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Recovery underway; margin remains soft

• Raymond Lifestyle (RLL) posted a 17% YoY revenue growth (5% beat), albeit on a low base. Growth was led by textile & apparel, though garmenting faced headwinds due to uncertainty around the US tariffs.
• EBITDA grew 29% YoY, though 35% below our estimate as margins got impacted by higher marketing spends and scale deleverage in garmenting. Managementis confident of a margin recovery in 2H.
• Although the overall demand environment remains challenging, there are signs of improvement, with stronger momentum in order bookings.
• Post a sharp correction (down 46% YTD), its valuation appears attractive at ~19x FY27E PE or ~1x FY27 EV/sales. However, we believe improvement in execution and sustained growth recovery remain key for re-rating.
• We cut our FY26-27E EPS by ~11-14% due to weaker margins and the impact of the US tariff-related uncertainty in the garmenting segment. We build in ~9% revenue CAGR over FY25-28E, with margins expanding to 12.3% by FY28.
• We value RLL at 22x Sep’27E P/E to arrive at our revised TP of INR1,425. We reiterate our BUY on RLL, primarily on reasonable valuations.

Growth recovers on a low base, but margins remain weak

• RLL’s consol. revenue rose 17% YoY (on a low base) to INR14.3b (+5% beat).
• Revenue increase was mainly driven by improved performance in the Branded Textile & Branded Apparel segment, led by volume growth.
• RLL closed a net of 13 stores in 1QFY26, taking the total retail store network to 1,675.
• The company opened six stores but closed 18 stores in Ethnix to take the store network to 140.
• Gross profit grew 17% YoY (-1% QoQ) to INR6.2b (3% above our est.) as gross margins contracted ~5bp YoY to 43.3% (+150bp QoQ).
• EBITDA grew 29% YoY to INR770m due to improved product mix and operating leverage, but it was ~35% below our estimate due to losses in garmenting and higher advertisement spends in branded apparel.
• EBITDA margin inched up ~50bp YoY to 5.4% (significantly below our estimate of 8.7%), due to weaker margins across segments despite revenue growth.
• Depreciation and amortization rose 19% YoY (23% above), while finance costs jumped 24% YoY (13% above).
• Other income surged 52% YoY (40% above our estimate). ? Despite higher other income, the company reported a loss of INR198m (vs. our est. PAT of INR200m).

Highlights from the management commentary

• Demand outlook: Global macro uncertainty, especially the persisting US tariff overhang, is impacting consumer sentiment. While a newly signed FTA with the UK is a positive long-term development, the alignment of supply chains could take time. Demand recovery is underway, aided by dealer restocking and a slight improvement in consumer sentiment. July fared better than expected for the management, aided by a successful garment exchange program (~900 stores participated, 55,000+ new customers onboarded). Fabric and apparel segments performed well, but management continues to retain its cautious stance on the demand outlook.
• Consumer sentiment: The sentiment improvement over last year has been driven by the interest rate cuts and higher disposable income after the income tax rate cuts. However, customer demand is still not back to FY23-24 levels, as there is still some cautiousness among consumers, driven by global uncertainties. Cautious optimism is visible in trade bookings and customer engagement. Internal initiatives (pricing, product innovation, and policy tweaks) are helping drive share gains even in a subdued environment.
• Store footprint: Store count stood at 1,675, with a net decline of ~13 stores QoQ. Ethnix by Raymond opened six stores and closed 18 underperformers. The company reviewed its store footprint and took a call to shut 35 underperforming stores. The closures in Ethnix were driven by higher competition from organized as well as local boutiques.
• US and UK share in business: Exports form 15-17% of revenue, while the US contributes ~6.5-7% of RLL’s total revenue, out of which ~2-3% is met through exports from Ethiopia, which has low ~10% tariffs. The UK contributes ~15% of the garmenting revenue and should see improvement over the medium term with the FTA with the UK.
• FY26 outlook: Management expects FY26 to be a much stronger year vs. FY25. Momentum in AW26 bookings was solid. With internal levers like better product mix, shelf space gains, and brand refreshes, they anticipate margin and volumeled growth in FY26.

Valuation and view

• Following a sharp correction (down 46% YTD), valuation appears attractive at ~19x FY27E PE or ~1x FY27 EV/sales. However, we believe improvement in execution and sustained growth recovery remain the key for re-rating.
• We cut our FY26-27E EPS by ~11-14% due to weaker margins and the impact of the US tariff-related uncertainty in the garmenting segment. We build in ~9% revenue CAGR over FY25-28E, with margins expanding to 12.3% by FY28.
• We value RLL at 22x Sep’27E P/E to arrive at our revised TP of INR1,425. We reiterate our BUY rating on RLL, primarily on reasonable valuations.

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