Domestic brokerage firm Motilal Oswal Financial Services (MOSL) has started coverage of Raymond Lifestyle, which was recently spun off from Raymond Limited, with a rating of ‘buy’ and a price target of ₹3,200, which is over 35% of the stock price. This suggests that there is room for upside. stock.
Raymond Lifestyle stock rose more than 5.5% in Monday trading following the announcement. MOSL expects the company’s revenue and net profit to grow at a compound annual growth rate (CAGR) of 11% and 15%, respectively, from FY24 to FY27.
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“The valuation of the Raymond Lifestyle (RLL) business has almost doubled since the demerger, but the stock is currently trading at a relatively low P/E ratio and the FY26E EV/EBITDA (India AS-116) This valuation is significantly higher than that of our coverage universe and other retail/discretionary companies with FY26 EV/EBITDA of approximately 35-40x. Although RLL benefits from strong brand affinity, its valuation is hampered. However, we believe the valuation is likely to rise as RLL continues to exhibit a positive growth trajectory featuring a revenue/PAT CAGR of 11%/15% from FY24 to FY26. We will re-evaluate,” the brokerage firm said.
“Furthermore, we expect return on invested capital (ROIC) to be 24%, 26% and 30% for FY25, FY26 and FY27, respectively. With improved FCF generation, RLL is expected to increase shareholder returns through dividends.” We may be aiming to do so.” Added.
Raymond Lifestyle was created as an independent entity following its demerger from Raymond Ltd and positions itself as a pure lifestyle company. RLL has a strong presence in the men’s wear segment, with a significant market share of approximately 65% in worsted suits. Its portfolio includes a wide range of branded textiles operating in both B2B and B2C segments. The company also has several popular apparel brands that cater to formal, casual and ethnic wear categories, including Park Avenue, ColorPlus, and Ethnix by Raymond. Notably, RLL accounts for approximately 5% of the men’s wedding wear market, demonstrating its prominence in this field.
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In terms of stock performance, Raymond Lifestyle was listed on NSE on September 5 at ₹3,020. The stock price has risen more than 17% from its low of £2,081 since listing. However, it is still trading below its listing day closing price of 2,869 ₹. Nevertheless, analysts remain optimistic about the stock’s future, supported by the company’s strong brand presence, wide distribution network, and ambitious growth plans.
Rationale for investment
MOSL highlighted several growth drivers for RLL, including rapid expansion of branded apparel with a goal of doubling the number of luxury brand outlets (EBOs). The company also said it stands to benefit from Bangladesh +1 and China +1 trends in B2B clothing. Additionally, the launch of new categories such as innerwear and sleepwear, as well as the shift towards more casual and premium product portfolios, are expected to contribute to growth, MOSL said. Improving procurement efficiency through scale expansion may further improve operating leverage.
Raymond Group has undertaken strategic initiatives in recent years, including separating its lifestyle and real estate businesses, reorganizing its engineering division, and selling its FMCG business. These moves have streamlined the group into separate listed companies with a focus on lifestyle, real estate and engineering, with the aim of increasing shareholder value. Each business is professionally managed with a focus on maintaining a net cash balance sheet, optimizing costs and effectively managing working capital.
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Despite historically facing challenges related to growth, profitability and high working capital cycles, RLL has made significant progress, the brokerage said, improving working capital management and moving ahead of schedule. It added that the company achieved a net cash position in 2017 and strengthened its advance preparations. -IFRS EBITDA margin due to store rationalization and cost control measures.
Under the leadership of former GCPL executive Sunil Kataria, RLL’s profit margins improved from single digit levels between FY17 and FY20 to around 12% in FY24. Going forward, RLL will focus on expanding the Ethnix by Raymond brand, accelerating the growth of branded apparel, expanding its network, and introducing new categories such as sleepwear and innerwear.
Disclaimer: The views and recommendations above are those of individual analysts or brokerages and not of Mint. We recommend checking with a certified professional before making any investment decisions.
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