Raymond Ltd Charts Course for Growth Through Strategic Restructuring; Concall Analysis

Raymond Ltd’s recent corporate initiatives signal a period of strategic transformation. The company is undertaking a multi-pronged approach to enhance shareholder value and streamline operations, as highlighted during a recent conference call. Key areas of focus include demergers, real estate strategy, and engineering business expansion.

Demergers and Sharper Focus

A significant development is the demerger of Raymond’s real estate business into a separate entity, Raymond Realty Ltd (RRL). This move is expected to create a distinct, net debt-free, publicly traded real estate company. The demerger process is anticipated to take 12-15 months to complete, allowing Raymond Ltd to concentrate on its core businesses of real estate (through RRL) and engineering.

Financial Strength and Streamlined Operations

Raymond’s financial health has received a boost with the sale of its FMCG business for Rs 2,825 crore, making the company net debt-free. This is complemented by the demerger of the Lifestyle business on June 30, 2024, with a record date of July 11, 2024. These actions demonstrate Raymond’s commitment to financial prudence and streamlined operations.

Real Estate Potential and Growth Strategy

The real estate sector holds promise for Raymond, particularly with the Thane land development project. This 100-acre project, undertaken through asset-light Joint Development Agreements (JDAs), boasts a potential revenue of approximately Rs 25,000 crore. The ongoing development of 40 acres in Thane, with a carpet area of 4 million square feet, is projected to generate Rs 9,000 crore in revenue. The strong market demand is evident by the fact that 65% of the inventory in Thane is already sold. Further expansion is planned through JDAs in the Mumbai region, adding 2 million square feet of carpet area and a potential revenue of Rs 7,000 crore. Combining the Thane project and JDAs, the potential revenue exceeds Rs 32,000 crore.

Engineering Business on a High Growth Trajectory

Raymond’s engineering business has witnessed significant growth, particularly following the acquisition of Maini Precision. This acquisition has resulted in a doubling of the business’s revenue to over Rs 1,800 crore and a strategic expansion into the high-growth sectors of aerospace, defence, and electric vehicle (EV) components. The engineering business currently has a consolidated EBITDA of Rs 270 crore. The company’s focus will be on high-margin sectors like aerospace and defence, which are expected to grow at 25-30% annually compared to the 10-15% growth projected for the auto business and 8-12% for engineering consumables. This strategic shift is anticipated to double the engineering business’s revenue within the next four to five years, with a significant increase in EBITDA due to the higher margins in the new sectors.

Financial Discipline and Liquidity Management

Raymond’s financial approach prioritizes maintaining net cash reserves. The Lifestyle and Realty businesses hold Rs 200 crore and Rs 500 crore respectively. The company has estimated working capital requirements of Rs 1,200 crore for Lifestyle, Rs 500 crore for Realty, and Rs 300-350 crore for the engineering segment, including the Maini Precision acquisition. Management commentary during the conference call clarified that JDAs, while beneficial for reducing upfront land payments, do necessitate initial cash outlays. For instance, a project in Mumbai with a top-line value of around Rs 2,000 crore might require a peak investment of Rs 300-350 crore. The company acknowledges the importance of maintaining liquidity to address unforeseen circumstances and ensure smooth project execution and consistent revenue streams.

Future Outlook and Investor Confidence

The future trajectory for Raymond Ltd appears promising. The company’s strategic initiatives focus on leveraging JDAs for real estate growth, efficient cash flow management, and expanding the engineering business into high-growth sectors. The demerger of the Lifestyle business is on track for completion, with shares of Raymond Lifestyle Ltd expected to be listed by the end of August or early September 2024. The demerger of Raymond Realty is expected to take 15-16 months, with a potential record date announcement in the later part of the next fiscal year.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.