Incred Equities initiates coverage on Raymond, sees 28% upside

Incred Equities on July 3 initiated coverage on Raymond Limited with an ‘add’ rating and sees the stock zooming as much as 28 percent from prevailing prices citing strong growth outlook.

“We feel Raymond is all set to deliver stellar growth led by enhanced segmental focus, improving operating metrics and key management-level changes,” Nishant Bagrecha, a research analyst at Incred Equities, said, adding that downside risks include rising input cost, subdued demand environment and changes in company’s core strategy.

He has a target of Rs 2,200 on the stock.

Bagrecha, in a note, highlighted that the company has taken successive moves to drive the group to debt-free status; at the same time, the promoter has been increasing stake in the company’s subsidiary that displays high confidence. Success in stepping up in ethnic wear space and realty business also bodes well for the stock.

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 4.4x 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 Ltd 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.

The company, despite being a late entrant in the ethnic-wear space, has successfully stepped up its play through its Ethnix brand and now holds a well-balanced and diversified branded portfolio, said Bagrecha. He expects a 10 percent revenue CAGR in the branded apparel business over FY23-25 led by a strong store expansion target (150 by FY24) while the segment’s margins are likely to remain flat at 11 percent in FY25.

Meanwhile, after a strong success in its maiden realty 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 percent revenue CAGR over FY23-25,” Bagrecha said.

As of 3.20 pm, Raymond traded at Rs 1725.85 on BSE, up about a percent.