Shares of Raymond zoomed 9.85% to ₹2,172 apiece in Tuesday's trade, marking the biggest intraday gain since December 2022. The stock also recorded a new all-time high of ₹2,240 during the session. This strong uptick in the stock was in response to the optimistic outlook on the company.
In its recent research note, brokerage firm Motilal Oswal has initiated coverage on the stock with a 'buy' rating, setting a target price of ₹2,600 apiece. Similarly, Jefferies also initiated coverage on the stock with a 'buy' call and a target price of ₹2,600 apiece.
Raymond is a leading branded textiles and apparel franchise in India, with a presence in other businesses such as garment manufacturing for global brands, tools & hardware, auto components, and real estate.
The company has announced three key steps to restructure the group and reinforce the promoter's focus on the business, said Motilal Oswal.
Firstly, the company divested its FMCG business, operated by Raymond Consumer Care Ltd (RCCL), in an all-cash transaction valued at ₹28 billion to GCPL. Secondly, it announced a hive-off of its lifestyle business into RCCL. This strategic separation aimed to distinguish the consumer apparel segment from unrelated businesses such as real estate and engineering.
Thirdly, the company infused cash of ₹22 billion (adjusted for tax), including the promoter’s stake in RCCL, into the group. All these steps, according to the brokerage, have helped in deleveraging the balance sheet and creating healthy cash to drive growth, cleaning up the operating structure of respective businesses, and reinforcing the promoter’s confidence through its cash infusion of ₹11 billion for ₹1,500 per share.
Raymond has a legacy collection of well-established brands, but it has remained under-penetrated. It has now laid out a comprehensive strategy to leverage the full potential of brands within its portfolio, as highlighted by the brokerage.
In addition, the company is aiming to expand its wedding reach with its new format, known as Ethnix. Presently, Ethnix has a presence across 75 stores, contributing revenue of ₹550 million, catering to both occasion and casual ethnic wear. It targets to add 100 stores annually, which could achieve a revenue potential of ₹3.5 billion by FY27E.
On the other hand, the company's real estate business has kicked off, demonstrating steady execution with a cumulative pre-sale of ₹42 billion since its launch in FY19. Furthermore, it has delivered 900 units across three towers in the first phase of TenX Habitat, two years ahead of the RERA date, the brokerage stated.
Further, the company's key concern has revolved around its weak balance sheet, a factor that has hindered its growth potential. However, the brokerage said the company has taken strong measures in the last two to three years to reduce receivables, particularly in the branded textile and apparel business, and lower its leverage.
In terms of valuation, Motilal Oswal notes that despite the stock's doubling in the past year, it currently trades at a price-to-earnings (P/E) ratio of 15x and EV/EBITDA of 9x for the fiscal year 2025 estimates (FY25E).
These valuations are notably lower than those of companies covered by the brokerage's Universe and other retail and discretionary firms, which are valued at approximately 45–50 times on a one-year forward basis.
Jefferies said that Raymond has addressed past investor concerns on debt and corporate structure. The company is already net cash and is set to list lifestyle and real estate businesses separately in less than 12 months. The growth focus is visible across businesses, led by category expansion, market share, and premiumisation, among others, it added.
The brokerage expects an 8% revenue CAGR in branded textiles, along with a 30 bps margin expansion over FY23–26E. It expects branded apparel to grow at a 17% CAGR as Raymond expands its franchise. The brokerage also expects other businesses to do well. It has assigned a valuation of 10x EV/EBITDA for branded textiles and 2x EV/sales for branded apparel.
In a more optimistic scenario, Jefferies valued branded textiles at 15x Jun-25 EV/EBITDA and branded apparel at 3x EV/Sales, resulting in a price target of ₹3,730 apiece. This implies an upside potential of 71% for the stock from its latest closing price.
05 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer:The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.