color and on the color when we talk in ColorPlus is not there is

a traditional definition of color but I am talk about bits, then I talk about 20 shades of bits

and that is way difference to the customers. So that is the third brand, which is purely going

to focus on smart casual segment. It will be cut above in terms of presentation when it

comes on these three particular filters, functional filters. The focus here it is going to be

hardest. It is going to be the product excellence when it comes to smart casual products

there. Our Parx, which is our fourth product, we are evaluating whether it is casual brand. It

is a fashion casual space that you wanting to occupy. It is much younger brand with 18 to

22 years kind of brand. It is largely knitwear & Denims. It is a huge value in terms of price

point, a sweet price point and utility of the fabrics that we are going to sell in this brand.

We will be contemplating the channel for this clearly cannot be exclusive brand channel. It

needs to go through very large portion through digital and through multibrand or more

profitable channel mix because you are going to having a very sweet price point on this

one. So each of the four brands very, very sharp positioning, the whole value chain from

consumption to presentation or the procurement of raw material to presentation the

customer and the consumption of the product will have its unique cut of a brand blend,

which will define the future of the brands as we go ahead.

Abhishekh Rangnathan: That is good.

Moderator: Thank you. The next question is from the line of Nirav Savai from ICICI Securities. Please

go ahead.

Nirav Savai: Thanks for the opportunity. Sir I have got couple of questions. First one is what can be the

impact of TPP agreement. Now most of your imports comprise of wool. So if you can just

throw some light on that?

Sanjay Behl: TPP is unlikely to start immediately in terms of import of wool because TPP does not cover

Australia and it is because it is a good channel and most of our wool is coming from one

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country, which is Australia. So TPP impact the larger global balance of export and makes

Vietnam that is what I am going to articulate is that it makes Vietnam a preferred

destination of imports for US and Japan relative to China which basically mean that if you

produce the garment in Vietnam it gets lesser duty landing in US and landing in Japan

versus the duty that today’s impose which is 25% to 30% depending on what garment are

you doing from India to US. If that becomes a competitive advantage that Vietnam is going

to get versus the China or in India then most of the sourcing gets build from India to

possibly Vietnam. So it is the export part of the component, which is, rather input part and

the output part, which is under little, bit of a possible risks today if TPP coming into the

play.

Nirav Savai: So you are saying the export business might impact?

Sanjay Behl: Correct absolutely because your export competitiveness for the industry as a result of TPP

may change in terms of the sourcing balance the way the world is currently structured and

that could happen at the end of 2016. The TPP is likely to get implemented in end of 2016

or 2017 but that is still about a year and a half away from where we are sitting. So what we

are doing just very quickly in terms of trying to counter that is I think last time also we said

of this front we already have it in the statement there we are taking the manufacturing

offshore out of India. We have taken a decision that we are going to be putting or fairly

large capacity in one of the African countries which is Ethiopia and that would that has a

10-year contract signed in terms of bipartite country contract of zero duty between US and

Ethiopia, Europe and Ethiopia and Japan has preferential duty from Ethiopia. So by having

a sourcing destination for these countries in that and for having a manufacturing destination

for Raymond there for garmenting we would derisk our kind of a model as we go forward

for the next five to 10-year perspective.

Moderator: Thank you. Ladies and gentlemen that was the last question. I would now like to hand the

floor over to Mr. Sreekanth P.V.S for closing comments.

Sreekanth P.V.S: Thank you everyone for joining us on the call.

Moderator: Ladies and gentlemen with that we conclude this conference. Thank you for joining us. You

may now disconnect your lines.

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