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On a transformative journey Rising focus on branding, re-energizing and expanding legacy brands

* Pure-play Lifestyle company from the House of Raymond: Raymond Lifestyle Limited (RLL), formed as a demerger from Raymond Ltd, has a strong presence in men’s wear (with ~65% share in worsted suiting). RLL’s portfolio includes branded textiles (B2B and B2C) and several apparel brands (such as Park Avenue, ColorPlus, Ethnix by Raymond) that cater to formal, casual and ethnic wear. With a strong brand affinity and wide distribution network, RLL has ~5% share in men’s wedding wear industry.

* Multiple growth levers at play: We anticipate RLL’s growth will be driven by: 1) fast paced growth in branded apparels through retail expansion (target to double EBOs); 2) capitalizing on opportunities from Bangladesh +1 and China +1 trends in B2B garmenting; 3) launch of new categories such as innerwear and sleepwear; 4) increasing focus on casualization and premiumization of portfolio, and 5) achieving sourcing efficiencies through scale, which could enhance operating leverage.

* Raymond striving to enhance shareholder value…: Over the past few years, Raymond Group has taken several steps such as demerging the Lifestyle Business, vertical demerger of the Real Estate Business, restructuring of engineering business and strategic sale of the FMCG business. These initiatives have simplified the group structure into pure-play listed lifestyle, realty and engineering companies, which has potential to enhance shareholder value. Each business is managed by professionals, with a sharp focus on maintaining net cash balance sheet, optimizing costs and managing working capital effectively.

* …through fast paced growth in branded apparels: RLL enjoys a strong brand affinity in men’s wear, but trades at relatively lower valuation due to sluggish execution in the past, with significant PAT volatility over FY10-20. Historically, concerns were related to weak growth and profitability, a high working capital cycle, and leveraged balance sheet. However, in recent years, RLL has optimized its working capital and achieved net cash position, ahead of the guidance. Additionally, RLL has improved its pre Ind-AS EBITDA margin through rationalization of unprofitable stores/formats and effective cost controls under the leadership of Mr. Sunil Kataria (ex-GCPL), with margins improving to ~12% in FY24 from single digit during FY17-20. RLL is now focused on fast paced growth in branded apparels through network expansion, foray in new categories such as sleepwear, innerwear and ramp-up of Ethnix by Raymond.

* Initiate coverage with a BUY: We expect RLL to deliver a revenue/PAT CAGR of 11%/15% over FY24-27. We initiate coverage on the stock with a BUY rating and a TP of INR3,200 premised on 30x Sep-26E PE (implied 16x EV/EBITDA). Scaling up the underpenetrated brand RLL boasts a legacy collection of well-established brands such as Park Avenue, Raymond RTW, Parx, and ColorPlus. However, it remains under-penetrated, with a total of 424 Exclusive Brand Outlets (EBOs) as of end-1QFY25. Each brand has the potential to reach at least 250 EBOs individually, significantly under-indexed versus peers with EBO count of 2,636 for ABFRL Lifestyle Brands and 931 for Arvind Fashion. RLL's strategy focuses on opening EBOs in Tier 1 and Tier 2 cities and selectively in Tier 3 and Tier 4 cities. Consequently, the combination of a franchisee-led model and under-penetrated brands presents a significant opportunity for growth.

The expansion plan for branded apparel will be driven by two key strategies:

1) retail network expansion, which involves increasing the number of EBOs, Large Format Stores (LFS) counters, and Multi-Brand Outlets (MBOs) at a CAGR of 30%, 23%, and 7% over the next three years, to 900, 2,500, and 5,500, respectively; and 2) brand extension initiatives, including i) a sleepwear line, SleepZ by Raymond, ii) Park Avenue Innerwear, and 3) ramping up presence in ethnic wear through Ethnix by Raymond. We anticipate that these three brand extensions could generate annual revenue of ~INR2b, INR1b, and INR5b by FY27, respectively, contributing an incremental revenue of around INR7b in FY27 (vs. FY24). With a revenue base of INR16b (accounting for 24% of total revenue), we expect branded apparel segment to be a key driver of growth. We are modeling a revenue CAGR of ~25% over FY24- FY27, with a focus on network expansion through a capex-light franchise model.

Capitalizing on the Bangladesh and China opportunities Recent turmoil in Bangladesh

(~USD50b market opportunity), a global movement towards China +1 strategy, along with new free trade agreements (FTAs) with the UK, EU, and Australia, could create a large opportunity for India in garmenting business (currently a USD16b export market). Any shift in business from Bangladesh presents significant growth potential for India. Raymond’s garmenting segment is predominantly a B2B exports business (exports accounting for over 95%), which places it in an advantageous position. In the aftermath of recent turmoil in Bangladesh, Raymond has been receiving a substantial number of inquiries from large foreign brands. RLL is incurring a cumulative capex of INR2b over FY24-25 to increase its capacity, which put together could generate an incremental revenue of over INR4b by FY27, based on asset turnover ratio of ~2x. Assuming an EBITDA margin of 10%, this could yield an incremental EBITDA of over INR400m, with a posttax return on capital employed (RoCE) of ~15-16%. Given the macroeconomic tailwinds, we are projecting a 14% revenue CAGR over FY24-27, positioning garmenting as a second largest growth driver for RLL.

A net-cash company with improving cash flows

Historically, investors’ primary concern on Raymond, was its weak balance sheet, a factor that impeded its growth potential. However, over the past three to four years, RLL has undertaken several measures to reduce receivables, particularly in the branded textile and apparel businesses, and optimized its inventory levels with net working capital (NWC) days have decreased to 78 in FY24, from over 100 days prior to FY20. The strategic sale of the FMCG business has enabled RLL to become a net cash entity. Going ahead, RLL plans to: a) adopt an asset-light franchise model for store expansion, and b) grow without inflating working capital by ensuring disciplined WC management and maintaining working capital days at ~75. This strategy is expected to generate operating cash flow (OCF) of around INR7b annually over FY24-FY27. Further, after accounting for maintenance & incremental garmenting capex of ~INR1b in FY25, RLL is projected to generate a robust free cash flow of ~INR4.7b on average annually over FY24-27.

Valuation and view

Although the valuation of the Raymond’s Lifestyle business has almost doubled since the demerger, the stock is currently trading at a relatively lower P/E and an EV/EBITDA (pre-Ind-AS-116) of 25x and 16x on FY26E, respectively. The valuation is significantly lower than that of our Coverage Universe and other retail and discretionary companies, which are valued at an EV/EBITDA of ~35-40x on FY26E. While RLL benefits from strong brand affinity, its valuation has been impeded by sluggish execution in the past (volatility in PAT growth over FY10-20). However, as RLL continues to exhibit a positive growth trajectory, characterized by revenue/PAT CAGR of 11%/15% over FY24-26E, we believe valuations could re-rate. The growth in the Branded Apparel segment led by network expansion and ramp-up of new categories (sleepwear, innerwear and Ethnix) will augur well for RLL. By enhancing sourcing efficiency, leveraging scale benefits, optimizing working capital, and adopting an asset-light model, RLL could achieve robust cash flow generation; however, successful execution remains crucial. We factor in 11%/14%/15% revenue/EBITDA/PAT CAGR over FY24-27. Additionally, we anticipate a return on invested capital (ROIC) of 24%, 26%, and 30% in FY25, FY26, and FY27, respectively. With improved FCF generation, RLL could look to increase shareholder returns through dividends. We value RLL at a PE multiple of 30x on Sep’26E (implied 16x EV/EBITDA), resulting in equity valuation of INR195b (or INR3,200 per share). Key downside risks to our TP include a prolonged demand slowdown, inflationary pressures, leadership attrition, and competition from established apparel players.

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