Restructuring Will Unlock Future Value In Real Estate And Engineering

Key Takeaways

• Demerger allows focused growth in both real estate and engineering, unlocking value and enhancing future earnings prospects for each standalone business.
  
• Strong demand, operational discipline, and sector tailwinds position both segments for sustained revenue growth, improved margins, and lower financial risk.
  
• Strategic restructuring, external market headwinds, and operational rigidity expose the company to risks that may impede growth, profitability, and adaptability across its key business segments.

Catalysts

Engages in the engineering businesses in India.

• The demerger of the Real Estate business and its upcoming separate listing allows Raymond to unlock value in both the core Engineering and Realty businesses, potentially leading to a market re-rating as each division pursues independent, focused growth strategies-positively impacting valuation multiples and future earnings visibility.
  
• The Real Estate segment is riding on strong urban housing demand, helped by government tax cuts, increased middle-class purchasing power, and a robust project pipeline (nearly ₹40,000 crore in potential revenue). This, coupled with an asset-light JDA model and disciplined project execution, supports sustained revenue growth and stable/improving margins.
  
• The Engineering segment is set to benefit from the aerospace market recovery, particularly as production bottlenecks at major OEMs (such as Boeing) are being resolved and order backlogs remain high, underpinning multi-year revenue growth and potential margin expansion.
  
• The company's net debt-free position and favorable funding terms (8–9% rates) afford operational flexibility and low financial risk, supporting long-term margin stability and the ability to invest in further growth without dilution.
  
• The ongoing restructuring to create focused subsidiaries in aerospace/defense and auto components enhances management focus and positions Raymond to capitalize on secular industry trends-including recovering global manufacturing, resilient domestic auto demand, and global supply chain shifts-which should drive improved earnings quality and long-term growth.

Raymond Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raymond's revenue will grow by 15.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 7.5% in 3 years time.
• Analysts expect earnings to reach ₹2.3 billion (and earnings per share of ₹27.27) by about August 2028, up from ₹432.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.0x on those 2028 earnings, down from 97.3x today. This future PE is greater than the current PE for the IN Machinery industry at 34.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.23%, as per the Simply Wall St company report.

Raymond Future Earnings Per Share Growth

Risks

• The demerger of the Real Estate business and planned restructuring of the Engineering segment may create strategic and managerial complexity, increasing the risk of capital misallocation and dilution of focus, which could negatively impact earnings and return ratios over the long term.
  
• Continued sluggishness in export markets for auto components and engineering consumables-especially due to ongoing slowdown in Europe and disruptions like the Red Sea shipping crisis-highlights exposure to global supply chain volatility, potentially resulting in stagnating or declining revenues from key overseas segments.
  
• Rising competitive intensity in the Mumbai Metropolitan Region, as discussed regarding new launches and delayed supply from other developers, poses a risk of price wars or reduced absorption rates if market dynamics shift, which may put downward pressure on revenue growth and net margins in the real estate segment.
  
• High fixed costs associated with legacy manufacturing assets, as well as a possible reliance on contracted capacity and external contractors for real estate execution, could reduce operational flexibility and adaptability to demand or market shocks, compressing net margins during downcycles.
  
• Macro risks such as inflation, monetary policy shifts, regulatory delays (e.g., ongoing Supreme Court case affecting environmental approvals), and geopolitical uncertainty-though currently managed-may re-emerge and increase project costs or delay new launches, adversely affecting the company's ability to convert pipeline into realized revenue and earnings.

Valuation

• The analysts have a consensus price target of ₹903.0 for Raymond based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹31.3 billion, earnings will come to ₹2.3 billion, and it would be trading on a PE ratio of 39.0x, assuming you use a discount rate of 15.2%.
• Given the current share price of ₹632.1, the analyst price target of ₹903.0 is 30.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.