Explained: Why did Raymond shares tank 40% today

Shares of Raymond Ltd saw a sharp drop of 40% at the start of trading on Thursday. This significant fall was because the stock turned ex-date for the demerger of its lifestyle business.

The stock was trading at a value, excluding the lifestyle business. The demerged entity has been separated and will be listed separately on stock exchanges around August-September. Existing investors of Raymond will receive four shares of Raymond Lifestyle for every five shares of Raymond they hold. Today is the record date for this allocation.

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Raymond's stock opened at Rs 1,906 on the NSE, which was a 39.60% drop from its previous day's closing value of Rs 3,156.10.

As the trading session went on, the stock recovered slightly, trading at Rs 2,009.80, an increase of 3.07% from the opening price. MOFSL had earlier estimated Raymond Ltd's value at Rs 1,415 per share after the corporate action, including Rs 1,200 per share for the real estate business and Rs 215 for the engineering business. They suggested that the lifestyle business could be listed at Rs 2,930 per share.

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

The demerger of the lifestyle business is part of a larger plan. Raymond also intends to demerge its real estate business, a process that could take 15-18 months to complete. After this demerger, the remaining Raymond entity will only include the engineering business. The share exchange ratio for the lifestyle business listing is 4:5 (four shares of Raymond Lifestyle for every five shares of Raymond), and 1:1 for the real estate listing.

"This move is aimed at creating three focused businesses to unlock greater value," said Arihant Capital Markets.

For the real estate business, 40 out of 100 acres of legacy land in Thane are under development. This development has a revenue potential of Rs 9,000 crore, with the remaining area holding a potential of Rs 16,000 crore, totalling Rs 25,000 crore over about eight years.

"The current joint development agreements (JDAs) have a revenue potential of Rs 7,000 crore, which will be realised in 4-5 years. This business has Rs 500 crore cash on its books and does not require significant capital for the next two years. In the next three years, the real estate business will reach an annual revenue run rate of Rs 4,000 crore and will maintain a stable EBITDA margin of 25%. The company does not plan to acquire new land and will use the JDA route for further expansion," said Arihant Capital.

For the engineering business, the acquisition of MPPL has opened up significant potential for growth in the aerospace and defence sectors, according to Arihant Capital Markets.

In FY24, the engineering business generated Rs 300 crore in revenue, with a margin of 25%, compared to the mid-to-low teen margin of Raymond Engineering.

"The consolidated engineering business will include two subsidiaries: Raymond Engineering and MPPL. MPPL is a high-growth, high-margin business, expected to double its revenue in 3-4 years. Raymond Engineering is also projected to double its revenue in five years. We anticipate increased demand from major players like HAL due to the ‘Make in India’ initiative. They are also preferred suppliers to Boeing, Airbus, and Comac," Arihant Capital added.

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