Raymond Q2 FY26: Profit Rebound Masks Deeper Operational Challenges

The quarter's performance presents a complex narrative. Whilst revenue grew 11.43% year-on-year to ₹527.69 crores, sequential momentum remained tepid with just 0.65% quarter-on-quarter growth. The company's operating profit margin excluding other income stood at 8.20%, unchanged from the previous year, indicating persistent operational challenges despite top-line expansion. Most concerning is the dramatic collapse in consolidated net profit, which fell from ₹60.05 crores in Q2 FY25 to just ₹11.38 crores, suggesting significant headwinds in Raymond's diversified business portfolio.

Financial Performance: Revenue Growth Fails to Translate into Profitability

Raymond's Q2 FY26 financial performance reveals a troubling disconnect between revenue growth and bottom-line profitability. Net sales of ₹527.69 crores marked an 11.43% year-on-year increase from ₹473.58 crores, driven primarily by improved demand in the textile and apparel segments. However, sequential growth remained anaemic at just 0.65% from Q1 FY26's ₹524.29 crores, suggesting momentum is stalling.

The profit trajectory reveals significant volatility. Net profit of ₹14.11 crores in Q2 FY26 declined 37.73% sequentially from ₹22.66 crores in Q1 FY26, whilst also falling 5.37% year-on-year. More critically, profit before tax swung to a loss of ₹148.28 crores in Q2 FY26, compared to a profit of ₹10.14 crores in Q2 FY25. This dramatic reversal was partially offset by a tax credit of ₹162.17 crores, resulting in the modest reported net profit. The tax rate of 109.37% in Q2 FY26 signals significant one-time adjustments or deferred tax benefits, raising questions about earnings quality.

Operating profit excluding other income stood at ₹43.25 crores with an 8.20% margin, flat year-on-year but down from 10.73% in Q1 FY26. Employee costs rose 4.12% year-on-year to ₹102.55 crores, whilst interest expenses climbed 31.66% to ₹21.50 crores, reflecting higher debt servicing costs. Depreciation increased 4.80% to ₹38.43 crores. The company's heavy reliance on other income—which contributed ₹36.02 crores in Q2 FY26—underscores the weakness in core operational profitability.

Operational Challenges: Margin Pressures and Elevated Costs

Raymond's operational metrics paint a picture of a company grappling with structural challenges. The company's return on equity of 54.59% appears impressive on the surface, representing exceptionally strong capital efficiency. However, this elevated ROE must be contextualised against the company's recent corporate restructuring and asset disposals. The average ROE over recent years stands at 24.90%, still robust but indicating the current figure may be inflated by balance sheet adjustments rather than sustained operational excellence.

Return on capital employed (ROCE) tells a more sobering story. At just 2.85% for the latest period and averaging 6.67% over time, Raymond's ability to generate returns from its deployed capital remains weak. This is particularly concerning for a company in the capital-intensive textile and real estate sectors, where efficient asset utilisation is paramount. The company's EBIT to interest coverage ratio averaged just 2.30 times, indicating limited financial flexibility to absorb earnings volatility.

The company's five-year sales growth of -13.03% highlights the structural challenges facing Raymond's traditional textile business. Whilst EBIT has grown 21.99% over the same period, this improvement has come from cost rationalisation and business exits rather than organic revenue expansion. The company's transformation from an integrated textile conglomerate into a realty-focused entity is still in progress, creating near-term earnings volatility.

Realty Sector Positioning: Navigating a Competitive Landscape

Raymond's strategic pivot towards real estate development places it in an increasingly competitive sector. The company's realty division has become a focal point following the demerger of its lifestyle business, but it faces formidable competition from established players with stronger track records and execution capabilities. The realty sector in India has witnessed robust demand in FY25 and early FY26, driven by improving affordability, lower interest rates, and strong employment growth in urban centres.

However, Raymond's relatively small market capitalisation of ₹3,844 crores positions it as a minor player compared to sector leaders. The company's land bank, primarily located in Thane and other Mumbai metropolitan region locations, provides development potential, but execution risk remains high. The company must demonstrate consistent project delivery, sales velocity, and margin sustainability to justify investor confidence in its realty-focused strategy.

Raymond's valuation metrics appear attractive relative to peers. Its P/E ratio of 2.51x and price-to-book value of 1.06x are significantly lower than most comparable realty companies, reflecting market scepticism about its transformation story. The company's superior ROE of 24.90% compared to peer averages around 5% suggests better capital efficiency, though this must be weighed against its negative sales growth and operational challenges. The absence of debt provides a competitive advantage, enabling Raymond to pursue development opportunities without the financial constraints facing more leveraged peers.

Valuation Analysis: Attractive Entry Point or Value Trap?

Raymond's current valuation presents a paradox. At a P/E ratio of just 2.51x and price-to-book value of 1.06x, the stock trades at a significant discount to both its peer group and historical averages. The company's valuation grade of "Very Attractive" reflects these depressed multiples, suggesting potential upside if operational performance stabilises. However, the market's reluctance to re-rate the stock stems from legitimate concerns about earnings sustainability and business model clarity.

The stock's enterprise value to EBITDA multiple of 14.66x appears reasonable for a company in transition, though the EV to EBIT ratio of 34.45x highlights the pressure on operating profitability. With a PEG ratio of just 0.03x, the stock theoretically offers compelling value relative to its growth potential, but this metric is distorted by volatile earnings. The absence of dividend yield provides no income cushion for patient investors, whilst the 9.78% promoter pledging raises governance concerns.

Shareholding Pattern: Institutional Exodus Signals Caution

Raymond's shareholding pattern reveals concerning trends in institutional investor behaviour. Promoter holding has declined from 11.99% in September 2024 to 9.78% in September 2025, with the most recent quarter showing stable holdings. More troubling is the steady exodus of domestic institutional investors. Mutual fund holdings plunged from 4.56% in September 2024 to just 1.87% in September 2025, with a sharp 1.24 percentage point decline in Q2 FY26 alone. This represents a loss of confidence from sophisticated domestic investors who typically conduct deep fundamental analysis.

Foreign institutional investors have also reduced exposure, declining from 15.67% to 13.61% over the past year. The only segment showing increased participation is non-institutional investors, whose holdings rose from 28.15% to 33.99%. This shift towards retail and non-institutional ownership typically signals lower institutional conviction and can contribute to higher stock price volatility. The combination of promoter pledging at 9.78% and declining institutional interest creates an unfavourable ownership structure for near-term price stability.

Stock Performance: Underperformance Reflects Fundamental Weakness

Raymond's stock performance over multiple timeframes reveals persistent underperformance against both market benchmarks and sector peers. Whilst the stock has gained 2.52% in the immediate post-results trading session, broader trends remain concerning. Over the past month, Raymond has declined 2.70% whilst the Sensex gained 5.41%, resulting in negative alpha of 8.11 percentage points. The three-month performance is even more troubling, with the stock falling 15.98% against a Sensex gain of 4.07%, producing alpha of -20.05 percentage points.

The stock's technical position has deteriorated significantly. Currently in a "Mildly Bearish" trend since October 24, Raymond trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—indicating sustained selling pressure. The stock's high beta of 1.35 amplifies market movements, contributing to its elevated volatility of 45.87%. This high-risk, medium-return profile makes Raymond unsuitable for conservative investors seeking stable capital appreciation.

Longer-term performance provides some solace, with three-year returns of 47.35% and five-year returns of 491.86% demonstrating the stock's cyclical nature. However, these historical gains largely reflect the company's previous textile business success and may not be replicable in its current realty-focused avatar. The stock's underperformance of 0.32% versus the realty sector over the past year suggests investors remain unconvinced about its competitive positioning within its new primary industry.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

Raymond's investment proposition rests on three pillars: attractive valuation, good fundamental quality, but concerning near-term financial trends. The company's Mojo Score of 50 out of 100 places it in "Hold" territory, reflecting this mixed picture. The valuation grade of "Very Attractive" and quality grade of "Good" provide some support, but these are offset by a "Negative" financial trend and "Mildly Bearish" technical outlook.

Outlook: What to Watch in Coming Quarters

The path forward for Raymond hinges on successful execution of its realty development pipeline and stabilisation of operating profitability. The company must demonstrate consistent project delivery, healthy pre-sales, and sustainable margins to rebuild investor confidence. Management's ability to leverage its debt-free balance sheet for strategic land acquisitions whilst maintaining financial discipline will be critical. Until these proof points emerge, the stock is likely to remain range-bound despite its attractive valuation metrics.