Shares of Raymond Ltd. hit an all-time high on Tuesday after Jefferies Financial Group Inc. and Motilal Oswal Financial Services Ltd. initiated coverage on the stock with a 'buy' rating.
Jefferies initiated a 'buy' with a price target of Rs 2,600 apiece, implying an upside of 28% over the next 12 months. Motilal Oswal also had a similar target price.
The coverage was initiated after the established apparel brand decided to demerge its real-estate and lifestyle businesses and sold its FMCG business, operated by Raymond Consumer Care, to Godrej Consumer Products Ltd.
The management decided to restructure the business in a bid to unlock value and have a greater focus on the businesses separately. Raymond also infused cash of Rs 2,200 crore, including the promoter's stake in Raymond Consumer Care, into the group.
Jefferies
Expects Raymond to grow its revenue at a 13% compound annual growth rate over the financial year 2023–26, with modest margin expansion. This will likely translate to a 16% Ebitda CAGR.
Free cash-flow generation improved through better profitability and improvement in the working capital cycle.
Expects the apparel segment to grow in double digits in the medium term.
With surplus land under its belt, Raymond forayed into the real estate business in 2019. Plans are underway to develop its 100-acre land parcel in Thane in the first phase. The engineering business, encompassing tools and hardware, contributes 9% to the Ebitda.
A slowdown in demand, a sharp rise in key input prices, and an increase in competition can risk the brokerage's price target.
In the long term, the brokerage expects Raymond to deliver healthy earnings growth, which can drive a re-rating, especially after the demerger of lifestyle businesses.
As per the base-case scenario, Jefferies expects Raymond to expand its franchise and assume an 8% revenue CAGR in the branded textiles category, with a 30-basis-point margin expansion over fiscal 2023–26.
Motilal Oswal
With a revenue base of Rs 1,300 crore, the brokerage expects a 20% revenue CAGR over fiscal 2023–27 by adding a net 150 exclusive brand outlets annually, with a focus on the capex-light franchisee model for Raymond, Park Avenue, ColorPlus, Ethnix, and other product extensions.
It termed the branded textile business a "cash cow" that is expected to register a 7% revenue and 6% Ebitda CAGR over fiscal 2023–27. The garment segment holds a strategic advantage with the China+1 strategy as most apparel brands seek to diversify.
The brokerage also forecasts a 10% revenue CAGR over fiscal 2023–27, supported by new capacity expansion.
Motilal Oswal sees a large opportunity in the real-estate business with a healthy balance sheet, strong cash flow potential, and emphasis on capital allocation to aid in achieving the annual project addition targets of Rs 2,500–3000 crore.
Expects cumulative operating cash flow of Rs 1,300 crore over fiscal 2023–25. After adjusting for cumulative capex of Rs 400 crore, it should generate a healthy cumulative free cash flow of Rs 900 crore over fiscal 2024–25.
Motilal Oswal predicts an improvement in the overall Ebitda margin, projecting a 40-basis-point increase to 15% over fiscal 2023–27.
The combined value of real estate, engineering, and lifestyle businesses works out to be Rs 2,600 per share.
Shares of Raymond surged 10.63% to Rs 2,188 apiece, compared to a 0.28% advance in the benchmark NSE Nifty 50 as of 11.57 a.m. The share price advanced as much as 13.26% intraday to hit a record high of Rs 2,240 per share.
The stock has risen 49.15% on a year-to-date basis. The total traded volume stood at 24 times its 30-day average. The relative strength index was at 76, implying that the stock may be overbought.
All seven analysts tracking Raymond maintain a 'buy' rating, according to Bloomberg data. The average of 12-month price targets given by analysts implies an upside of 10.7%.
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