FinQuest Securities is bullish on Raymond and has recommended buy rating on the stock with a target of Rs 500 in its August 04, 2014 research report.
"Raymond limited (RYMD) came out with decent set of numbers for Q1FY15. Sales grew by a good 26% Y-o-Y to Rs 10.97bn while the proforma loss narrowed Y-o-Y from Rs 409mn to Rs 290mn. However it was a steep drop from the Rs 150mn adj. profit it made in Q4FY14. A Rs 500mn boost from the shirting business bolstered the textile segment's growth to 27% Y-o-Y thus aiding in the company's overall growth. But this growth came at a cost as the margins were relatively lower compared to suiting fabric, thus pulling down the overall profitability of the Textile segment, and of the company as a whole. EBITDA margin was nearly flat Y-o-Y at 3.5%, however the sequential contraction was quite sharp at 626bps. The seasonally slow quarter of Q1 partly contributed to the contraction in margins. Coming to the business highlights, the Textile segment which has been the cash cow for the company performed better on the top line posting a growth of 27% Y-o-Y to Rs4.84bn, while margins expanded Y-o-Y by 60 bps though there was a sharp sequential contraction of 1000bps. Core textile sales grew 13% while the shirting business contribution aided in boosting the segment growth to 27%. Apparel segment continued to post good double digit top line growth over the past three quarters as sales grew 13.5% Y-o-Y to Rs 1.8bn in Q1FY15 but this is the segment which off late has impacted overall margins negatively, as it fell from a recent peak of 8.4% in Q3FY14 to -3.3% in Q1FY15. But one positive of this segment was that the company has been able to reduce the working capital requirement during the quarter which should boost the bottom line of this segment. Aggressive investments on revamping showrooms and higher advertising expenses (up 63% Y-o-Y) during the quarter were the main reasons for the margin drop. Garmenting was the best performing segment off late bettering its growth each consecutive quarter. Sales was up 50% Y-o-Y to Rs 1.24bn while margins also expanded 440 bps Y-o-Y to 12.9%. The company is operating at full capacity and is looking to expand facilities to boost production."
"The company mentioned that it was optimistic of the demand scenario improving over the next 6 months and would continue to invest in brand building, modernization and expansion of retail network and capacity expansion in export driven business (mainly garmenting). The company was becoming more aggressive on the e-commerce front with plans of offering Made to Measure (MTM) offerings through e-commerce portals. Management mentioned that in spite of new investments in export led businesses and revamping of stores and advertising expenses in FY15 it expects to deliver similar margins as FY14. The management expects the raw material prices to be stable but highlighted that the cotton prices would depend on monsoon and the overall output this year."
"We value the core equity of RYMD at a P/E of 14x FY15E earnings, which gives us a value of Rs 279/share while we value the land bank at Thane at 25% discount to the expected market value which comes to Rs 221/share giving a combined price target of Rs 500 for FY15E. Since the company is investing aggressively on boosting its apparel and export businesses earnings could be better in FY16E and valuation multiple could inch up and the company might be rerated. Any stake sale of its non-core businesses like the Tools and hardware business or the auto components might be positive for the stock price," says FinQuest Securities research report.
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