Raymond share price may hit ₹2,600, say analysts. Here’s why

Raymond share price surged over 13% to hit a 52-week high on Tuesday's trade after brokerages initiated 'buy' rating on the stock. Raymond stock price opened at intraday low of ₹2,090 apiece in BSE, and touched a intraday high at ₹2,240.

According to technical analysts, Raymond share price witnessed a strong gap up opening and has witnessed follow up buying backed with strong volumes. Considering the positive development they expect the upmove may continue in the near term, where the next resistance is in the zone of 2,330 -2,340 levels. The bullish gap left today around 2,070 - 2,100 to act as immediate support.

In its report, global brokerage Jefferies stated that it was focused on both growth and simplification. With a 28% potential increase from the market price of ₹2,023.90, the international brokerage has set a price target of ₹2,600.

In its research, Jefferies noted that Raymond has eased prior investor concerns over debt and company structure through sustained measures. The business has already generated net cash, and in less than 12 million it plans to list its leisure and real estate operations independently. Businesses are putting a strong emphasis on growth, as evidenced by, among other things, category expansion, market share gains, and premiumisation. The brokerage anticipates Raymond to expand revenues and earnings at a CAGR of 13% to 24% from FY23 to FY26E.

"Over FY23-26E, we forecast Raymond to report 13% revenue CAGR, with modest margin expansion. This should translate into 16% Ebitda CAGR. With net cash B/S, EPS growth should be at 24% and consol. ROCE should remain >15%, going forward.

We initiate at BUY with Rs2,600 price target (PT) based on SOTP (10x Ebitda for branded textiles, 2x EV/sales for branded apparel, 8x Ebitda for garmenting & shirting, 6x Ebitda for engineering, and 10% discount to NAV for real estate). Key risks to our PT include demand slowdown, sharp rise in key input prices and increase in competition," Jefferies said in its report.

Domestic brokerage, Motilal Oswal Financial Services too has a 'buy' rating on Raymond stock with a target price of ₹2,600. The brokerage sees 32% potential upside from the market price of ₹1,974.

Despite Raymond's long history, the brokerage said that the brand's market penetration has remained notably untapped. 

The company has improved its standing over the past two to three years by implementing strategic initiatives like: bolstering the senior leadership team across all management tiers; committing to technological advancements and instilling financial prudence with a healthy 21% reduction in Net Working Capital (NWC) over FY19-23 and turning net cash from peak net debt of ₹16b; and completing a thorough restructuring of the group's structure by divesting the FMCG businesses. These initiatives are probably going to be the primary growth drivers in the future.

"The optimisation of costs and WC, coupled with efforts to strengthen balance sheet and transition to a net cash position, have resulted in a robust capacity to generate substantial cash flow. Raymond should garner an ROE of 20%/17% in FY24/FY25. The real estate business, which has recently been incubated on the company’s land parcel in Thane, has seen strong execution.

Our SOTP-based model values the real estate business at FY25E EV/EBITDA of 5x on embedded EBITDA, assuming pre-sales of ₹20b and 25% EBITDA margin, and arrives at a valuation of ₹25b. Adjusting for the same, Lifestyle business is trading at a P/E of 15x. Subsequently, we assign a P/E of 22x on FY25E to Lifestyle business, arriving at a value of ₹2,070/share. Engineering business is valued at EV/EBITDA of 7x on FY25E, arriving at a value of ₹150/share. The combine value of Real estate, Engineering and Lifestyle business works out to be ₹2,600/share. We initiate coverage on the stock with a BUY rating," the brokerage said.