Why Is Raymond Dressing Up This Singhania Company’s Earnings?

A BloombergQuint investigation has found four years of curious transactions between public listed textile and branded apparel company Raymond Ltd. and an entity owned by its promoter Gautam Singhania.

The transactions indicate that Raymond has been selling goods to a privately held promoter entity, JK Investors (Bombay) Ltd., only to buy them back at a higher price for no clear reason. Despite multiple requests, Raymond did not respond to queries or offer an explanation for these transactions.

First a bit about the promoter entity JK Investors.

Gautam Singhania, chairman and managing director of Raymond, owns 91 percent of JK Investors with the remaining stake held by other family members. JK Investors owns 30.56 percent in Raymond, the flagship company of the group. That’s a large portion of the 44.08 percent promoter stake in Raymond. That the two—Raymond and JK Investors—are related parties and have a history of transactions is disclosed by Raymond in its annual reports

JK Investors is involved in the business of processing and trading of shirting fabric, the weaving of fabric, agency, commission, and rental of property and earns investment income, according to disclosures made in its annual reports filed with the Registrar of Companies. The filings state that JK Investors undertakes secondary packing of finished goods bought from Raymond and does business primarily with Raymond.

In the last four financial years (2014-15 to 2017-18), JK Investors bought goods worth Rs 993 crore from Raymond and made sales to Raymond worth Rs 1,613 crore during the same period, as per RoC documents and Raymond disclosures.

What’s puzzling is—if JK Investors does secondary packaging work for Raymond, why would it need to buy the goods and re-sell them to Raymond? Most such vendors would ordinarily work for a fee.

And JK Investors did get paid by Raymond as well. In the last four years, it has received Rs 30.44 crore in job work fees from Raymond.

Interestingly, JK Investors was also paid Rs 22.85 crore in sales commission by Raymond. And since all its sales in that period were to Raymond itself, that suggests Raymond was paying the promoter entity a commission to sell to Raymond.

The mystery around these transactions deepens on examination of JK Investors’ costs. If the company was doing packaging work, it would have incurred cost on materials for the packaging. But the filings do not indicate any such costs. What they do list is Rs 18.49 crore in secondary packing costs over the last four years, besides employee and warehousing expenses.

In the four financial years, JK Investors earned a total profit of Rs 183.16 crore. That’s about 45 crore rupees on an average every year, just a little less than half of Raymond’s average profit in the same period.

If there’s a good explanation for these related party transactions, Raymond wasn’t forthcoming with it.

After multiple requests a Raymond spokesperson referred BloombergQuint to the company’s communication shared with the stock exchange on the issue of show cause notice issued by the market regulator.

The company’s stock exchange communication said: "show cause notice received from the Securities and Exchange Board of India ("SEBI") is in respect of matters which are procedural and technical by nature. We are working with our legal advisors and are in the process of resolving the said issues. The company has complied and shall continue to comply with provisions of applicable laws, including Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR").