ICICI Securities has initiated coverage on multibagger stock Raymond Ltd with a ‘Hold’ rating and a share price target of Rs 1,860, as it highlighted rising input cost, challenging demand environment and a likely increased competition from new players as key risks to the stock’s upside.

Calling the last four years for Raymond as a golden time-period, ICICI Securities gave six reasons for the sharp rise in Raymond shares including the change in leadership, a rapid scale-up in real estate business, focus on cost optimisation, the sale of the FMCG business to GCPL, the acquisition of Maini Precision Products Ltd and lastly the hopes of a potential de-merger of the lifestyle business as a separate entity.

In a note, ICICI Securities said Raymond’s FMCG business’ slump sale, simplification of group structure through potential de-merger of the lifestyle business, doubling the size of engineering business by a foray into sunrise sectors of aerospace, defence and EV through acquisition of MPPL lifted the stock.

“We believe all these initiatives are steps in the right direction and have been reflected in 6x improvement in the average share price of the company from the low of FY20 to average 2023YTD,” it said.

The brokerage is expecting Raymond’s real estate business to grow at 17 per cent compounded annually over FY23-25 and maintaining Ebitda margin at 25 per cent, the highest compared to other business segments. ICICI Securities said Raymond forayed into branded Indian wedding and celebration wear and doubled its store count from 34 in FY20 to 92 in September. Raymond plans to reach 250 stores by FY25, it noted.

“We believe Raymond has ample scope to become the number-two player in this segment. It (the brand) not only enjoys 100% consumer awareness in India, but has also been one of the leading players in the wedding segment through its suiting fabric business (housed under Branded Textile) over last nine decades. Positively, the segment enjoys RoCE of over 30 per cent and hence could be value accretive. The asset-light (franchise-led) approach towards retail expansion is likely to be FCF positive,” it said.

ICICI Securities said Raymond has initiated the de-merger of its lifestyle business and will soon be having two independent net-debt-free listed entities: pure-play B2C-focused lifestyle company Raymond Consumer Care Limited and Raymond Ltd (including the B2C real estate business and engineering business).

“This will likely allow for simplification of the group structure, better access to capital for the company, and enable investors to take focused investment exposure (lifestyle vs real estate and engineering) thereby, unlocking shareholder value creation,” ICICI Securities said.

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