Raymond reports a strong Q1 show amid demerger buzz; check latest target prices

Demerger-bound Raymond reported another quarter of strong performance, majorly driven by the real-estate sector. However, brokerage firms, tracking the counter, believe that completion of the demerger process into three separate entities will be the key for the company.
 

Raymond reported a 26.7 per cent year-on-year (YoY) increase in consolidated net profit from continuing operations at Rs 57.04 crore in the first quarter ended June 2024. Revenue from continuing operations in the first quarter nearly doubled to Rs 937.65 crore as against Rs 473.37 crore in the year-ago period.
 

Raymond successfully demerged its lifestyle business as Raymond Lifestyle during the first quarter of the ongoing financial year, which is likely to be listed at the bourses in the second quarter of the year. The company will also spin-off the real estate business and list it separately, while the main Raymond will continue to own the engineering business.
 

Raymond’s segmental performance was broadly in line with expectations, said the brokerage firms tracking the stock, adding that it was another strong performance by the company on the real estate side and expected traction in new JDA projects to continue. The added that the clarity will emerge when the entire process of demerger shall be completed.
 

Raymond has been walking the talk with regards to strategic value creation by selling the FMCG business, demerging the lifestyle business, shaping the real estate business, and establishing an engineering unit ‘Newco’ after the MPPL acquisition said Motilal Oswal Financial Services, which has raised its EV/Ebitda multiple for the residential business to 12 times.
 

"With the planned demerger of its real estate and engineering businesses, the company, led by a professional management, can now carve out an individual growth strategy for both its business. The combined value of the real estate and engineering businesses works out to be Rs 2,310 per share," it added with a 'buy' rating.
 

Shares of Raymond rose more than 1.25 per cent to Rs 1954.80 on Thursday, with a total market capitalization of more than Rs 13,000 crore. The scrip had settled at 1930.25 on Wednesday. The demerged lifestyle entity is yet to get listed at the bourses.
 

"We expect the engineering business performance to scale up both on growth and margins led by strong performance in aerospace & defense and healthy traction in auto components business offsetting the muted performance in tools and hardware moving ahead," said Systematix Institutional Equities.
 

On the basis of our SOTP based valuation, we have revised our target price for the listed entity to Rs 2,047 (Rs 1,583 earlier valuing the real estate/ engineering business at 15x/ 20x (12x/ 15x) FY26E EV/EBITDA respectively. We revise our rating to 'hold' (from 'buy' earlier) as the stock listed ahead of our expectations post the lifestyle business demerger.

 

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