Raymond, whose shares have doubled in the last one year, saw initiation of coverage by InCred Equities with a target of Rs 2,200. The brokerage said Raymond's restructuring initiatives are in the right direction and the company is well-placed from a growth perspective led by the changes in its leadership, focus on pruning inefficiencies and improving business health.
The InCred Equities' target suggests a 27 per cent potential upside over Tuesday's trading price of Rs 1,730.85. InCred said the sale of non-core FMCG portfolio at a rich valuation has driven the group to a net debt-free status and that the demerger is expected to create additional value.
To recall, Raymond, through its associate company Raymond Consumer Care or RCCL, has sold its FMCG business to Godrej Consumer Products (GCPL) for a slump-sale consideration of Rs 2,825 crore, valuing the deal at 4.4 times FY23 sales. With Rs 690 crore in net debt currently and an inflow of Rs 2,200 crore, the group has been driven to a net debt-free status.
"Raymond will be demerged into two separate pure-play listed entities post-restructuring, with the lifestyle business comprising textiles, apparel and garment segments to be housed under RCCL post-demerger while the current entity will house the realty, engineering and denim (joint venture) divisions," InCred said.
InCred said despite being a late entrant in the ethnic-wear space, Raymond has successfully stepped up its play through its Ethnix brand and now holds a well-balanced and diversified branded portfolio. It expects a 10 epr cent revenue CAGR for Raymond in the branded apparel business (16 per cent revenue share) over FY23-25 led by strong store expansion target. The segment’s margins are seen flat at 11 per cent (30bps improvement) in FY25.
"After a strong success in its maiden project (TenX Habitat), Raymond has been able to cash in on the opportunity with the successful launch of its next set of projects (The Address by GS; TenX Era). Expansion in the Mumbai Metropolitan Region or MMR beyond its land parcel in Thane via joint development projects will aid asset-light expansion of the division, thereby driving a 18.3% revenue CAGR over FY23-25F," InCred said.
The brokerage, which has 'ADD' rating on the stock said the promoter has historically infused cash into the business, like in 2019 where Rs 350 crore was infused to pare debt.
"He also reinvested his entire share of proceeds from the sale of the FMCG business (Rs 1,100 crore) into RCCL, in which he owns a 49.6 per cent stake, thereby increasing his stake to 54.87 per cent in RCCL post-restructuring, showing his high confidence in the business," it said. Meanwhile, the brokerage said the real estate division inching up to become a key pillar for the group.
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