Buy Raymond; target of Rs 480: FinQuest Securities

FinQuest Securities is bullish on Raymond and has recommended buy rating on the stock with a target of Rs 480 in its August 1, 2012 research report.

“Raymond Ltd Q1 FY13 results were below street estimates, both on the topline and bottom-line front. In Q1 FY13, company's net sales increased 9.5% Y-o-Y however declined 12.5% sequentially to Rs. 8377.1 mn while the EBIDTA margin declined ~565 bps Y-o-Y and ~ 464 bps sequentially to 3.7%, primarily on account of lower margins in the Textile and Branded apparel business.”
“In Q1FY13, Raymond Zambaiti - JV net sales increased 29% Y-o-Y to Rs. 0.68 bn while the EBIDTA margin of the business increased ~ 400 bps Y-o-Y to 14%. The capacity utilization of the 21.6 mnpa plant improved to 76% and likely to be fully utilized by FY13. In the quarter, Indian denim business net sales increased 3% Y-o-Y to Rs. 1.98 bn while the EBIDTA margin which increased ~ 200 bps Y-o-Y to 13%. The plant operated at 100% capacity utilization. The segment is likely to continue its robust performance on account of a good order book. In the quarter, the Tools and Hardware sales increased 30% Y-o-Y to Rs.0.91 bn while the margin expanded 200 bps Y-o-Y to 13%. The auto component sales increased 20% Y-o-Y to Rs. 0.39 bn while the EBIDTA margin ~ 200 bps Y-o-Y to 17%.”
“We cut the EBIDTA estimates of FY13 by 7.8% to factor in the subdued Q1 FY13 results. At the CMP, Raymond is trading at an Adjusted P/E of 13.0x FY13E and 9.6x FY14E EPS of Rs. 27.4 and Rs. 37.1 respectively. Over FY12-14E, we expect the company's sales and EBIDTA to grow at CAGR of 12% and 13% to Rs. 45.45 bn and 5.9 bn respectively. Raymond is trading at an EV/EBIDTA of 6.5x FY13E. We value the company at an EV/ EBIDTA multiple of 8.0x FY13E, a ~25% discount to its historical average; we arrive at a revised target price of Rs. 480 per share. The company's ~ 125 acres Thane land could fetch Rs. 15.0 -18.75 bn (implying valuation of Rs. 244- 305 per share) at conservative land valuation of Rs 120-150 mn per acre. However we do not factor the land valuation in arriving at our target price. We believe any sale of land would substantially reduce the debt and strengthen the balance sheet and would drive further re-rating in the stock. We have not factored in valuation of land in arriving at our target price. Any form of real estate value unlocking would be value accretive,” says FinQuest Securities research report. Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies 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. To read the full report click on the attachment

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