Raymond - Rejuvenating The Brand: Motilal Oswal Initiates Coverage With A 'Buy'

Motilal Oswal Report

Though Raymond Ltd.'s stock has doubled in the last one year, it is trading at a price/earning and enterprise value/Ebitda of 15 times and nine times on FY25E, respectively.

This is significantly lower than the valuation of our coverage universe and other retail, discretionary companies, which are valued at ~45-50 times on a one-year forward basis.

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 working capital, 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 of 20%/17% in FY24/FY25. The real estate business, which has recently been incubated on the company’s land parcel in Thane, has seen strong execution.

Our SOTP-based model values the real estate business at FY25E EV/Ebitda of five times on embedded Ebitda, assuming pre-sales of Rs 20 billion and 25% Ebitda margin, and arrives at a valuation of Rs 25 billion (i.e., Rs 380/share).

Adjusting for the same, Lifestyle business is trading at a P/E of 15 times. Subsequently, we assign a P/E of 22 times on FY25E to Lifestyle business, arriving at a value of Rs 2,070/share.

Engineering business is valued at EV/Ebitda of seven times on FY25E, arriving at a value of Rs 150/share. The combine value of real estate, engineering and lifestyle business works out to be Rs 2,600/share.

We initiate coverage on the stock with a 'Buy' rating.

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