The upmove in the stock price was seen after brokerage firm Motilal Oswal initiated coverage on Raymond Lifestyle with a ‘Buy’ rating and a price target of ₹3,200 per share.
The price target ascribed by Motilal, implies a potential upside of nearly 36% from the stock’s current market levels.
Motilal wrote in its note that Raymond Lifestyle has a strong presence in men’s wear with 65% share in worsted suiting. The company’s portfolio includes branded textiles (B2B and B2C) and several apparel brands such as Park Avenue, ColorPlus, Ethnix by Raymond that cater to formal, casual and ethnic wear.
With a strong brand affinity and wide distribution network, Raymond Lifestyle has a 5% share in men’s wedding wear industry.
Motilal anticipates that Raymond Lifestyle’s growth will be driven by a fast paced growth in branded apparels through retail expansion; capitalising on opportunities from Bangladesh +1 and China +1 trends in B2B garmenting; the launch of new categories such as innerwear and sleepwear; an increasing focus on casualisation and premiumisation of portfolio, and achieving
sourcing efficiencies through scale, which could enhance operating leverage.
Over the past few years, Raymond Group has taken several steps such as demerging the Lifestyle Business, vertical demerger of the Real Estate Business, restructuring of engineering business and strategic sale of the FMCG business.
“These initiatives have simplified the group structure into pure-play listed lifestyle, realty and engineering companies, which has potential to enhance shareholder value,” the brokerage said.
Although the valuation of the Raymond’s Lifestyle business has almost doubled since the demerger, the stock is currently trading at a relatively lower P/E (price-to-earnings) and an enterprise value-to-EBITDA of 25x and 16x on FY26E, respectively.
“The valuation is significantly lower than that of our coverage universe and other retail and discretionary companies, which are valued at an EV/EBITDA of 35-40x on FY26E,” it said.
While Raymond Lifestyle benefits from strong brand affinity, its valuation has been impeded by sluggish execution in the past, with volatility in profit growth over FY10-20. However, as the company continues to exhibit a positive growth trajectory, characterised by revenue and profit CAGR of 11% and 15% over FY24-26E, Motilal believes that valuations could re-rate.
The brokerage has factored in 11%, 14%, and 15% revenue, EBITDA, and profit CAGR over FY24-27. Additionally, it anticipates a return on invested capital (ROIC) of 24%, 26%, and 30% in FY25, FY26, and FY27, respectively.
With an improved free cash flow generation, the brokerage mentioned that Raymond Lifestyle could look to increase shareholder returns through dividends.
Key downside risks to the brokerage’s target price include a prolonged demand slowdown, inflationary pressures, leadership attrition, and competition from established apparel players.