Buy Raymond; target of Rs 467: PLilladher

Prabhudas Lilladher is bullish on Raymond and has recommended buy rating on the stock with a target of Rs 467 in its June 11, 2012 research report.

“Raymond, Leveraging on its strong five decade old brand, Raymond is spurring ahead and expanding its retail presence which is currently at 853 stores, up from 584 in FY09 and targeting 100 stores/year, going forward. The might of the brand is further accentuated by the fact that 78% of its stores are franchises. Besides, its franchise model involves outright purchase of stocks by franchise owners, thus, limiting the company’s working capital.”
“Raymond has been on a strong upward trajectory post its FY08-11 restructuring. Strong scale-up in revenues and cost savings have emanated from the series of restructuring activities undertaken which includes transfer of its Thane operations, closure of its loss-making denim factories, realignment of its brand strategy, as well as stabilisation of ERP. With the restructuring complete, we expect a clear runaway, going forward. Keeping a strong eye on return ratios which are currently low, Raymond targets to remain asset-light by focusing on its franchise-strategy on the retail side as well as outsourcing of routine manufacturing processes. Besides the textile & garments segment, which is expected to grow at 15% CAGR over the next two years, the company expects strong growth of 28% CAGR for its engineering division as well which includes the tools & files as well as the auto components segment.”
“We have used a host of consumption names with retail bend for comparison since there is no strict peer group for the company. These trade at an average PER of 26x FY13 & 23x FY14, albeit with much higher return ratios than Raymond. Accounting for the same, we are valuing Raymond at a PER of 12x FY14 which gives us a value of Rs467/share. Further, the prime land in Thane owned by the company provides an option-value of Rs244-326/ share, although not included in our target price. We initiate coverage on the stock with a ‘BUY’,” says Prabhudas Lilladher research report. FIIs holding more than 30% 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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