Raymond shares up 13% as Jefferies, Motilal set stock price target at Rs 2,600

Shares of Raymond climbed 13 per cent in Monday's trade after a couple of brokerages initiated coverage on the stock with 'Buy' ratings and suggested share price targets that hint further upside ahead for the multibagger stock. Foreign brokerage Jefferies has set a target of Rs 2,600, saying Raymond should deliver healthy earnings growth, which in-turn can drive a re-rating, especially post de-merger of lifestyle business. Jefferies said Raymond has seen a significant turnaround in performance over the last three years, especially with respect to profitability and balance sheet quality.

Domestic brokerage Motilal Oswal Securities also initiated coverage on the stock with the similar target price, citing improving earnings trajectory, balance sheet discipline and compelling valuations.

Raymond shares, which are up 121 per cent in the last one year, jumped 13.26 per cent to hit a high of Rs 2,240 on BSE.

Key concerns for Raymond have in the past revolved around its weak balance sheet, a factor that has hindered its growth potential. But the company has it taken strong measures to reduce receivables, particularly in the branded textile and apparel business and lower its leverage over the last two to three years, Motilal Oswal Securities noted.

"The NWC days reduced to 69 from 110 days with the lifestyle segment seeing a decline to below 2 months of NWC from nearly 3.5 months. Raymond has used this along with other operational cash, and land sale value to reduce its net debt (excluding lease liability) from Rs 1,600 crore in FY20 to Rs 600 crore in FY23. With the recent FMCG transaction, it can now become net cash," the domestic brokerage said. 

Motilal Oswal said the company plans to utilise capex prudently through an asset-light franchisee model and grow without bloating working capital by ensuring disciplined management of inventory and receivables.

"Subsequently, we expect cumulative operating cash flow of Rs 1,300 crore over FY23-25. After adjusting for cumulative capex of Rs 400 crore, it should generate a healthy cumulative free cash flow of Rs 900 crore over FY24-25E," Motilal Oswal said.

Through concerted efforts, Jefferies said, Raymond has addressed past investor concerns on debt and corporate structure. The company is already net cash and is set to list lifestyle & real estate businesses separately in 12 months, Jefferies noted.

"Growth focus is visible across businesses, led by category expansion, market share gain and premiumisation, among others. We expect Raymond to grow revenues/earnings at 13 per cent/24 per cent CAGR over FY23-26E," Jefferies said.

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