Raymond Lifestyle Ltd: A Value Buy or a Value Trap

Raymond Lifestyle Limited (RLL) isn't just a name; it's a legacy woven into the fabric of India's retail and textile scene. Holding a substantial 20% market share in the worsted suiting fabric industry, RLL has become the go-to brand for quality and style in Indian households. From snazzy suits to cosy sleepwear, RLL’s product range is as diverse as India itself. As they delve into new markets like ethnic and sleepwear, they’re not just following trends—they're setting them!

But the question on every investor's mind is: Is this a golden opportunity for value investors, or is it a siren leading to a value trap? Let's analyze the company and find out.

A Brief History: From Raymond Consumer Care to Raymond Lifestyle

Once just a modest textile mill in Thane, Maharashtra, since 1925, the Raymond Group has grown into a behemoth, synonymous with premium fabrics. Over the years, they expanded into realty and personal care but decided to pivot in April 2023, selling off the personal care segment to Godrej Consumer Products Limited for a cool ₹2,825 crore. This wasn't just a sale; it was a strategic move to focus on what they do best - lifestyle and textiles.

Out of this strategic realignment emerged Raymond Lifestyle Limited, a brand now fully dedicated to weaving dreams through fashion. By shedding its consumer care business, RLL sharpened their focus on high-growth areas like wedding wear, ethnic attire, and sleepwear, positioning itself as a leader in the fashion narrative.

Business Segments and Valuation Insights

RLL operates across four key segments, each with potential growth trajectories:

Branded Textiles

• The heart of RLL, pumping out 55-60% of the revenue, especially from those once-in-a-lifetime wedding outfits.
• With a modest but steady projected revenue CAGR of about 2% from FY24 to FY27, they're aiming for a quality-over-quantity approach, expecting a margin boost by 100 basis points.
• In a market where weddings are not just events but celebrations of life, RLL's textiles are the silent stars.

Branded Apparel

• Here's where the magic happens, with an anticipated revenue CAGR of 24% over the same period. Why? Because RLL isn’t afraid to get creative with Ethnix by Raymond for those cultural vibes and Sleepz by Raymond for comfort wear.
• They're on an ambitious mission to expand from 463 to 900 exclusive brand outlets by FY27, using a franchise model to make fashion more accessible yet exclusive.

Garmenting

• RLL is stitching its way into the global market, thanks to trends like China+1 and favorable trade agreements.
• With clients like Calvin Klein and Tommy Hilfiger, they're eyeing an 11% CAGR by FY27, turning every stitch into a step towards global recognition.
• The challenge? Keeping up with international standards while scaling up.

High-Value Cotton Shirting (HVCS)

• A segment that quietly supports the portfolio with a steady 7% CAGR projection. It's all about quality here, serving B2B clients who demand the best in cotton shirting.

Valuation Analysis

Let's do a rough valuation check. We will be conservative in our estimates.

The company will generate an EBITDA of around Rs. 1000 Cr. Total number of shares are 6.09 Cr. 

At the current market price of Rs. 1890 (as of 22 Jan 2025), the market cap comes to around Rs. 11,500 Cr. As the company is debt-free we can say that EV is the same as market cap. So currently it is trading at around 11 times EV/EBITDA.

The closest peer is ABFRL which trades at EV/EBITDA of 22. 

That means Raymond Lifestyle is trading at half the valuation compared to its listed peer. So the valuation is really attractive at the moment. In fact the stock is really cheap.

Is RLL a Value Buy or a Value Trap?

Value Buy:

• Lower EV/EBITDA Ratio: Indicates potentially undervalued stock compared to peers, especially in a sector known for high valuations.
• Growth in Apparel: The aggressive expansion and innovation in apparel could lead to significant revenue growth, supporting current valuations.

Value Trap:

• Modest Growth in Textiles: If the textile segment does not meet growth expectations, the stock might be overvalued for its potential.
• Market Sentiment: The initial drop in share price after listing might reflect scepticism or profit-taking, hinting at underlying concerns about long-term growth or profitability.

Now let's look at the other side of the coin. Let's analyze the risks.

Challenges and Risks

Demand Volatility: Dependence on discretionary spending makes the business vulnerable to economic downturns, as seen during extended periods of demand weakness.

Execution Risks: Historical volatility in execution efficiency has affected profitability. Meeting aggressive growth targets in branded apparel and garmenting may prove challenging.

Seasonal Dependence: Approximately 35-40% of revenue is tied to the wedding and ceremonial wear segment, which is heavily influenced by seasonality.

Competitive Landscape: Increasing competition from both organized and unorganized players, particularly in branded apparel and ethnic wear, poses a significant risk.

Global Trade Risks: Geopolitical tensions or unfavourable changes in FTAs could impact the garmenting export segment’s growth trajectory.

Chart Analysis

Now, let's take a look at the chart.

As of now, the chart is showing a clear downtrend. And so has been the case after listing on exchanges. There was some initial selling from institutions but after that, there should have been some sort of recovery.

That has not happened. So, even though the stock is really cheap based on valuations, you can avoid it. Once the trend changes and the price starts trading above short-term moving averages, it can be considered for investment or trade. 

Remember that no matter how amazing the future growth projections are, price helps you make the money at the end of the day!

Conclusion

Raymond Lifestyle Limited stands at a crossroads where its valuation can be seen as either a promising investment or a cautionary tale. For value investors, the lower P/E ratio and strategic focus on high-growth segments like branded apparel could make RLL an attractive buy. However, the risk lies in the execution of these strategies and the stability of revenue from traditional textiles.

Investors should weigh the potential for RLL to expand its market share in lifestyle products against any macroeconomic headwinds or sector-specific challenges. With prudent analysis, RLL might just be the fabric of a smart investment portfolio or a pattern to avoid if expected growth doesn't materialize.

Source: Company presentation, Public information