The steep correction in the stock price of Raymond provides the contrarian investor an opportunity to invest in a high-quality consumer franchise as the markets enter unlock phase of the pandemic.
With 'Unlock 5.0' coming into effect, consumer franchise companies such as Raymond can witness strong traction, said a report from brokerage firm LKP Securities.
LKP has initiated coverage on Raymond with a 'buy' call with a 12-month SOTP-based target price of Rs 485, which is an 81% upside from the September 28 closing price of the stock on NSE at Rs 267.65.
In the calendar year 2020 so far, the stock is down 60 percent.
The steep correction in the stock price of Raymond provides the contrarian investor an opportunity to invest in a high-quality consumer franchise as the markets enter unlock phase of the pandemic, said the brokerage.
"Our scuttlebutt approach and channel checks during the past few months on footfalls and conversion rates reinforce our conviction on the resilience of its prestigious brands," LKP said.The cost optimisation exercise and re-calibration should help reboot Raymond and propel it to navigate the COVID crisis. Digitisation of stores, rationalisation of CAPEX and reduction in discretionary spends would
enable Raymond to emerge stronger through the COVID crisis," LKP added.
India has been relaxing coronavirus-related lockdown restrictions in a staggered manner since June under the Centre's 'Unlock' plan.
The government had allowed the reopening of metro train services as part of the 'Unlock 4.0' guidelines issued by the Ministry of Home Affairs (MHA) on August 29.
A fresh set of guidelines for easing the lockdown further are expected to come into effect for October, under what could be possibly called 'Unlock 5.0'.
This is expected to reopen up more activities outside of containment zones as the festive season is set to commence in India.
With further opening up of the economy, companies that have strong brand value and market presence will see the revival of the uptrend.
LKP Securities believes the demerger of Raymond's lifestyle business, rapid strides were taken in its real estate business along with the consolidation of its FMCG business should put to rest street apprehensions, if any, on its future-focussed strategy.
LKP underscored that the 80-acre land parcel in Thane should help Raymond execute its de-leveraging strategy going forward. Besides, the execution of its strategy on various non-core business verticals should only help hasten the recovery process going forward.
The company, reported a consolidated net loss of Rs 242.15 crore in Q1FY21, higher than the net loss of Rs 14.85 crore in the same period last year. Net sales slumped 88.6 percent year-on-year (YoY) to Rs 163.16 crore during the said quarter.
Brokerage firm Antique Stock Broking also has a buy call on Raymond with a target price of Rs 395 and said the company's operating performance was better than its expectations.
Antique said trends indicate that consumer sentiments and related spend on discretionary items are on recovery from June end.
"Tier IV/V/VI stores are performing significantly better than metros and Tier I/II/II stores. Consumer demand is back at 50 percent of Pre-COVID-19 levels in TRS (The Raymond Shop) stores and near 30-35 percent of Pre-COVID-19 levels in exclusive brand outlets," Antique said.
As per the brokerage, Raymond will continue to focus on leaner cost structure, conservation of cash and managing liquidity in FY21. The company has guided a reduction of 30-33 percent in OPEX costs for FY21.
With the festive and wedding season coming up, consumer spending is expected to improve which will bring in much-needed recovery.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.