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Real estate drives growth

* Raymond reported revenue/EBITDA growth of 21/29% YoY (6% beat/in line) in 4QFY24, led by the strong real estate revenue recognition (+2.4x YoY). Led by branded apparel (+23% YoY), lifestyle revenue/EBIDTA grew 6%/8% YoY. Improved domestic market conditions led to 7% YoY growth in the engineering business.

* Raymond has created three distinct vectors, i.e., Lifestyle, Real Estate, and an engineering unit Newco (by acquiring MPPL), with each segment reenergizing growth. Raymond maintains its net cash position at the group level and has the ability to scale up each segment with internal accruals. We expect its consolidated revenue/PAT to grow at 15%/20% over FY24-26. Reiterate BUY.

Margin improves in all segments due to GM and scale benefits

* Raymond’s consolidated revenue was up 21% YoY at INR26b (6% beat), led by strong real estate revenue recognition (+2.4x YoY).

* EBITDA rose 29% YoY to INR4.4b (in line), and margin was up 100bp YoY to 16.7%.

* Adj. PAT grew 18% YoY to INR2.3b (in line), but margin contracted 20bp YoY to 8.8% due to higher depreciation and interest costs.

* FY24 revenue/EBITDA/PAT increased 10%/9%/24% YoY by adjusting profit from the sale of its FMCG business.

* The board declared a dividend of INR10 per share (vs. INR3 in FY23).

* OCF declined 45% YoY to INR3.9b in FY24 (from INR7.0b in FY23), due to WC block of ~INR3.2b for the MPPL acquisition and higher lease costs. Capex doubled to INR2b, and higher interest costs of INR2.9b led to cash outflows of INR970m in FY24 (vs. FCF of INR3.7b).

* Further, the company paid INR7b to acquire Maini Precision Product (MPPL). As a result, net debt increased by INR9b to INR15b in FY24.

* Of the INR34b gross debt, about INR17b was internal debt.

Highlights from the management commentary

* Current environment: Discretionary spending was low in 4Q and a ‘Kshaped’ recovery continued, with high spending by premium customers. It expects subdued demand in 1HFY25 due to fewer wedding dates.

* Demerger status: The NCLT hearing for demerger approval is scheduled for 9th May’24 and expects a listing by Jun/Jul’24.

* Lifestyle: The company focuses on store expansion as it plans to open 200 stores in the next 12 months. It also focuses ad spending in branded apparel. It expects to sustain EBITDA margin in the current range.

* Real estate: Raymond has launched its JDA project in Bandra (first project outside Thane) and has received a strong response with bookings of INR3b. The projects in the vicinity are priced at INR30-32k/sft and the company’s project is priced at a slight premium to the micro-market.

Valuation and view

* Raymond has been demonstrating positive actions by selling its FMCG business, demerging its lifestyle business, shaping the real estate Business, and establishing an engineering unit ‘Newco’ after the MPPL acquisition. These three factors, along with professional management, net cash position at the group level and optimization of costs and WC, should augur well for Raymond.

* The stock is trading at a 15x P/E and 9x EV/EBITDA on FY26 estimates. This is significantly lower than the valuation of our retail & discretionary coverage companies, which are valued at ~45-50x on a one-year forward basis.

* We have increased our revenue/EBITDA estimates by 10%/8% for FY26 to account for MPPL’s full-year financials, modelling a CAGR of 10%/8% in revenue/EBITDA over FY24-26E. However, there is also an increase in debt by INR8.6b largely to fund the acquisition and old MPPL debt, implying 8x EV/EBITDA on FY24.

* Based on SOTP, we value the real estate business at 5x on FY26E EV/EBITDA on embedded EBITDA, assuming pre-sales of INR27.6b and 25% EBITDA margin, to arrive at a valuation of INR34.5b (i.e., INR520/share). Adjusting for the same, the Lifestyle business is trading at a P/E of 16x. Subsequently, we assign a P/E of 20x on FY26E to the Lifestyle business, arriving at a value of INR1,880/share. The Engineering business is valued at 7x FY26E EV/EBITDA, arriving at a value of INR185/share. The combined value of Real Estate, Engineering and Lifestyle businesses works out to be INR2,585/share. Reiterate BUY.

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