Raymond’s Radical Restructure: 3 Businesses Unleashed for 25000 Crore Windfall!

Raymond Ltd’s shares plummeted by nearly 40% as the company demerged its lifestyle business, set to list separately. The demerger aims to unlock value, projecting Raymond Lifestyle at Rs 2,930 per share and the remaining Raymond businesses at Rs 1,415 per share. Future plans include demerging the real estate segment and focusing on the high-growth, high-margin engineering business, particularly in aerospace and defense.

CONTENTS: Raymond’s Radical Restructure

• Raymond demerger tanks stock price
• Raymond demerges, unlocks value
• Raymond diversifies, growth prospects

Shares of Raymond Ltd plummeted by 40% at the market open on Thursday as the stock became ex-date for the demerger of the company’s lifestyle business. The stock was now trading without including the lifestyle business. This demerged segment will be listed separately on stock exchanges around August-September.

Current Raymond shareholders will receive four shares of Raymond Lifestyle for every five Raymond shares they hold. Thursday is the record date for this distribution. The Raymond stock opened at Rs 1,906 on NSE, reflecting a 39.60% drop from the previous day’s close of Rs 3,156.10.

However, the stock regained some value during the session, later trading at Rs 2,009.80, up 3.07%. Motilal Oswal Financial Services (MOFSL) had previously estimated Raymond Ltd’s per-share value post-demerger at Rs 1,415, comprising Rs 1,200 for real estate and Rs 215 for the engineering business. They also projected the Lifestyle business to be listed at Rs 2,930 per share.

Cred Equities has estimated the fair value of Raymond’s lifestyle business at Rs 1,982 per share, the real estate business at Rs 1,086 per share, and the engineering business at Rs 499 per share.

The demerger of the lifestyle business is part of a larger strategy, as Raymond also plans to demerge its real estate business within the next 15-18 months. Following these changes, Raymond Ltd will consist solely of the engineering business. The share exchange ratio for the lifestyle business listing is 4:5 (four shares of Raymond Lifestyle for every five Raymond shares), and the ratio for the real estate listing will be 1:1.

“This restructuring aims to create three focused businesses to enhance value,” said Arihant Capital Markets. Regarding the real estate business, 40 out of 100 acres of legacy land in Thane is under development, with a revenue potential of Rs 9,000 crore. The remaining 60 acres have a revenue potential of Rs 16,000 crore, totaling Rs 25,000 crore, expected to be realized over the next eight years.

Raymond’s Radical Restructure: The current joint development agreements (JDAs) have a revenue potential of Rs 7,000 crore, expected to be realized within 4-5 years. This business segment holds Rs 500 crore in cash and does not anticipate significant capital needs for the next two years.

Over the next three years, the real estate business is projected to achieve an annual revenue run rate of Rs 4,000 crore, maintaining a stable EBITDA margin of 25%. The company plans to expand through the JDA route rather than acquiring new land, noted Arihant Capital Markets.

Regarding the engineering business, the acquisition of MPPL has unlocked substantial potential in the aerospace and defense sectors. In FY24, this business segment generated Rs 300 crore in revenue with a 25% margin, compared to Raymond Engineering’s mid-to-low teen margins.

“The consolidated engineering business will comprise two subsidiaries: Raymond Engineering and MPPL. MPPL is a high-growth, high-margin entity expected to double its revenues in 3-4 years. Raymond Engineering is also projected to double its revenues in five years. We anticipate increased demand from major players like HAL due to the ‘Make in India’ initiative. They are also preferred suppliers to Boeing, Airbus, and Comac,” stated Arihant Capital Markets.