Opening Shock on NSE
Welcome to another blog post today we discussed “Why Raymond Share fall 40% , Lets See what is the reason behind it” Raymond Ltd opened at Rs 1,906 on the NSE. Marking a sharp decline of 39.60% from the previous day’s close of Rs 3,156.10. This drastic drop coincides with the ex-date for the demerger of its lifestyle business, which will now trade independently.
Post-Demerger Valuation
Motilal Oswal Financial Services Limited (MOFSL) had earlier pegged the post-demerger value of Raymond Ltd at Rs 1,415 per share. With Rs 1,200 attributed to its real estate segment and Rs 215 to its engineering business. The lifestyle business, soon to be listed separately is expected to be valued at Rs 2,930 per share. According to domestic brokerage estimates.
Market Movement
Despite the initial plunge, Raymond’s stock showed resilience as the trading session progressed. Rising to Rs 2,009.80, a 3.07% increase from its opening price. InCred Equities provided a breakdown of the fair values Rs 1,982. For the lifestyle business, Rs 1,086 for real estate, and Rs 499 for engineering.
Demerger Strategy
The demerger of the lifestyle business is a strategic move within Raymond’s larger plan. Which includes the eventual separation of its real estate business. This subsequent demerger is projected to take 15-18 months. Post these changes, Raymond Ltd will solely encompass the engineering segment. The lifestyle business will offer four shares of Raymond Lifestyle Ltd for every five shares of Raymond Ltd. While the real estate business will have a 1:1 share exchange ratio.
Strategic Intent
Arihant Capital Markets emphasized that these moves aim to establish three distinct business entities, thereby unlocking greater value. The real estate division currently has 40 out of 100 acres of legacy land in Thane under development. With a projected revenue potential of Rs 25,000 crore over eight years.
Real Estate Outlook
The ongoing joint development agreements (JDAs) are expected to generate Rs 7,000 crore in revenue within the next 4-5 years. This business segment boasts Rs 500 crore in cash reserves and requires no significant capital investment for the upcoming two years. By the third year, it aims to reach an annual revenue run rate of Rs 4,000 crore while maintaining a stable EBITDA margin of 25%.
Engineering Business Prospects
Arihant Capital Markets highlighted the acquisition of MPPL as a significant catalyst for the engineering business, particularly in the aerospace and defense sectors. In FY24, the engineering division reported revenues of Rs 300 crore with a 25% margin, compared to the mid-to-low teen margins of Raymond Engineering.
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Future Growth
The consolidated engineering business, comprising Raymond Engineering and MPPL, is poised for substantial growth. MPPL, known for its high margins, aims to double its revenues within 3-4 years, while Raymond Engineering plans to achieve the same milestone in 5 years. The “Make in India” initiative is expected to drive increased demand from major players like HAL, with Raymond being a preferred supplier for aerospace giants such as Boeing, Airbus, and Comac.
In summary, Raymond Ltd’s strategic demerger aims to unlock significant value across its diversified business segments, setting the stage for enhanced growth and profitability in the coming years.