Buy Raymond Lifestyle Ltd for the Target Rs. 1,405 by Motilal Oswal Financial Services Ltd
On course for recovery in FY26 with a focus on profitable growth
* Raymond Lifestyle (RLL) continued on its recovery journey in FY26 with ~7% YoY revenue growth, backed by strong domestic demand and a boost from the early festive season.
* EBITDA grew 5% YoY (~30% beat vs est.), driven by strong margin expansion in branded textile and recovery in garmenting margins.
* However, RLL continued to rationalize unprofitable stores (net 25 store closures in 1H), including in Ethnix, where the focus is shifting toward a profitability-focused distribution-led model rather than aggressive EBO expansion-led growth.
* After a subdued FY25, RLL is on course for recovery in FY26 (notwithstanding the macro challenges in the garmenting business).
* We raise our FY26-27E EBITDA by 2% each. However, due to higher depreciation and interest costs, we lower our FY26-27 EPS by 2-4%.
* We build in ~8% revenue CAGR over FY25-28E, with EBITDA margin expanding to 12.3% by FY28 (from 7.6% in FY25, though still lower than 14.3% in FY24).
* We value RLL at 22x Dec’27E P/E to arrive at our revised TP of INR1,405 (earlier INR1,360). We reiterate our BUY rating on RLL, primarily on reasonable valuations (22x FY27 P/E and 1.1x FY27 EV/sales).
Recovery continued, driven by robust show in domestic business
* RLL’s consolidated revenue rose 7% YoY to INR18.3b (2% ahead).
* Revenue was mainly driven by acceleration in domestic demand, driving improved performance in the Branded Textile (up 10% YoY) and Branded Apparel (up 11% YoY) segment.
* RLL closed net 12 stores in 2Q (25 net closures in 1H), bringing the total retail store network to 1,663 stores.
* The company opened three stores but closed four stores (opened nine and closed 22 in 1HFY26) in Ethnix, bringing the store network to 139 stores.
* Gross profit grew 5% YoY to INR8b (inline) as gross margin contracted ~115bp YoY to 43.6% (60bp miss).
* EBITDA grew 5% YoY to INR2.3b (29% beat) due to an improved product mix and operating leverage in the Branded Textile segment.
* EBITDA margin contracted ~25bp YoY to 12.3% (but above our estimate of 9.7%), largely due to better-than-expected margins in Branded Textile and Garmenting.
* Overall, Pre-IND AS EBITDA for 1HFY26 stood at INR1.9b (up 1% YoY), with margins contracting ~60bp YoY to ~5.8%.
* Depreciation and amortization surged 20% YoY (in line), while finance cost rose 13% YoY (21% above) as net debt increased.
* Reported PAT declined 53% YoY to INR752m (10% beat), driven by higher depreciation, interest cost, and higher tax rate.
* For 1HFY26, RLL’s revenue/EBITDA grew 11%/10% YoY. Based on our estimates, the required revenue and EBITDA growth run-rate for 2H stands at ~7% and 85% YoY (on a depressed base of 2HFY25).
* Core working capital days declined to 93 in 1HFY26 (vs. 105 YoY), driven by ~10 days YoY decline in receivable days to 67, while inventory days stood at 108 (vs. 110 YoY).
* RLL has an OCF (after interest and leases) outflow of INR3b (vs. INR4b outflow YoY), as adverse WC changes and higher interest outgo were offset by lower taxes. FCF outflow stood at INR 4.1b (vs INR 5.1b YoY).
* RLL reported net debt of INR2.6b (vs. INR0.5b by end-FY25).
Highlights from the management commentary
* Demand trends and outlook: Revenue growth was driven by robust domestic demand, supported by strong festive/wedding-led volume growth and solid bookings across textiles and apparel. With high dealer confidence and visible order preponement, demand momentum is expected to sustain through 2HFY26. Additionally, income tax cuts and GST rate rationalization are expected to further boost discretionary spending.
* Ethnix: RLL has pivoted Ethnix to a profitability-led, asset-light model centered on its distribution strength (TRS and select MBOs). The company rationalized over 20 unprofitable outlets. 1HFY26 revenue rose ~11% YoY, with hopes of higher growth in 2HFY26 on the back of a robust wedding calendar.
* Branded Apparel: Despite 11% YoY revenue growth in 2Q, margins contracted sharply to 5.2% due to increased investments in marketing to improve its brand visibility and subdued performance of stores opened in the last 12 months. Management indicated that margins will remain subdued in the near term due to elevated marketing spends and a longer break-even period for newer stores. The company is targeting early double-digit margins at an INR23-25b revenue scale.
* Garmenting: The segment grew 4% YoY in 2QFY26, but EBITDA margin contracted to 5.4% amid the implementation of US tariffs and customer shifts to lower-cost markets like Bangladesh. Management expects weakness in exports in the coming quarters, unless the tariff is revised downwards. Going ahead, management remains upbeat on potential growth from the recent India-UK FTA and RLL’s integrated supply chain strength.
Valuation and view
* After a subdued FY25, RLL is on course for recovery in FY26 (notwithstanding the challenges in the export-oriented garmenting business).
* We expect overall FY26 revenue to surpass FY24 levels. However, EBITDA (incl. other income) is likely to return to FY24 levels only by FY27, given elevated marketing spends in branded apparel and continued margin pressures in garmenting.
* We raise our FY26-27E EBITDA by 2% each. However, due to higher depreciation and interest costs, we lower our FY26/FY27E EPS by 2-4%.
* We build in ~8% revenue CAGR over FY25-28E, with EBITDA margins expanding to 12.3% by FY28 (from 7.6% in FY25, though still lower than 14.3% in FY24).
* We value RLL at 22x Dec’27E P/E to arrive at our revised TP of INR1,405 (earlier INR1,360). We reiterate our BUY on RLL, primarily on reasonable valuations (22x FY27 P/E and 1.1x FY27 EV/sales).
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