Shares of Raymond Lifestyle Inc., which was spun off from its parent company in June 2024, were trading up nearly 6% on Monday.
The rise in the stock price was seen after brokerage firm Motilal Oswal initiated coverage on Raymond Lifestyle Ltd with a ‘buy’ rating and a price target of ₹3,200 per share.
Motilal’s price target suggests the stock could rise nearly 36% from current market levels.
Motilal wrote in the note that Raymond Lifestyle has a strong presence in men’s wear, with a 65% share in worsted suits. The company’s portfolio includes branded textiles (B2B and B2C) and several apparel brands for formal, casual, and ethnic wear, including Park Avenue, ColorPlus, and Ethnics by Raymond.
With strong brand affinity and wide distribution network, Raymond Lifestyle has a 5% share in the men’s wedding wear industry.
Motilal expects Raymond Lifestyle’s growth to be driven by rapid growth in branded apparel through retail expansion. Capitalize on opportunities from Bangladesh+1 and China+1 trends in B2B clothing. Launch of new categories such as innerwear and sleepwear. There is increasing attention to casualization and premiumization of portfolios,
By expanding the scale, you can increase procurement efficiency and increase operating leverage.
Over the past few years, Raymond Group has taken steps such as separating its lifestyle business, vertically divesting its real estate business, restructuring its engineering business, and strategically divesting its FMCG business.
“These initiatives simplify the group structure into a pure listed lifestyle, real estate and engineering company, with the potential to enhance shareholder value,” the brokerage said.
Although the valuation of Raymond’s Lifestyle business has nearly doubled since the split, the company’s stock currently trades at a relatively low P/E (price-to-earnings ratio), with FY26 enterprise value to EBITDA are 25 times and 16 times, respectively. .
“This valuation is significantly lower than the valuations of our target universe and other retail and discretionary companies, which are valued at 35-40x FY26E EV/EBITDA.”
Raymond Lifestyle benefits from strong brand affinity, but valuations have been hampered by poor execution in the past and fluctuating earnings growth rates between 2010 and 2020. However, Motilal believes the valuation may be reassessed as the company continues to show a positive growth trajectory with sales and profit CAGR of 11% and 15% for FY24-26.
The brokerage firm is pricing in revenue, EBITDA and profit CAGR of 11%, 14% and 15% for FY24-27. Additionally, we expect return on invested capital (ROIC) to be 24%, 26% and 30% in FY25, FY26 and FY27, respectively.
With improved free cash flow generation, the brokerage said Raymond Lifestyle may aim to increase shareholder returns through dividends.
Key downside risks to the company’s price target include prolonged weak demand, inflationary pressures, executive attrition, and competition from established apparel companies.
