Raymond (Buy, Target Rs.600)
Ø Raymond is India’s most trusted apparel brand with top of the mind consumer recall across all its 4 brands – Raymond, Parx, Park Avenue & Color Plus. The Rs35bn company operates ~ 900 stores in India (80% of which is franchisee owned) due to which it has a relatively asset light business model with an asset turnover of 3x and a comfortable cash conversion cycle of ~ 115days.
Ø The current year in our opinion is a year of consolidation for Raymond and although its 10% ROE business does not seem exciting we believe that this business could post a smart turnaround in operations next fiscal and the company has the potential to record a net profit of Rs2bn and report an EPS of Rs35
Ø Its 125 acre land parcel in Thane in our opinion is worth Rs30bn whenever it is able to monetize the same in which case it could use the proceeds to pare down debt worth Rs10bn. The present market capitalization of Rs28bn makes Raymond trading at 13xFY’13-14E earnings a good investment bet with a one-year price target of Rs600. BUY
TECHNICAL VIEW
Ø Daily price chart suggests the formation of an ascending triangle formation, the breadth of which is close to 200 points for Raymond. This indicates that with the completion of the pattern and the breakout above 430 levels the stock could be in for a strong upside in the next year or so.
Ø Even the larger pattern is a complex inverse Head and Shoulder which further adds support to the breakout level. It is also one of the strongest stock and is the closest in its peer group to its all time high levels (630), which indicates that it is one of the best price performers in its sector since the last 2-3 years. The rising trendline can be considered as a strong support level for the stock.
Thanks and Regards
LKP Advisory
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