Raymond Ltd Q3 FY26: Operational Gains Overshadowed by Exceptional Items and Structural Challenges

The quarter presented a paradoxical narrative for Raymond: whilst operational metrics showed encouraging improvement with net sales climbing 19.54% year-on-year to ₹557.21 crores and operating margins expanding to a multi-quarter high of 10.76%, the bottom line remained severely constrained by exceptional items and tax adjustments that have plagued recent quarters. The standalone net profit of ₹7.23 crores for Q3 FY26, though modest, represented a significant recovery from the ₹11.47 crores reported in Q3 FY25, yet the consolidated numbers painted a far grimmer picture due to adjustments at the group level.

What emerges from Raymond's Q3 FY26 performance is a company in transition, grappling with the complexities of its demerger activities whilst attempting to stabilise its core textile and realty operations. The divergence between improving operational performance and deteriorating consolidated profitability has created significant uncertainty amongst investors, reflected in the stock's severe underperformance—down 26.01% over the past year compared to the Sensex's 8.28% gain, resulting in a negative alpha of 34.29 percentage points.

Financial Performance: Top-Line Resilience Masks Bottom-Line Weakness

Raymond's Q3 FY26 operational performance demonstrated notable resilience, with net sales of ₹557.21 crores representing sequential growth of 5.59% and year-on-year expansion of 19.54%. This marked the fourth consecutive quarter of double-digit year-on-year revenue growth, suggesting underlying demand strength in the company's textile and realty segments. The nine-month FY26 sales stood at ₹1,609.19 crores, reflecting sustained momentum in the company's core operations.

Operating margins excluding other income expanded to 10.76% in Q3 FY26, the highest level in recent quarters and a substantial improvement from 8.32% in Q3 FY25. This 244 basis point year-on-year expansion reflected improved operational efficiency and better cost management. Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) climbed to ₹59.94 crores, marking a quarterly high and demonstrating the company's ability to extract better profitability from its revenue base.

However, the translation of operational gains to bottom-line profitability remained severely impaired. The standalone profit before tax of ₹10.12 crores in Q3 FY26, whilst positive, paled in comparison to operational profits, with other income of ₹23.05 crores constituting a significant portion of pre-tax earnings. More concerning was the consolidated net profit of just ₹3.58 crores, down 95.04% year-on-year, indicating substantial exceptional charges or adjustments at the group level that have not been fully disclosed in the available data.

The company's cost structure showed mixed trends. Employee costs rose to ₹107.12 crores in Q3 FY26 from ₹98.34 crores in Q3 FY25, representing an 8.93% year-on-year increase that outpaced revenue growth slightly. Interest costs climbed to ₹20.59 crores from ₹15.90 crores year-on-year, a 29.50% increase that reflected higher borrowing levels. For the nine-month period ended December 2025, interest expenses totalled ₹60.64 crores, up 21.96% from the corresponding period last year, indicating rising financial leverage that is pressuring profitability.

Operational Challenges: Exceptional Items and Quality Concerns

The most striking aspect of Raymond's Q3 FY26 performance was the stark divergence between standalone and consolidated results. Whilst the standalone entity reported a net profit of ₹7.23 crores, the consolidated net profit collapsed to ₹3.58 crores, suggesting significant losses or exceptional charges at subsidiary or associate level. This pattern has persisted across recent quarters, with Q1 FY26 showing an extraordinary consolidated profit of ₹5,325.19 crores (likely due to one-time gains from demerger activities) followed by sharp corrections in subsequent quarters.

The quality of earnings remains a significant concern. Other income of ₹23.05 crores in Q3 FY26 represented 95.60% of profit before tax, indicating that operational profitability after interest and depreciation was minimal. The standalone profit before tax less other income stood at just ₹1.06 crores in Q3 FY26, the highest in recent quarters but still representing an anaemic return on the company's asset base. This heavy reliance on non-operating income to sustain profitability raises questions about the sustainability of earnings.

On a more positive note, the company's return on equity stood at an impressive 51.86% as of the latest reporting period, significantly higher than the five-year average of 35.83%. This elevated ROE, however, must be viewed in the context of the sharply reduced shareholder funds following the demerger activities. The company's shareholder funds declined from ₹4,617.34 crores in March 2024 to ₹3,716.14 crores in March 2025, a reduction of ₹901.20 crores that has mathematically inflated the ROE metric even as absolute profitability has weakened.

The balance sheet showed mixed signals. Long-term debt declined dramatically from ₹2,367.61 crores in March 2024 to ₹289.24 crores in March 2025, reflecting the demerger and restructuring activities. The debt-to-EBITDA ratio of 0.11 indicated minimal leverage, whilst the net debt-to-equity ratio of 0.04 suggested a relatively unleveraged balance sheet. However, the company's EBIT-to-interest coverage ratio averaged just 2.27 times, indicating limited interest servicing capacity and vulnerability to any deterioration in operational performance.

Realty Sector Context: Navigating a Challenging Landscape

Raymond operates in India's realty sector, which has experienced mixed performance over the past year. The broader realty sector delivered a negative return of 10.41% over the past twelve months, reflecting headwinds from elevated interest rates, regulatory pressures, and demand moderation in key metropolitan markets. Raymond's 26.01% decline over the same period represented significant underperformance of 15.60 percentage points against its sector peers, indicating company-specific challenges beyond broader sectoral trends.

The company's positioning within the realty space is complicated by its legacy textile business and the ongoing demerger activities. Whilst pure-play realty companies have benefited from land monetisation and project execution, Raymond's hybrid model has created execution complexities and valuation challenges. The company's realty subsidiary, Raymond Realty, trades at a price-to-earnings ratio of 154.42 times, suggesting either minimal current earnings or investor expectations of significant future growth, though such elevated multiples also indicate valuation risk.

Raymond's peer comparison reveals a company trading at a significant valuation discount. With a price-to-earnings ratio of just 1.46 times compared to the peer average of approximately 47 times (excluding the outlier Raymond Realty), and a price-to-book value of 0.76 times against a peer average of 4.20 times, Raymond appears statistically cheap. However, this discount reflects legitimate concerns about earnings sustainability, the complexity of the demerger process, and the company's ability to generate consistent profitability across its diversified operations.

Valuation Analysis: Deep Discount Reflects Structural Concerns

Raymond's valuation metrics present a paradoxical picture. The stock trades at a price-to-earnings ratio of just 1.46 times trailing twelve-month earnings, compared to the industry average of 20 times, representing a 93% discount to sector multiples. The price-to-book value of 0.76 times indicates the stock is trading below its accounting book value of ₹187.39 per share, suggesting either significant hidden liabilities or investor scepticism about the realisable value of the company's assets.

The company's proprietary valuation grade stands at "Very Attractive," upgraded from "Attractive" in April 2022, reflecting the sharp de-rating from peak valuations. At its 52-week high of ₹782.00, the stock traded at significantly higher multiples, but the subsequent 50.40% decline has compressed valuations to levels that theoretically offer substantial upside—if the company can stabilise operations and restore profitability growth.

However, several factors justify the valuation discount. The company's five-year sales growth rate of negative 12.30% indicates structural challenges in the core business, whilst the five-year EBIT growth of 15.87% has been insufficient to offset revenue decline. The average return on capital employed of just 7.68% over recent years falls well below the cost of capital, indicating value destruction rather than creation. The latest ROCE of 1.25% is particularly concerning, suggesting that for every ₹100 of capital employed, the company generates barely ₹1.25 of operating profit.

The enterprise value multiples provide additional context. An EV/EBITDA of 13.39 times appears reasonable for a realty-focused company, whilst the EV/EBIT of 61.44 times reflects the low operating profitability after depreciation. The EV/Sales ratio of 1.25 times suggests the market is assigning modest value to the revenue base, consistent with concerns about margin sustainability and earnings quality.

Shareholding Pattern: Institutional Exodus Signals Caution

The shareholding pattern reveals a troubling trend of institutional disengagement. Foreign institutional investor (FII) holdings declined from 15.64% in March 2025 to 11.01% in December 2025, a reduction of 4.63 percentage points over three quarters. This represents a significant vote of no confidence from sophisticated international investors who typically have access to detailed company information and longer investment horizons.

Mutual fund holdings similarly contracted from 4.21% in December 2024 to 1.86% in December 2025, a decline of 2.35 percentage points that suggests domestic institutional investors are also reducing exposure. Insurance company holdings remained relatively stable at 1.07%, whilst other domestic institutional investor holdings fell from 1.90% in March 2025 to 0.50% in December 2025, indicating broad-based institutional selling across categories.

The counterbalance to institutional selling has been rising non-institutional holdings, which increased from 28.55% in December 2024 to 36.69% in December 2025, an accumulation of 8.14 percentage points. This shift from institutional to retail/non-institutional hands typically indicates increased volatility and potentially less informed ownership, as retail investors may be attracted by the low absolute price and valuation multiples without fully appreciating the underlying business challenges.

Promoter holdings remained stable at 48.87% throughout the period, with no pledging reported in the available data. The promoter group, led by entities associated with the Singhania family including J K Investors (Bombay) Limited (29.83%) and J K Investo Trade (India) Limited (12.43%), has maintained its stake through the demerger process, providing some stability to the shareholding structure.

Stock Performance: Severe Underperformance Across All Timeframes

Raymond's stock performance has been dismal across virtually all meaningful timeframes. Over the past year, the stock declined 26.01% compared to the Sensex's 8.28% gain, resulting in a negative alpha of 34.29 percentage points. The three-month return of negative 34.27% against the Sensex's negative 3.75% highlighted the severity of the recent sell-off, with the stock declining 30.52 percentage points more than the benchmark.

The six-month performance was even worse, with the stock down 44.68% compared to the Sensex's marginal 0.17% gain, representing underperformance of 44.85 percentage points. This period coincided with increasing clarity around the demerger process and growing investor concerns about the sustainability of profitability in the separated entities. The stock's distance of 50.40% from its 52-week high of ₹782.00 illustrated the magnitude of wealth destruction for investors who bought at peak valuations.

The longer-term picture showed similar underperformance. Over two years, Raymond declined 37.82% whilst the Sensex gained 15.42%, resulting in underperformance of 53.24 percentage points. The three-year return of negative 26.13% against the Sensex's 37.54% gain represented a staggering 63.67 percentage point shortfall, indicating sustained value destruction rather than temporary volatility.

Interestingly, the five-year return of 233.20% compared favourably to the Sensex's 72.12% gain, generating positive alpha of 161.08 percentage points. This long-term outperformance, however, was concentrated in the earlier years of the period and has been entirely reversed in recent quarters. The stock's beta of 1.35 indicated high volatility relative to the market, with the classification as a "high beta stock" suggesting amplified movements in both directions—a characteristic that has worked decisively against investors in the recent bearish phase.

Technical Analysis: Bearish Trend with Limited Support

The technical picture for Raymond remains decidedly bearish. The stock entered a bearish trend on November 18, 2025, at ₹501.90, and has declined 22.71% since then to the current level of ₹387.90. All major moving averages—5-day (₹382.70), 20-day (₹408.32), 50-day (₹444.82), 100-day (₹518.32), and 200-day (₹570.19)—are above the current price, indicating sustained downward momentum and resistance at multiple levels.

Technical indicators uniformly signal weakness. The MACD shows bearish signals on both weekly and monthly timeframes, whilst Bollinger Bands indicate bearish momentum. The KST oscillator displays bearish readings across timeframes, and the On-Balance Volume (OBV) shows mildly bearish trends, suggesting that volume is not supporting any potential price recovery. The Dow Theory classification of "Mildly Bearish" on both weekly and monthly charts provides little comfort, as the overall technical structure remains negative.

The delivery volume data showed a mixed picture. Whilst the one-day delivery percentage of 41.84% was below the five-day average of 50.13%, the trailing one-month average of 46.45% indicated moderate investor conviction. The decline in average delivery volumes from 1.58 lakh shares in the previous month to 1.29 lakh shares in the trailing month suggested reducing participation, though the 18.46% increase in delivery percentage over one month indicated some accumulation at lower levels.

Investment Thesis: Value Trap or Turnaround Opportunity?

Raymond presents a complex investment proposition that defies simple categorisation. The company's Mojo score of 47 out of 100 and "SELL" rating reflects a balanced assessment of conflicting signals: attractive valuation metrics offset by deteriorating financial trends, good fundamental quality undermined by poor earnings sustainability, and operational improvements overshadowed by technical weakness.

The bull case rests on several pillars. The company's "Very Attractive" valuation grade, with the stock trading at just 1.46 times earnings and 0.76 times book value, offers substantial mathematical upside if profitability stabilises. The "Good" quality grade, supported by a strong 35.83% average return on equity and low leverage (0.04 net debt-to-equity), suggests a fundamentally sound underlying business. The completion of the demerger process could unlock value by allowing separate valuations for the textile and realty businesses, potentially closing the current discount to intrinsic value.

However, the bear case is equally compelling and arguably more immediate. The "Flat" financial trend, combined with poor long-term sales growth of negative 12.30% annually over five years, indicates structural challenges that low valuations alone cannot overcome. The consistent underperformance against benchmarks—negative 34.29% alpha over one year and negative 63.67% over three years—suggests the market has legitimate reasons for the valuation discount. The bearish technical trend, with the stock below all major moving averages and institutional investors reducing exposure, indicates that further downside remains possible before any stabilisation occurs.

The quality of earnings remains the critical unresolved issue. With other income constituting 95.60% of profit before tax in Q3 FY26 and the wide gap between standalone and consolidated results, investors lack confidence in the sustainability and transparency of reported profitability. Until the company can demonstrate consistent operational profitability after interest and depreciation, without reliance on exceptional items or other income, the investment thesis remains incomplete.

Key Strengths and Risk Factors

Outlook: What to Watch in Coming Quarters

The forward outlook for Raymond hinges critically on the company's ability to translate operational improvements into sustainable bottom-line profitability. The Q4 FY26 results, expected in May 2026, will be crucial in determining whether the margin expansion and revenue growth seen in Q3 FY26 represent a genuine turnaround or temporary respite. Investors should closely monitor the consolidated results for any signs that subsidiary losses or exceptional charges are moderating, as this would be essential for restoring confidence in the earnings trajectory.

The completion and market reception of the demerger will be another critical factor. If the separated entities can establish clear strategic identities and demonstrate improved operational focus, the current valuation discount could narrow substantially. However, if the demerger reveals deeper issues with either the textile or realty businesses, or if management execution falters, the stock could face additional downside despite appearing statistically cheap.