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Raymond has bounced back strongly with revival of the economy and increasing demand from its consumers led by the onset of wedding season and adoption of hybrid working culture. Also, cost control and store rationalization measures taken were fruitful leading to higher operational margins, positive cash flows and substantial reduction in debt. Each of the businesses has performed well posting positive to higher margins in Q2FY22. To further unlock value from each of the business segments, the management has recently announced a new initiatives of restructuring. Under this new initiatives, the company has consolidated its Engineering business comprising of Tools & Hardware and Auto Components into JK Files Ltd, is subsidiarising its Real Estate business and is consolidating its B2C business by transfer of its Apparel Business into Raymond Ltd. The new initiatives will help the company in following a focused approach for each of its business segments and will expedite the net debt reduction process. Raymond has taken a much awaited step to group related businesses and subsidiarize unrelated businesses leading to specialized business approach. We expect this initiatives to bear fruit as anticipated and aid the company in growing multifold over the next few years. We maintain our BUY recommendation for Raymond with an enhanced target price of ₹819.

Reorganizing the entire Business

Raymond recently announced a reorganising plan for creating better shareholder value by improving the synergy within all the businesses and deleveraging the Raymond Group. Under these initiatives, Raymond is putting similar products in the same basket to improve its synergy and to attract different pools of capital for its growth. Additionally, the company is expecting to turn net debt free in the next three years. Following initiatives has been announced:

Consolidation of Tools & Hardware and Auto Components in JK Files Ltd.

The consolidation of Tools & hardware and Auto component business into JK Files will aid in getting synergies in terms of product applications, business development, sourcing of raw material & logistics services and overall administrative processes. Both the businesses have garnered significant market share both internationally and domestically. Engineering business has demonstrated strong growth in EBITDA margins over the last few years, generated free cash flows and are debt free. Further, in line with the plans to monetize the Engineering Business, the company has recently filed a DRHP dated December 08, 2021 with SEBI towards an Initial Public Offer comprising of an Offer for Sale for ₹800 Crs.

Subsidiarisation of the Real Estate business.

Since the launch in 2019, the Real Estate business has witnessed strong traction in terms of bookings even during the pandemic period with almost 70% of the launched units booked. The 10 tower aspirational project offering 1 and 2 BHK units has resonated well with the customers owing to its affordability, location benefit and brand name. The company plans to take this momentum further by subsidiarising the Real Estate business and expanding its horizon outside Thane region. The company will transfer 40 acres of land to this subsidiary which also includes the ongoing 10 tower project. Raymond Ltd will continue to hold the balance land parcel i.e. ~80 acres (including the land allocated for school trust) until they find a suitable option to monetize.

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