Buy Raymond Lifestyle Ltd for the Target Rs 880 by Motilal Oswal Financial Services Ltd
Strategic reset underway
* Raymond Lifestyle (RLL) delivered a decent 1QFY27 performance, with EBITDA at INR898m beating our estimate by 21%, supported by strong garmenting performance and ongoing cost rationalization.
* Garmenting emerged as the new growth driver, supported by a robust order book through Dec'26, improving export diversification and early benefits from the India-UK FTA. Higher utilization and cost-plus contracts should support further margin expansion.
* FY27 is likely to remain a consolidation year for branded businesses as the company prioritizes store rationalization, premiumization and channel productivity, with domestic demand recovery expected to be gradual.
* While garmenting is emerging as a meaningful growth driver, sustainable improvements in profitability will depend on recovery in the branded businesses and execution of the ongoing network optimization strategy.
* We trim our pre-IND-AS EBITDA estimates by 9-12% over FY27/28 and build in a CAGR of 7%/12%/19% in revenue/pre-IND-AS EBITDA/PAT over FY26-29E.
* We maintain BUY with a TP of INR880, based on 20x Sep’28 EPS. At ~15x FY28E EPS, the current valuation provides reasonable downside support as the company executes its ongoing transformation
Garmenting outperformance offsets weakness in the core business
* Consolidated revenue grew 6% YoY to INR15.2b (in line with our est.).
* Branded textile segment’s revenue declined 2% YOY (6% miss), whereas revenue from branded apparel grew ~4% YoY (12% miss). Garmenting revenue surged 50% YoY (25% beat), driven by execution of a healthy export order book.
* RLL closed net 26 stores in 1Q, bringing the total retail store network to 1,627.
* Gross profit grew 5% YoY to INR6.8b (6% miss), while gross margin contracted ~25bp YoY to 43% (103bp above our estimate).
* EBITDA grew to INR898m (21% beat) with EBITDA margin expanding 54bp YoY to 5.9% (vs. our estimate of 4.9%).
* Depreciation and amortization jumped 23% YoY (up 19% vs. our est.), while finance costs rose 10% YoY (56% up).
* Reported PAT loss stood at INR226m (vs. estimate of INR92m loss), primarily due to a higher effective tax rate
Valuation and view
* RLL's cash-generating textile franchise continues to fund investments in branded businesses, while garmenting is emerging as the second growth engine, aided by improving global sourcing trends and export opportunities from trade agreements.
* FY27 is likely to remain a consolidation year for branded apparel, with a focus on store rationalization, premiumization, channel productivity and profitable growth rather than network expansion.
* Store rationalization, cost transformation and operating leverage should drive ~100bp EBITDA margin expansion over FY26-28E, although a meaningful recovery in domestic branded demand is likely to be gradual.
* We trim our pre-Ind AS EBITDA estimates by 9-12% over FY27-28E to reflect a slower recovery in branded businesses. We now build in a CAGR of 7%/12%/19% in revenue/pre-Ind AS EBITDA/PAT over FY26-29E.
* We maintain BUY with a TP of INR880, based on 20x Sep'28E EPS. At ~15x FY28E EPS, the current valuation provides reasonable downside support as the company executes its ongoing transformation.
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