Why Raymond shares are showing 40% fall today; what lies ahead?

Shares of Raymond Ltd nosedived 40 per cent at open on Thursday, as the stock turned ex-date for the demerger of lifestyle business of the company. The stock was trading at a value, excluding the lifestyle business. The demerged business has been separated and would now be listed separately on stock exchanges around August-September. Existing investors of Raymond would be offered four shares of Raymond Lifestyle for every five Raymond shares. Today is the record date for the same.

On Thursday, the Raymond stock opened at Rs 1,906 on NSE, down 39.60 per cent over its previous day's closing value of Rs 3,156.10. That said, the stock gained over the opening price as the session progressed. It was later trading at Rs 2,009.80, up 3.07 per cent. MOFSL earlier estimated per share value of Raymond Ltd at Rs 1,415 per share post the corporate action, which included Rs 1,200 per share value of real estate and Rs 215 of the engineering business. The Lifestyle business could be listed at Rs 2,930 per share, the domestic brokerage suggested.

InCred Equities estimated the fair value of lifestyle business at Rs 1,982, realty business at Rs 1,086 and engineering business at Rs 499 per share.

The demerger of lifestyle business is a part of a bigger plan, as Raymond intends to demerge real estate business as well, which could take 15-18 months period to complete. After completing that demerger, the Raymond entity would comprise the Engineering business only. The share exchange ratio for the lifestyle listing is 4:5 (4 shares of RLL for every 5 of Raymond), and 1:1 for the real estate listing.

"This is to create three pure-play businesses for heightened value unlocking," said Arihant Capital Markets. In the case of real estate business, 40 out of 100 acres of legacy land in Thane is under development. The revenue potential from the 40 acres under development is Rs 9,000 crore, and the remaining area has a revenue potential of Rs 16,000 crore --  a total Rs 25,000 crore, which should accrue in about 8 years.

"The current JDAs have a revenue potential of Rs 7,000 crore, which will accrue in 4-5 years. This business has Rs 500 crore cash on books and no significant capital requirements for the next 2 years. In the next 3 years, the real estate business will reach an annual run rate of Rs 4,000 crore and will maintain a stable Ebitda margin of 25 per cent. The company does not plan on acquiring any new land and will go the JDA route for further expansion," Arihant Capital noted.

In the case of engineering business, the acquisition of MPPL opened up massive potential for value unlocking in aerospace and defense, Arihant Capital Markets said.

In FY24, that business made a revenue of Rs 300 crore, with a margin of 25 per cent against mid-to-low teen margin of Raymond Engineering.

"The consolidated engineering business will own 2 subsidiaries; Raymond Engineering, and MPPL. MPPL is a high-growth, high-margin business, planned to double revenues in 3-4 years. Raymond Engineering will also double its revenues in 5 years. We foresee a heightened demand from major players like HAL owing to the ‘Make in India’ initiative. They are also preferred suppliers to Boeing, Airbus, and Comac," it said.