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Key points
Lifestyle retailer with strong brands and powerful distribution set-up: Raymond
is present in the fast growing discretionary & lifestyle category of branded textiles
and apparels. With the growing income, rise in aspirations to lead a luxurious life,
greater discretionary spending and favourable demographics, the segment of branded
apparels & fabrics presents a tremendous growth opportunity and Raymond with
its brands and superior distribution set up is very well geared to encash the same.
Core business back on track: For the last four years Raymond had been struggling
with a slew of issues, namely loss in the denim business, ERP roll-out issues, forex
issues, and duplicate plant cost at Thane and Vapi. These issues have been resolved
with the closure of the loss-making businesses and an amicable settlement with
the workers. Thus the core business has stabilised. The renewed focus on power
brands and on improving its penetration in tier-2 and tier-3 cities is expected to
drive the growth in the company’s core textiles business.
Branded apparel business gains critical mass: With a bouquet of strong brands
(like Raymond, Park Avenue, Parx and ColorPlus) in its portfolio Raymond is well
placed to cash in on the discretionary consumption opportunity offered by the
favourable demographic and income profile of the Indian consumer. The top-ofmind
brand recall along with a penetration-led strategy (762 exclusive stores,
presence in around 18,000 retail touch points) would help it in gaining critical mass
in the branded apparel segment. Currenlty branded apparel contributes ~22% to
the company’s total revenue. With renewed focus and enhanced retail thrust, we
expect the share to reach ~26% in the next 3-4 years time frame.
Land bank provides additional trigger: After reaching a VRS settlement with its
employees Raymond now has 120 acre of land (previously the location of the Thane
plant) in the heart of Thane city (situated at Pokhran Road) available for
development. The company is exploring options to monetise this land either through
an outright sale or joint development. Any development with regard to land bank
monetisation would provide additional trigger for the stock.
Attractive valuations: A branded play with a strong distribution franchisee, enhanced
focus and a turnaround story with improved earnings visibility, Raymond is trading
at 9.4x its FY2013 EPS of Rs41.2. This is attractive compared to the other branded
retail plays, and does not factor the inherent strength of the brand and renewed
focus and turn around status. Thus we believe that the stock is due for a re-rating.
Further, any development with regard to the Thane land in the form of either joint
development or disposal would lead to value unlocking and provide significant cash
to the company. We initiate coverage on Raymond with a Buy rating and our SOTP
based price target for the stock is Rs530 (valuing the core business at 10.5x FY2013E
earnings +50% value for the Thane land bank parcel).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key points
Lifestyle retailer with strong brands and powerful distribution set-up: Raymond
is present in the fast growing discretionary & lifestyle category of branded textiles
and apparels. With the growing income, rise in aspirations to lead a luxurious life,
greater discretionary spending and favourable demographics, the segment of branded
apparels & fabrics presents a tremendous growth opportunity and Raymond with
its brands and superior distribution set up is very well geared to encash the same.
Core business back on track: For the last four years Raymond had been struggling
with a slew of issues, namely loss in the denim business, ERP roll-out issues, forex
issues, and duplicate plant cost at Thane and Vapi. These issues have been resolved
with the closure of the loss-making businesses and an amicable settlement with
the workers. Thus the core business has stabilised. The renewed focus on power
brands and on improving its penetration in tier-2 and tier-3 cities is expected to
drive the growth in the company’s core textiles business.
Branded apparel business gains critical mass: With a bouquet of strong brands
(like Raymond, Park Avenue, Parx and ColorPlus) in its portfolio Raymond is well
placed to cash in on the discretionary consumption opportunity offered by the
favourable demographic and income profile of the Indian consumer. The top-ofmind
brand recall along with a penetration-led strategy (762 exclusive stores,
presence in around 18,000 retail touch points) would help it in gaining critical mass
in the branded apparel segment. Currenlty branded apparel contributes ~22% to
the company’s total revenue. With renewed focus and enhanced retail thrust, we
expect the share to reach ~26% in the next 3-4 years time frame.
Land bank provides additional trigger: After reaching a VRS settlement with its
employees Raymond now has 120 acre of land (previously the location of the Thane
plant) in the heart of Thane city (situated at Pokhran Road) available for
development. The company is exploring options to monetise this land either through
an outright sale or joint development. Any development with regard to land bank
monetisation would provide additional trigger for the stock.
Attractive valuations: A branded play with a strong distribution franchisee, enhanced
focus and a turnaround story with improved earnings visibility, Raymond is trading
at 9.4x its FY2013 EPS of Rs41.2. This is attractive compared to the other branded
retail plays, and does not factor the inherent strength of the brand and renewed
focus and turn around status. Thus we believe that the stock is due for a re-rating.
Further, any development with regard to the Thane land in the form of either joint
development or disposal would lead to value unlocking and provide significant cash
to the company. We initiate coverage on Raymond with a Buy rating and our SOTP
based price target for the stock is Rs530 (valuing the core business at 10.5x FY2013E
earnings +50% value for the Thane land bank parcel).
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