Everybody Loves Raymond.

     It’s true. Everybody loves Raymond. And I don’t mean Ray Barone. The subject in question is the Gautam Singhania – spearheaded company, Raymond Limited, which is one of India’s largest branded textile and garment manufacturers. At a time when several players in the textile sector are struggling to keep their heads above water, Raymond is already racing ahead in terms of both topline and bottomline numbers. The market, on its part has chosen to handsomely reward Raymond for its market-beating performance and today, its scrip virtually behaves like that of an FMCG company, rising faster than the market in a bullish phase and correcting less severely in a bearish market. Raymond constantly manages to outperform its peers and thus, it isn’t without reason that the company finds itself a cut above the rest.
     Singhania has begun to focus on a strategy that gives Raymond’s brands a greater push and at the same time, boosts the company’s margins. Raymond has zeroed in on those brands in its arsenal that have the firepower to yield the finest margins but it hasn’t chosen to ignore the lower end of the market either. Raymond’s portfolio boasts some of the most admired brands in the textiles space, such as ColorPlus, Park Avenue, Parx, Notting Hill, Manzoni and Makers. ColorPlus and Park Avenue, which straddle the upper end of the price chain, are the brands that the company has chosen to drive its premiumization strategy. Besides, Raymond is also expanding its retail footprint with its ‘The Raymond Shop’ outlets. Moreover, its foray into the personal care-and-lifestyle products space has enabled it to grow its revenues. The company’s industrial files division and its condoms arm, JK Ansell (a 50:50 JV with Ansell International, which has the KamaSutra brand in its stable) continue to contribute to its topline, albeit in a small way.
     When it comes to the number-crunching, Raymond’s net sales have spurted to Rs. 3700 crores, from a figure of Rs. 2500 crores that the company’s income statement registered barely 2 years ago. And when it comes to growing its sales, the company is maintaining a 20% run rate. Raymond, which was losing money in 2009 and 2010, witnessed a profit of over Rs. 150 crores in 2012. The first quarter of the ongoing fiscal, however, wasn’t very kind to Raymond as the company’s bottomline took a severe hit. Nevertheless, the company managed to make amends in the subsequent quarters with a strong comeback in terms of financial performance. Singhania’s strategy of brand building, which is essentially a long-term bet, has begun to pay off and the results are already leaving their mark on the company’s bottomline. Indeed, ‘The Complete Man’ might just turn out to be the perfect stock pick and it’s no wonder then that the market seems to shower so much love on Raymond.
     But in spite of all that love, there seems to be a major valuation gap in the company that Dalal Street doesn’t quite seem to have noticed. Raymond’s market capitalization (the market price that its shares quote at, multiplied by the total number of outstanding shares) stands at a little over Rs. 1950 crores. The company, however, has a massive parcel of land in Thane and that land bank is valued at over Rs. 2000 crores. This means that anyone investing in Raymond is merely acquiring a small part of that land bank and in a sense, getting a part of the underlying textile business of the company for virtually nothing. If Raymond decides to sell that extensive land that it holds on its balance sheet in future, the company’s scrip will see a massive spike due to the shareholder value that the company would unlock.
     The element of surprise here is that the market has failed to take cognizance of the major valuation gap that exists in Raymond’s case and with both Raymond’s profits and real estate prices on the rise, that valuation gap is only going to expand. This would place Raymond in the league of extraordinary companies that not only have strong base businesses but also happen to be great value picks in the current market. It is commonly said in the stock market that sooner or later, a company’s scrip will revert to its fair valuation and the erstwhile valuation gap will be plugged. Raymond too will be no exception and it shouldn’t be long before the valuation disparity comes to light. This would be tailed by an uptick in buying interest in the company’s scrip and then, the market won’t just love Raymond. Everybody, in fact, will lust after Raymond.

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