Shares of a leading fashion and retail company surged nearly 6 percent on BSE to hit an intraday high at Rs. 2,496.85 on Monday. This rally was sparked by Motilal Oswal’s initiation of coverage on the stock with a bullish outlook.
With a market capitalisation of Rs. 14,752.4 crores, the shares of Raymond Lifestyle Limited closed in the green at Rs. 2,421.45, up by nearly 2.4 percent, as compared to its previous closing price of Rs. 2,363.95.
Brokerage Target:
The domestic brokerage firm Motilal Oswal initiated a ‘buy’ rating on Raymond Lifestyle Limited, the demerged retail and lifestyle division of Raymond Limited, and assigned a target price of Rs. 3,200 per share, representing a potential upside of nearly 32 percent from Monday’s closing price of Rs. 2,421.45.
Brokerage Outlook:
Motilal Oswal highlighted that Raymond Lifestyle holds a strong presence in men’s wear, commanding a 65 percent share in the worsted suiting market.
The company’s portfolio encompasses branded textiles for both B2B and B2C markets, along with several apparel brands, including Park Avenue, ColorPlus, and Ethnix by Raymond, which cater to formal, casual, and ethnic wear.
With a robust brand affinity and an extensive distribution network, Raymond Lifestyle captures a 5 percent share of the men’s wedding wear industry.
Motilal anticipates that the growth of Raymond Lifestyle will be fueled by rapid expansion in branded apparel through retail growth.
The company is expected to capitalize on opportunities arising from the Bangladesh +1 and China +1 trends in B2B garmenting, as well as the launch of new categories like innerwear and sleepwear.
Additionally, an increasing focus on casualization and premiumization of its portfolio, combined with efforts to achieve sourcing efficiencies through scale, could enhance the company’s operating leverage.
Over the past few years, the Raymond Group has implemented several initiatives, including the demerger of its Lifestyle Business, the vertical
demerger of the Real Estate Business, restructuring of the engineering business, and the strategic sale of its FMCG business.
The brokerage noted that these initiatives have streamlined the group’s structure into pure-play listed companies in lifestyle, realty, and engineering, which have the potential to enhance shareholder value.
Although the valuation of Raymond’s Lifestyle business has nearly doubled since the demerger, the stock is currently trading at a relatively lower price-to-earnings (P/E) ratio, with an enterprise value-to-EBITDA of 25x and 16x for FY26E, respectively.
The brokerage noted that the valuation is significantly lower than that of its coverage universe and other retail and discretionary companies, which are valued at an EV/EBITDA of 35-40x for FY26E.
Despite Raymond Lifestyle enjoying robust brand loyalty, its valuation has been hindered by inconsistent operational performance in previous years, marked by fluctuations in profit growth from FY10 to FY20.
However, as the company demonstrates a favourable growth trend, projected revenue and profit compound annual growth rates (CAGR) of 11 percent and 15 percent, respectively, from FY24 to FY26 indicate a potential for a positive re-rating of valuations, according to Motilal.
The brokerage has incorporated a projected CAGR of 11 percent for revenue, 14 percent for EBITDA, and 15 percent for profit over the period from FY24 to FY27. Further, it forecasts a return on invested capital (ROIC) of 24 percent, 26 percent, and 30 percent for FY25, FY26, and FY27, respectively.
With enhanced free cash flow generation, the brokerage anticipates that Raymond Lifestyle may increase shareholder returns through dividends. However, key downside risks to the brokerage’s target price include a prolonged demand slowdown, inflationary pressures, leadership turnover, and competition from established players in the apparel sector.
About Raymond Lifestyle IPO:
Raymond Lifestyle was demerged from its parent company, Raymond Limited, in June 2024. It made its market debut on 5th September 2024, with shares listed at Rs. 3,000 on the BSE and Rs. 3,020 on the NSE, representing a significant premium over their base prices of approximately Rs. 1,563 to Rs. 1,564.
This listing was part of a broader restructuring strategy by Raymond Limited to create three distinct publicly listed entities: Raymond Lifestyle, Raymond Realty, and the original Raymond Limited.
As part of this restructuring, shareholders received four shares of Raymond Lifestyle for every five shares held in Raymond Limited.
Financials:
The company reported a decline in revenue from operations, experiencing a year-on-year fall of nearly 36.2 percent, from Rs. 130 crores in FY23 to Rs. 83 crores in FY24.
However, in FY24, Raymond Lifestyle reported exceptional items totaling Rs. 2,059 crores, contributing to an increase in net profit to Rs. 2,204 crores for the same fiscal year.
About the company:
Raymond Lifestyle Limited is a leading fashion and retail company with iconic men’s fashion brands and a vast retail network.
The company is engaged in the business of offering fashion products and services with branded textile and apparel brands across formal casual and ethnic wear.
Written by Shivani Singh
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