Apparel brand Raymond has given extraordinary returns to its investors in the long term. From its COVID lows of ₹210 (hit in March 2020), the stock has gained over 6 times.
The stock has given as much as 502 percent returns to its investors in the past 3 years to currently trade at ₹1,265 (as on March 23, 2022), outperforming all its peers in this period.
In comparison, Shopper's Stop has surged around 5 times, Tata Group's Trent has advanced 2 times and ABFRL, which operates Pantaloons, has risen 1.5 times.
Further, sweetening the rally, the stock hit its record high of ₹1,644 in December last year, up 682 percent from its COVID lows, however, it has started consolidating in the past couple of months.
While the stock has risen 65 percent in the last 1 year, 2023 has not been great for the retailer, with the stock falling nearly 17 percent YTD. It has lost 4 percent in March so far, extending losses from a 16.4 percent fall in February. However, it added 3.7 percent in January this year.
Long-term investors have had even better luck with the stock. In the last 25 years, from its all-time low of ₹27.67, hit in April 1998, it has surged around 4470 percent.
In the December quarter, Raymond reported a decline of 4.42 percent YoY in net profit at ₹96.60 crore, mainly on account of a one-time tax hit. It had posted a net profit of ₹101.07 crore during the same December period last year. Its revenue from operations, however, 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, this is the 'highest-ever' revenue in a quarter.
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.
The company's Chairman and Managing Director Gautam Hari Singhania said, "Raymond continues to leverage the buoyancy in domestic markets as the festivities added to the fervour of good consumer demand leading to delivering highest-ever revenues in a quarter."
This was the fifth straight quarter where Raymond registered strong performance and overall generated free cash flows to further deleverage the balance sheet to below ₹1,000 crore of net debt levels, he added.
Going ahead as well, the long-term investment opportunities remain intact for the stock.
"Raymond finally looks well placed to realize its full potential and unlock shareholder value, post a change in management and a strategy rejig. While the past growth has been slow and the branded apparel business performance has been volatile, the current management team looks committed and energized to aggressively drive its agenda of Go To market revamping, digital integration, cash generation and cost rationalization. Branded shirting, branded apparel (especially ethnic wear), garments and real estate are key growth engines, with margins likely continuing to inch up on continued premiumisation across segments, coupled with operating leverage benefits," said brokerage house Systematix Institutional Equities.
The brokerage has initiated coverage on the stock with a ‘buy’ call and target price of ₹1,832, indicating a potential upside of nearly 50 percent.
While the company's manufacturing excellence, product quality and brand equity were never in question, execution and agility posed question marks, which the new leadership under Atul Singh (erstwhile APAC head of Coca Cola) has begun to address. The company’s new-found success in real estate and recovery in branded apparel segments inspire a lot of confidence in the sustenance of the upward growth trajectory witnessed in the recent past, the brokerage further informed.
The brokerage expects an 11 percent and 13 percent revenue and EBITDA CAGR over FY23-25E, respectively, on a consolidated basis. Continued strong cash generation should aid constant reduction in leverage and improvement in RoCE to 33 percent in FY25E from 17 percent in FY22, it further predicted.
An IPO of the engineering business and any fund-raising in the real estate business could help reduce the leverage and support future growth, added Systematix.
Despite the strong move from COVID lows, as per the brokerage, its valuations at 6x FY25E EV/EBITDA look quite attractive given the visible step-up in execution and growth trajectory.
"Given its lower historical growth trajectory and diversified presence in multiple business segments, the company is still ascribed lower-than-peer multiples across its businesses, which should re-rate as it displays consistent earnings delivery going forward. Real estate and FMCG could provide further triggers, as there is a large opportunity in both, which remains undiscovered," it noted.