Raymond Split: Value Unlocked at Play; Should You Buy, Hold or Sell Shares?

Raymond Ltd shares are currently in focus as they unlock value as the first stage of the spin-off begins soon. Raymond Lifestyle will be the first to take action, with the cut-off date set for July 11. Analysts expect the stock to go public in August or September.

In addition, Raymond has proposed a separation of its real estate business with a 1:1 stock exchange ratio between Raymond and Raymond Realty.

In the recent past, the company has taken some positive steps, including selling its FMCG business, expanding its real estate business and acquiring Maini Precision Products. All of this is reflected in Raymond’s share price, which has risen 77 percent so far in 2024.

According to InCred Equities, management’s focus on running three pure-play businesses under separate, professional leadership indicates room for improvement in all areas. The spin-off of the real estate business is expected to take 12 to 15 months, InCred Equities said. By the end of the 12 to 15 months, there will be three pure-play Raymond companies, it said.

Raymond’s management has stated that once the businesses reach a certain scale, they will be converted into pure play companies.

On Raymond’s real estate business, Antique Stock Broking said the business is going well and the Pokhran Road project is already an established flagship project in Thane. With a stable business performance under the asset light model, Raymond Realty expects sales bookings to continue to achieve a CAGR of 25% and embedded EBITDA margin of over 30%.

This brokerage firm maintained its buy rating on Raymond and suggested an upwardly revised target price from Rs 2,670 to Rs 3,905.

“The next value creation initiative is expected in the engineering sector, following the acquisition of Maini Precision Products (MPPL) for
6,820 crore, which will be divided into two subsidiaries, one of which will house MPPL’s ​​aerospace and defence (A&D) business and the rest will be consolidated under a single entity. The Raymond group intends to double the A&D business, which currently generates revenues of Rs 270 crore, over 3-4 years, led by the aerospace components business, and aims to maintain 25-26 per cent Ebitda,” InCred Equities said.

Buying opportunity?
The brokerage has raised its target price on Raymond to Rs 3,650 and maintained its ‘ADD’ rating on Raymond on the back of strong momentum in the real estate business, supported by fresh JDAs beyond the Thane property and value release of the engineering business.

The value of the lifestyle business is estimated at Rs 1,982 crore, the real estate business at Rs 1,086 crore and the engineering business at Rs 499 crore per share.

“After the first part of the demerger, we expect Raymond/RLL to be fair valued at Rs 1,586 and Rs 1,982 respectively. We believe any mispricing of Raymond after the first demerger (after July 11, 2024) below our estimated fair value would represent a buying opportunity,” it said.

MOFSL said the per share value of Raymond after the record date will be Rs 1,415, which includes Rs 1,200 for real estate and Rs 215 for engineering business. The lifestyle business may be listed at Rs 2,930 per share, it said.

“The total value of the three companies is Rs 3,755 per share. We maintain a buy rating on the stock,” MOFSL said.