Raymond share price jumps 18% in 3 days on demerger plans; Should you buy the multibagger stock?

Multibagger stock: Raymond share price has been in focus over a past few sessions following the announcement of a vertical demerger into Raymond Realty, the company's real estate unit. Following the completion of this demerger and subject to all necessary regulatory approvals, Raymond and Raymond Realty will function as distinct listed companies within the Raymond Group.

On Monday's session, Raymond share price surged over 8% to touch a new 52-week high. Raymond share price today opened at ₹3,292 apiece on BSE, the stock touched an intraday high of ₹3,493, and an intraday low of ₹3,276.

Rajesh Bhosale, Equity Technical and Derivative Analyst at Angel One, highlighted that Raymond share price has been buzzing for the last couple of weeks and has given a splendid return of more than 50% from June. The momentum remains on the positive side. Any dip would be a buying opportunity, with next support around 3,000, whereas 3,800–4,000 seems like the like the next key resistance.

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Raymond share price has soared by 738% in the last three years, providing investors with multibagger returns. The stock has gained about 18% in three days.

Brokerage Systematix Institutional Equities, in its recent report, stated that its has increased Raymond target price by 36% to ₹3,681 from ₹2,700 and maintained a ‘buy’ rating.

According to the brokerage, Raymond's stock has surged over the past month as the demerger date of the lifestyle company approaches (July 11). Following the news of the demerger of the real estate industry, the stock had a further lift on Friday, rising 10%, for a 49% increase over the previous month. Although their goal price was exceeded far in advance of their predictions, it has long been one of their highly conviction ideas.

The brokerage believes that the market's recognition of the potential of the non-lifestyle growth levers, real estate and engineering, which were previously undervalued but have gained prominence with the demerger announcements, is the primary cause of this significant re-rating. The realisation that the lifestyle industry is mostly B2C and is trading close to the values of a B2B apparel firm, which the brokerage feels more legs to run, is also causing a re-rating in this space.

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“We revise our estimates upwards for the real estate and engineering businesses to factor in the traction in new JDA project signing and focus on the aerospace/defense segments respectively. We use this opportunity to increase our PT on the stock by ascribing what we believe our fair multiples for the 3 businesses given the current scale and potential of these businesses. Further re-rating would be dependent on subsequent execution by the separate businesses under their respective leadership,” the brokerage said.

Fair values of listed entities post demerger

The brokerage valued the real estate business at ₹1,076 and the engineering business at ₹507, valuing them at 12x and 15x FY26E EV/EBITDA, respectively.

Therefore, the brokerage believes that the surviving firm has a fair value of ₹1,583 following the demerger of the lifestyle sector next week. The brokerage house views any mispricing in the surviving business on the demerger date as a purchasing opportunity into a good combination of a rising real estate and engineering firm, even if the lifestyle business will take around two months to get listed.

“We see further upside potential for the remaining business if the company can establish its credibility in the real estate business outside Thane and the high-potential aerospace/defense segments,”the brokerage said.

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Demerger summary

According to the brokerage's report, the business intends to issue 66.5 million shares of Raymond Realty, each having a face value of ₹10. Shareholders will get one Raymond Realty share for each Raymond share upon completion. There isn't any kind of consideration, not even monetary. With sales of ₹15.9 billion and EBITDA of ₹3.7 billion in FY24, Raymond's Real Estate division had reached scale and was well-positioned to forge its own growth path as a distinct business. This was a strategic decision.

In June 2024, however, Raymond's restructuring plan was accepted by NCLT, involving the demerger of its Lifestyle division and the consolidation of its consumer trade division. Equities shares in Raymond Lifestyle will be distributed to shareholders according to a swap ratio (4 equity shares in Raymond Lifestyle for every 5 shares held in Raymond). Approximately 60.9 million shares will make up the lifestyle company overall. In addition to improving operational efficiencies and luring in targeted investments, the restructure seeks to realise the full potential value of Raymond's business verticals.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.