Raymond puts denim business on the block

Raymond, the Singhania group’s flagship company, has put its loss-making denim business on the block. The company has appointed an investment banker to find a buyer for its equity in its joint venture company, Raymond UCO Denim, whose loss doubled to Rs 120 crore in the last financial year.

Europe’s UCO Denim holds 50 per cent stake in the denim company, which was formed in August 2006. The turnover of the denim business is estimated at Rs 600-800 crore.

Mumbai-based Raymond is the world’s third largest maker of worsted fabric, which is used in making men’s suits. The company makes 40 million metres of Denim annually in a facility at Yavatmal district in Maharashtra.

“It is going to be a complex deal since it is a joint venture company,” said an investment banker familiar with the development. “Various alternatives are being worked out,” he added. Macquarie is believed to be advising Raymond on the deal.

When contacted, a Raymond spokesperson said the company does not comment on market speculation.

Citigroup Global Markets, an international brokerage, in its review of the company’s annual results on May 2, said that “given the difficult market situation in the US and European markets, we believe that the losses from this business are unlikely to reduce materially in the near term.”

It is the under utilisation of the plants in Europe and the US that has been mounting pressure on Raymond’s profit margin. The demand for the apparel there has also slowed down.

In its search for buyers, the investment banker has also approached Mukesh Ambani-promoted Reliance Industries, which may show interest in the Indian unit of the denim facility for its growing retail business. Reliance is aggressively using private labels to boost the margin of its retail venture. But an RIL spokesperson said the company would not comment on market speculation.