Raymond surges 10%, hits record high on healthy business outlook

Brokerage firm Motilal Oswal Financial Services has initiated coverage on the stock with a 'BUY' rating and a target price of Rs 2,600 per share

Shares of Raymod hit a record high of Rs 2,169.85 as they rallied 10 per cent on the BSE in Tuesday's intra-day trade on expectation of strong earnings growth in the second half of the financial year 2023-24. Since April, the stock price of the garments & apparels seller has zoomed 78 per cent. In comparison, the S&P BSE Sensex was up 0.17 per cent at 65,739 at 09:43 AM.

Going forward, the management is optimistic as festive and wedding season will set in during the second half of the year giving an impetus to the consumer demand across the country.

The Raymond group became net debt free post the sale of their FMCG business. Post demerger, the company will have two independent consumer facing net debt free listed entities for Lifestyle and Real Estate businesses, and there is significant liquidity surplus of over Rs 1,500 crore at the Group level to drive future growth, the management said.

Raymond is India's largest integrated worsted suiting manufacturer that offers end-to-end solutions for fabric and garmenting. It has some of the leading brands within its portfolio – 'Raymond Ready to Wear', 'Park Avenue', 'ColorPlus', 'Parx', 'Raymond Made to Measure' and 'Ethnix by Raymond' amongst others.

The group also has presence in engineering space engaged in precision engineered products with an expansive presence in national as well as international markets. Raymond forayed into realty sector through the launch of its maiden project Ten X Habitat spread across 14 acres housing ~3,100 residential units, followed by launch of a premium residential project – The Address by GS housing ~550 residential units.

Meanwhile, brokerage firm Motilal Oswal Financial Services (MOFSL) initiated coverage on the stock with a 'BUY' rating and a target price of Rs 2,600 per share.

Though the stock has doubled in the last one year, it is trading at a P/E and EV/EBITDA of 15x and 9x on FY25E, respectively. This is significantly lower than the valuation of our coverage universe and other retail, discretionary companies, which are valued at ~45-50x on a one-year forward basis, the brokerage firm said.

"While the company enjoys a robust brand affinity, its valuation has been impeded by sluggish execution in the past, evident from volatile profit after tax growth over FY11-20. However, the optimisation of costs and WC, coupled with efforts to strengthen balance sheet and transition to a net cash position, have resulted in a robust capacity to generate substantial cash flow. Raymond should garner an return on equity (ROE) of 20 per cent/17 per cent in FY24/FY25. The real estate business, which has recently been incubated on the company’s land parcel in Thane, has seen strong execution," MOFSL said.

Analysts at Jefferies also initiate at BUY rating on Raymond with Rs 2,600 price target based on SOTP (10x Ebitda for branded textiles, 2x EV/sales for branded apparel, 8x Ebitda for garmenting & shirting, 6x Ebitda for engineering, and 10 per cent discount to NAV for real estate).

Through concerted efforts, Raymond has addressed past investor concerns on debt and corp structure. The company is already net cash and is set to list lifestyle & real estate businesses separately in <12M. Growth focus is visible across businesses, led by category expansion, market share gain and premiumisation, among others, analysts at the brokerage firm said in a report.