Yesterday, we completely exited our position from Raymond Lifestyle Ltd (RLL) with a ~48%loss. RLL was a high conviction bet which in the end caused the highest damage.

We describe high conviction bets as one with potentially large upsides and low downsides. A halving investment humbled that description. Our last update on 17th Feb’24 concluded with us buying more of the stock. So what changed in little over a month?

Quite a bit, actually. Some external stuff which we couldn’t anticipate/ control:

1. Resignation of Top Mgt: The CEO and CBO both resigned in early February. Restructurings like internal elevation of few personnels to key positions and roping in a new CBO felt like plugging gaps. An attrition in management (especially when they are tendering resignations themselves) doesn’t bode well and leaves an uncertain strategy forward.

2. Encumberances of shares: Promoter co,J K Investors recently pledged upto ~8.3% of RLL shares. A creation of pledge by the promoter does not necessarily mean financial distress or a lack of confidence in the company's prospects. However, the market views this negatively.

3. The Textile sector: has been beaten blue & black, left, right and center. Quality names like Vedant Fashions, Arvind Ltd, Trent and Page Industries has seen massive declines since Jan’25. The sentiment was evident when last weeks’ long market rally could hardly lift their prices.

Where we could have done better:

1. Optically low valuations: We invested in RLL in late Nov’24, anticipating a demerger play where there is indiscrimanate selling by major institutions in the beginning, only for the stock to rise up within a few months. This didn’t play out. We should have exited then but we figured the stock was trading too cheap.

   We attributed the FY25 earnings to a few depressed quarters and calculated earnings multiples with FY24 figures, thinking we were being conservative. Little did we know then, that FY24 was a period when the company enjoyed the best EBITDA margins in its recent history and such margins were unlikely to sustain. This high margins made the valuations appear a little cheaper than they actually were.

2. Lack of Primary Research: We were too fixated on the numbers and the financials and overlooked the product research. We recently revisted that. Raymond is a legacy brand with old designs and printed shirts priced at premium prices (₹2000 and above). Very few people wear tailored shirts and mostly people stitch suits for weddings and all which were in the range of ₹18k to ₹20k. Branding which is the bread & butter of such cos is clearly not there. Most of the times when I drove past the Raymond stores in Hyderabad, they have been empty. Also, speaking to young adults it seems they simply don’t associate or even heard of brands like Color Plus, Parx & Park Avenue.

All that being said, we are actively tracking the textile sector as we think prices of a few quality stocks are close to attractive levels. None of this is an investment advice though. Please do your due diligence before any buy/sell decisions.

Until next time.