Shares of Raymond Lifestyle Ltd, the demerged entity of Raymond Ltd that includes the retail and lifestyle divisions, have fallen nearly 35 per cent from their recent high. But MOFSL believes a valuation re-rating is likely over the medium term. It maintained its 'Buy' rating on the stock with a target price of Rs 3,000.
A growth recovery in the branded apparel segment, the scale-up of newer categories like sleepwear and innerwear, and the successful execution in Ethnix by Raymond would be the key growth drivers, MOFSL said while expecting 9-10 per cent growth in sales, Ebitda and profit over FY24-27.
On Tuesday, the stock closed at Rs 2,021.05 on NSE. The scrip hit a high of Rs 3,100 in September. MOFSL's target suggests 48 per cent potential upside ahead.
"While Raymond Lifestyle benefits from strong brand affinity, its valuation has been impeded by sluggish execution in the past (volatility in PAT growth over FY10-20). However, RLL’s renewed focus on growth, along with working capital discipline, could lead to a valuation re-rating over the medium term," it said.
MOFSL said the festive and the ongoing wedding season has improved the demand environment for retailers such as Raymond Lifestyle, with expectations of double-digit growth (12-14 per cent) in secondary sales, which should result in improved collections in Q3FY25.
The primary sales, however, may reflect demand improvement with a quarter's lag owing to higher inventory in the channel amid demand weakness in the past 12-15 months.
"Given a higher number of wedding days extending the season to 1HFY26, the demand momentum is expected to remain robust, which places RLL in a sweet spot as its wedding portfolio accounts for ~35-40% of its total revenue," MOFSL said.
MOFSL said Raymond Lifestyle is targeting 12-14 per cent revenue growth and 15-18 per cent growth in Ebitda and PAT in the medium term. The branded apparels segment will be the key growth driver, aided by increased EBO footprint, the ramp-up of the Ethnix by Raymond, and the entry into sleepwear and innerwear segments, it said.
The domestic brokerage noted that Raymond Lifestyle operates at 30 per cent operational RoCE and the management expects RoCE to improve further, driven by the improved demand environment, resulting in better collections; and moderation in capex against FY25 levels.
Raymond Lifestyle boasts a legacy of established brands such as Park Avenue, Raymond RTW, Parx, and Colorplus, but the presence of Raymond Lifestyle brands remain under-penetrated with 463 EBOs (including Ethnix EBOs). The company targets to increase its EBO count to 900 by FY27 as brands such as Park Avenue, ColorPlus and Ethnix likely expand their presence to 300 stores each across Tier-1 to Tier-4 cities.
"The majority of RLL's EBO expansion will likely be done through the asset-light FOFO model. Further, the company is looking to expand its share in large-format stores (LFS) and MBOs," MOFSL said.