Buy Raymond; target of Rs 761: FinQuest Securities

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26 Aug, 2025 12:21

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FinQuest Securities' report on Raymond

The continued promotional spend to strengthen the core brands of Raymond Ltd. (RYMD) and revamping of its stores has delivered results for the company. The topline was up 13% Y-o-Y to Rs 14.12 bn mainly aided by its textile business which grew by a stellar 27% and contributed to 89% of the total EBITDA (up from 67% in Q4FY14). The textile business outshined other business segments which reported below par performance.

The company had significantly stepped up ad spends, new store roll-outs, along with stores renovation, as a part of brand building exercise in the life style business which took a toll on the margin front. The company was one of the sponsors of the Cricket World Cup 2015 which led to higher ad expenses in the quarter. The ad spent for FY15 came in at Rs 2.28bn as compared to Rs1.4bn for FY14. The commensurate effect on sales might not have been visible completely in Q4FY15 itself. The subdued performance of the engineering and automotive businesses continued in Q4FY15 as both businesses reported operating losses. The overall EBIDTA margin contracted by 330 bps Y-o-Y and 379 bps sequentially to 6.5%.

The company is focusing on building its brands and is bound to incur higher promotional expense in the near term. On the other hand it is also revamping its stores to give a new shopping experience for the customer. This might lead to lower profitability in the next few quarters from the Apparel business. So we expect a higher topline growth but margins might be subdued. Even in the recently concluded autumn winter (AW15) season the company mentioned that the bookings grew by 15-18% Y-o-Y.

Valuations"RYMD is one of the few companies which has a strong brand but still trades at a discount to some of its branded peers, the reason being lower RoE and weak margin profile of the company. However, as the company continues its brand building initiative and revamps showrooms, its apparel business should gain traction. This would inevitably boost sales and profitability. Further, the decline in interest rates should aid the company in terms of interest costs while the ERP coming on a common platform would help reduce the working capital cycle going ahead."

"Considering the weak broader markets, looming rainfall deficiency coupled with sub-par performance from its engineering and auto division we cut the core valuation multiple of RYMD from 15x FY16E to 13x and arrive at a value of Rs 486/share. We value the land bank at Thane at 40% discount to the market rate (down from our earlier 30%) at Rs 275/share owing to not much clarity about its value unlocking plans, giving a combined price target of Rs 761 for FY16E. Any stake sale of its non-core businesses like the auto components and any new development on the Thane land could be a major positive for the stock price. Buy the stock for target price of Rs 761", says FinQuest Securities research report.

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