Multibagger: Up 445% from COVID-lows, Quantum Securities sees another 58% upside in this retail stock

Retail stock Raymond has been a boon to its investors in this volatile market. The stock has rallied over around 95 percent from its 52-week low of ₹645, hit in March 2022. Meanwhile, in the last 1 year, it has advanced over 72 percent.

In December last year, the stock hit its record high of ₹1,644 even as the overall market sentiment was negative.

From its COVID-low of ₹230, the stock has registered an exemplary growth of over 5 times, rising 445 percent since March 2020.

Meanwhile, in the last 3 years, the stock has advanced 149 percent.

However, the current year 2023, has not been great for the stock. It had lost around 14 percent YTD dragged by a 17 percent decline just in Feb on the back of weak December quarter (Q3FY23) results.

Before this fall in February 2023, the stock had given 7 months of positive returns, rising 74 percent between July 2022 and January 2023.

In the December quarter, Raymond reported a 4.4 percent decline in its net profit at ₹96.60 crore, mainly on account of a one-time tax hit. The company had posted a net profit of ₹101.07 crore in the year-ago period.

Its revenue from operations rose 17.61 percent to ₹2,168.16 crore during the quarter under review, as against ₹1,843.39 crore in the year-ago period.

According to Raymond, it has recorded the "highest-ever revenues in a quarter".

Total expenses were at ₹1,977.28 crore, up 17.34 percent from ₹1,685.03 crore earlier.

Raymond has exercised the option of lower corporate tax rate which has resulted in a one-time net impact of ₹73.5 crore in the profit and loss account, the company said in its earning statement.

On the back of a strong growth outlook in the apparel sector, better margins and revenue growth, domestic brokerage house Quantum Securities initiated coverage on the stock with a buy call and an FY24 target price of ₹1,987, implying a potential upside of over 58 percent.

"Strong demand by ethnic wear, garments, shirting and branded apparel would help Raymond to clock 19.7 percent CAGR revenue growth over FY22-24E. We also expect Raymond’s EBITDA margin is expected to witness 290bps improvement over FY22-24E due to sharp growth in revenues and better margins from the garments, branded apparel and engineering segments," it explained.

Raymond Limited (Raymond) is a diversified group that is a leading name in the Textile & Apparel sectors, along with a growing presence in Real Estate, FMCG and Engineering. Raymond is amongst India’s most trusted brands. Apart from Raymond, the company has developed various brands over the years like Park Avenue, Raymond Ready to Wear, ColorPlus, Parx and Ethnix.

Raymond has presence strong presence in tier I to VI cities. The company has over 20,000 points of sale across 600 towns spread over India. The company has a presence in more than 90 countries including the USA, Canada, Europe, Japan and the Middle East through diversified businesses.

Investment Rationale

Store Expansion: As per the brokerage, Raymond has 1,400 retail outlets as of Q3FY23 with 49 new outlets having been opened in 9 months of FY23, with plans to open an overall 70 stores in FY23. Management plans to set up around 200 stores over the next two years for further expansion, which is a key positive, it noted.

New launches and expansion of existing brands: Increasing disposable incomes and exposure to newer fashion trends have changed consumers’ preferences. Raymond plans to take advantage of this trend through newly launched stretchable products like Techno Stretch, stated Quantum. The company plans to aggressively expand its ‘Ethnix by Raymond’ outlets, with a target to open 150 stores by FY24 from the current 45 stores, it added.

Expansion of the Garmenting segment: The brokerage also pointed out that many large western retailers are looking for replacements of Chinese textile products. India is the most obvious alternative to China as India is the largest producer of cotton in the World and has the largest manufacturing infrastructure, observed the brokerage. It further mentioned that Raymond has received more orders from its existing customers and has developed a strong order pipeline from new customers.

Aggressive growth in the Real Estate Sector: While an apparel company, Raymond has been also rated as the number one developer in Thane Market by CRE Matrix, a leading real estate research platform, informed Quantum. In FY22, the company sold 701 units in its two under-construction projects. The company recently completed the construction of 3 towers in the TenX Habitat project and handed over keys to its homeowner, added the brokerage. The company delivered has also these towers two years ahead of the RERA timelines, it noted.

Debt: The company had a net debt of ₹930 crore as on December 31, 2022. The management believes that the company will be a zero net debt company within 3 years. The net debt is expected to be substantially reduced through a combination of free cash flows generated from their businesses and proceeds from the engineering division’s IPO, stated the brokerage.

Outlook

Quantum believes that the strong growth performance in real estate, garments and branded apparel will drive the re-rating of the stock. It remains positive on Raymond for a longer-term perspective and expects the financial performance of the company to improve substantially in the next 2-3 years.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.