Apparel Brand Proves Profitable: A Wise Investment Opportunity?

Raymond, an Indian apparel brand, has delivered remarkable returns to its investors over the long term. Since hitting its COVID-19 lows of ₹210 in March 2020, the stock has gained more than six times its value. It has given its investors 502 percent returns in the past three years and currently trades at ₹1,265 (as of March 23, 2022), outperforming all of its peers in this period. By comparison, Shopper’s Stop has surged around five times, Tata Group’s Trent has advanced two times, and ABFRL, which operates Pantaloons, has risen 1.5 times.

The stock hit its all-time high of ₹1,644 in December 2021, up 682 percent from its COVID lows, but has been consolidating in the past couple of months. While the stock has risen 65 percent in the last year, 2022 has not been great for the retailer, with the stock falling nearly 17 percent year-to-date. It has lost four percent in March so far, extending losses from a 16.4 percent fall in February. However, it added 3.7 percent in January this year.

Long-term investors have had even better luck with the stock. In the last 25 years, from its all-time low of ₹27.67 hit in April 1998, it has surged around 4,470 percent.

In the December quarter, Raymond reported a decline of 4.42 percent YoY in net profit at ₹96.60 crore, mainly due to a one-time tax hit. Its revenue from operations, however, rose 17.61 percent to ₹2,168.16 crore during the quarter under review, as against ₹1,843.39 crore in the year-ago period. According to Raymond, this is the ‘highest-ever’ revenue in a quarter.

Raymond’s Chairman and Managing Director Gautam Hari Singhania said, “Raymond continues to leverage the buoyancy in domestic markets as the festivities added to the fervour of good consumer demand leading to delivering the highest-ever revenues in a quarter.” This was the fifth straight quarter where Raymond registered strong performance and generated free cash flows to further deleverage the balance sheet to below ₹1,000 crore of net debt levels.

Going ahead as well, the long-term investment opportunities remain intact for the stock. Brokerage house Systematix Institutional Equities has initiated coverage on the stock with a ‘buy’ call and target price of ₹1,832, indicating a potential upside of nearly 50 percent. The brokerage expects an 11 percent and 13 percent revenue and EBITDA CAGR over FY23-25E, respectively, on a consolidated basis. Continued strong cash generation should aid constant reduction in leverage and improvement in RoCE to 33 percent in FY25E from 17 percent in FY22.

Despite the strong move from COVID lows, as per the brokerage, its valuations at 6x FY25E EV/EBITDA look quite attractive given the visible step-up in execution and growth trajectory. “Given its lower historical growth trajectory and diversified presence in multiple business segments, the company is still ascribed lower-than-peer multiples across its businesses, which should re-rate as it displays consistent earnings delivery going forward. Real estate and FMCG could provide further triggers, as there is a large opportunity in both, which remains undiscovered,” it noted.

In conclusion, Raymond’s recent financial performance has been strong, and the possibilities for long-term investment opportunities remain intact for the stock. If you’re interested in investing in Raymond or other potential wealth generating stocks, do check out BM Focused Small Cap below.