Prabhudas Lilladher is bullish on Raymond and has recommended accumulate rating on the stock with a target of Rs 424 in its January 22, 2013 research report.
“Raymond’s performance across major segments was extremely poor despite the festive quarter which is usually the strongest quarter for the company. The consumer sentiment was extremely poor through the quarter and hence, despite festivals and marriages, the offtake remained weak. The company reported revenues of Rs10.5bn, a 10% YoY increase and 5.6% sequential decline. However, the major disappointment was on margins, with EBITDA margins at 9.6% as against 16.4% in Q3FY13 and 14.3% in Q2FY13. Reported PAT stood at Rs128.4m, 79% YoY and 75% QoQ decline. The company incurred VRS expenses of Rs124m on retiring employees in their retail segment.”
“Although volumes were stable for the worsted textile segment, the segment witnessed a 2% price decline. Growth in sales of 7.8% YoY was on account of the ‘Makers’ brand contributing which is now present across 7500 points of sale. However, margins in the segment declined to 19% from 25% in Q3FY12 and 23% in Q2FY13. The sharp decline in margins was on account of increase in raw material costs aided by the rupee depreciation as well as an increase in the cost of utilities. Further, the additional capacities of 7m metres, that were added last year, remained under-utilized on account of the weak demand which further helped in mounting costs. The segment witnessed a decline of 7% YoY in sales and 86% decline in EBITDA, with margins at a mere 2% for the quarter. Heavy discounts to clear the inventory resulted in poor financial performance. Besides, the company has also been transitioning the sales channel for its ‘Park Avenue’ brand from operating out of ‘The Raymond Stores’ (TRS) to a focused EBO sales channel which resulted in a decline in presence of the brand at several TRS.”
“As per our estimates, the stock currently trades at PER of 16.6 x FY14E and 11.4 x FY15E. Our target price is based on 12X FY15E which gives us a value of Rs424. We maintain .Accumulate,” says Prabhudas Lilladher research report.
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