Raymond Ltd — Engineering (RAYMOND) — Investment Thesis

Status: OWNED (150 shares, ₹55.3K invested, ~4% of portfolio)

Quality Score: 17/25 (Grade B — Core Holding)

Classification: Multi-Bagger Candidate (Quality B + Base case ₹530, +42% upside, ~24% CAGR over 5yr)

Last Updated: 2026-04-09 | CMP: ₹367 | Entry: ₹368.75 | Decision: EXIT (R/R 1.3:1 insufficient for concentrated portfolio)

Data Source: Screener.in (consolidated), Q3 FY26 concall

> Recommendation: HOLD / ADD below ₹350. Raymond is a post-demerger pure-play precision

> engineering company with aerospace revenue growing 34-49% YoY, locked into the LEAP/GTF

> engine supercycle with 65% market share per part and a ₹6,500 Cr+ order book (2.5-3x revenue).

> At ₹373 (~7.5x EV/EBITDA vs aerospace pure-play peers at 35-50x), the market implies only

> 5-6% growth versus our 10-15% estimate; base case DCF yields ₹530 (+42%).

> Key condition: AP plant must achieve commercial production by May 2027 to unlock the margin

> expansion and capacity doubling that drives the re-rating thesis.

Summary Verdict

Overall Multi-Bagger Probability: Medium-High — Aerospace compounding engine is strong with 8-12 year runway, but auto segment dilutes the blended story. Re-rating depends on aerospace reaching 30%+ of revenue.

Why this business?

Raymond is a hidden aerospace compounder buried inside an auto components wrapper. After two demergers stripped away textiles and real estate, what remains is a precision engineering company where the high-value segment — aero-engine components for GE, Pratt & Whitney, Safran, and Rolls-Royce — is growing at 34-49% YoY but still represents only 18% of revenue. The market values the entire entity at 7.5x EV/EBITDA, roughly what you would pay for a cyclical auto parts maker, because aerospace is not yet large enough to dominate the P&L. But the LEAP and GTF engine programs that Raymond supplies are in a 15-20 year production supercycle — Boeing and Airbus have public order backlogs stretching to the 2030s — and Raymond holds 65% market share on more than half the parts it supplies, protected by 3-5 year Tier-1 certification barriers that make mid-production switching practically impossible. The ₹930 Cr AP plant (May 2027) doubles aerospace capacity, and when aerospace scales from 18% to 30%+ of revenue, the blended multiple should re-rate toward the 15-20x range that pure-play aerospace peers command. The bet is that the market will eventually see what is obvious in the segment data: a 20%+ ROCE aerospace business growing at 30%+ is worth far more than auto-component multiples.

Strengths

• Aerospace locked into a structural supercycle. LEAP/GTF engines power every new A320neo and 737 MAX. Boeing at 42/month vs pre-COVID 52 means 24% volume recovery hasn't even happened yet. Raymond's order book at ₹6,500 Cr+ (2.5-3x revenue) provides multi-year visibility, and "more than one new FAI every day" means the part count keeps growing.
• Certification moat creates sticky, expanding relationships. Once qualified as Tier-1 supplier on a specific part, the switching cost is 12-24 months of re-certification — OEMs cannot practically switch mid-production. Market share moves from 35% (trial) to 65% (proven) and stays there for the engine's 20-30 year production life. Over 50% of LEAP parts are already at 65% share.
• Materials fully pass-through eliminates commodity risk. Unlike most industrial companies, all Raymond aerospace contracts pass through raw material costs (specialty alloys like Inconel, titanium). Confirmed on Q3 FY26 concall. Margin risk comes from operational execution, not input prices.
• Net cash position funds growth without dilution. ₹214 Cr net cash despite ₹200 Cr/year capex. The AP plant is partially funded by ₹380 Cr in AP government incentives. No equity raise needed.
• Auto segment provides stable cash flow while aerospace scales. JKMPTL at 72% of revenue with expanding margins (10.4% to 13.7% in Q3 FY26, driven by operating leverage and SAP HANA rollout) funds the aerospace investment without straining the balance sheet.

Concerns

• Aerospace is still only 18% of revenue — the re-rating is a bet on mix shift. Until aerospace reaches 30%+ of revenue, the blended financials will screen as a mediocre auto components company. This could take until FY28-29, requiring patience through quarters where the headline numbers don't excite.
• AP plant execution risk is real and concentrated. ₹930 Cr committed to a single greenfield plant with May 2027 target. A 6-12 month delay doesn't kill the thesis but stalls the margin expansion (7-9% unit cost reduction) and capacity doubling that the base case depends on. Construction risk in India is non-trivial.
• Customer concentration in aerospace. Safran at an estimated 35-40% of aerospace revenue creates single-customer dependency. While long-term contracts and switching costs protect the relationship, any Safran-specific production issue disproportionately impacts Raymond.
• Demerger noise makes the stock uninvestable for quant screens. FY22-FY25 P&L includes ₹9,400+ Cr of demerger gains, making every standard metric (P/E, ROE, margin trends) meaningless. Clean data starts only from Q2 FY26. Institutional discovery requires 2-3 quarters of clean results.

The Compounding Equation

Raymond's compounding math works differently from a typical high-margin business. Current consolidated ROIC sits at roughly 13% — unremarkable on paper — but this blended number hides two very different engines. The auto segment (JKMPTL) earns 10-14% ROIC and serves primarily as a cash flow generator. The aerospace segment (JKMGAL), still in its investment phase, is on a trajectory toward 20-25% ROIC once the AP plant delivers its 7-9% unit cost advantage and volumes double.

The reinvestment rate is approximately 55% (₹200 Cr capex on ₹360 Cr annualized EBITDA), which at current blended ROIC of 13% produces only 7% organic growth — below the 10-15% we estimate. The gap is filled by operating leverage: as aerospace scales on fixed-cost infrastructure (existing plants + AP greenfield), each incremental rupee of revenue drops through at higher margins. This is why the compounding accelerates over time rather than running at a steady rate. The sustainable growth formula (g = reinvestment rate x ROIC) moves from 7% today to 11%+ as ROIC climbs to 20% at scale, with the physical capacity already funded and under construction.

The fuel is tangible and visible: current aerospace capacity supports roughly ₹500 Cr revenue at full utilization; the AP plant doubles that ceiling to ₹1,000 Cr+, against current aerospace revenue of ₹364 Cr annualized. There is 3x physical headroom before the next capacity investment is needed. Meanwhile, the LEAP/GTF production ramp (15-20% annual growth in engine deliveries) and part count expansion (300-350 parts, growing daily) provide demand that is contractually committed, not speculative.

What does the market think — and where do I disagree?

At ₹373 (implied P/E ~13x on clean engineering earnings of ₹190 Cr), a reverse DCF with r=13%, n=8 years, and terminal multiple 15x shows the market implies approximately 5-6% PAT growth. This is barely above inflation and well below the 13-18% consolidated revenue growth already visible in 9M FY26 data. The market is pricing Raymond as if aerospace growth will stall, the AP plant won't deliver, and auto margins will revert — essentially, nothing goes right from here.

I estimate 10-15% PAT CAGR on a blended basis, anchored by 22%+ aerospace revenue growth (conservative versus the current 34-49% run rate) and 12% auto growth. The 4-9 percentage point gap between implied growth (5-6%) and estimated growth (10-15%), compounded over 8 years, is where the returns come from. In base case, this produces ₹530/share (+42%). The additional re-rating catalyst — as aerospace grows from 18% to 30%+ of revenue and the blended EV/EBITDA moves from 7.5x toward 15-18x — is not in the base case math but represents significant optionality.

Why is the market wrong? Three factors suppress the multiple: (1) demerger noise makes FY22-FY25 financials unreadable on any screen — clean data only starts Q2 FY26; (2) aerospace at 18% of revenue doesn't yet dominate the P&L, so the stock screens as an auto components maker; (3) at ₹2,483 Cr market cap, Raymond falls below most institutional radar despite having larger revenue than "pure-play" peers trading at 35-50x EV/EBITDA.

Bull Case

Raymond Engineering is locked into the LEAP/GTF engine supercycle at 0.1-0.3% of engine cost with a clear expansion path to 1%+ as part count grows from 300-350 parts across 15 engine programs, with "one new part per day" being qualified. The AP plant (May 2027, ₹930 Cr) delivers 7-9% unit cost reduction while doubling aerospace capacity, pushing margins from 20.9% toward the guided 23-25% and creating a step-change in ROIC from ~13% today to 20-25%. Base case DCF yields ₹530-560/share (2.9x in 5 years, ~24% CAGR) as aerospace scales to 30%+ of revenue and the market re-rates from 7.5x blended EV/EBITDA toward 15-20x.

Downside Framework — What Protects Capital?

Value investors measure downside through multiple independent lenses. Where they converge is the real floor.

1. Asset-based floor (Graham)

Book value per share ~₹484 (P/B 0.76x at ₹369 CMP — stock trades below book). Buying below book means assets on the balance sheet cover the price paid. In liquidation, holders recover more than CMP. Historical precedent: profitable, cash-positive industrial companies rarely sustain below 0.5x book for more than 12-18 months.

• Floor: ₹240 (0.5x book = extreme distress scenario, not base)

2. Balance sheet survival test

Net cash ₹214 Cr, zero debt. In a zero-profit scenario, Raymond can fund operations for 3+ years without dilution or bankruptcy. There is no leverage amplifying the downside — no covenant breach risk, no forced asset sales. This is the single biggest protection.

• Protection: No existential risk. Time is on your side.

3. Normalized earnings floor

Bear year EBITDA: ₹200 Cr (aviation -30%, auto margins revert). Distress sector multiple: 8x EV/EBITDA for a net-cash profitable business.

• EV = ₹1,600 Cr → Equity = ₹1,600 Cr + ₹214 Cr cash = ₹1,814 Cr → ~₹265/share
• Floor: ₹240–280

4. Replacement/strategic value

A strategic buyer (OEM, PE, competitor) acquires this for the Tier-1 certifications and 65% market share on LEAP/GTF parts — not for trailing earnings. Certification moat + customer relationships have a floor below which no rational acquirer would let it trade.

• Informal floor: ₹300+ (strategic premium to distress DCF)

Three methods converge at ₹240–280. The bear case below requires everything to go wrong simultaneously — aviation crash + AP plant failure + auto EV disruption + market pricing at 0.5x book — with a company that has net cash and no debt. This is a tail scenario, not a base one.

Risk/Reward summary at ₹369:

• Downside to floor: -35% (₹240), requires multi-factor distress
• Upside to base: +44% (₹530), requires AP plant delivery + aerospace mix shift
• Upside to bull: +52% (₹560), requires re-rating to aerospace multiples

Bear Case

A new aviation downturn (Boeing production halt, macro recession) cuts aerospace volume 30%, converting the ₹930 Cr AP plant into a cash drain without the volume to absorb fixed costs, while simultaneously exposing the auto segment (72% of revenue) to EV disruption faster than expected. In this scenario, consolidated EBITDA compresses to ₹200 Cr, AP plant capex turns from growth investment to sunk cost, and the auto segment margin reverts from 13.7% back to 10% as operating leverage works in reverse. Bear case value: ₹200 Cr EBITDA at 8x EV/EBITDA = ₹1,600 Cr EV → ₹240-280/share = 25-35% drawdown from CMP.

Key Monitorables

1. Aerospace quarterly revenue: Must sustain ≥₹100 Cr/quarter. Q3 FY26: ₹105 Cr. If <₹85 Cr for 2 quarters, growth thesis weakens — Source: concall

2. Aerospace EBITDA margin: Recovery from Q3's 18.6% toward 20%+. If <17% for 2 quarters, pricing pressure signal — Source: concall

3. Auto EBITDA margin (clean): Sustain 11.5%+ in FY26; >13% validates synergy story. Strip one-time items (₹13 Cr land gain Q2) — Source: concall

4. AP plant construction: Target May 2027 commercial production. Any delay >3 months = note; cancellation = exit trigger — Source: concall/BSE

5. Boeing 737 MAX production rate: Currently ~42/month; pre-COVID ~52. Every +5/month = meaningful direct volume for LEAP-1B parts — Source: Boeing public data

6. Value unlock / listing timeline: Management called it "premature" in Q3 FY26 concall. Two prerequisites: (a) AP plant cost advantages realized, (b) U.S. tariff uncertainty stabilizes. No near-term demerger/listing catalyst — patient capital required — Source: Q3 FY26 concall

Data Gaps

1. Balance sheet FY26: Need total assets, gross block, WC breakdown for precise ROIC — Screener shows only through Sep 2025 half-year

2. Customer concentration: What % of aerospace revenue from the "leading OEM" (likely Safran at ~35-40%)? If >50%, concentration risk is real — check annual report

3. Part qualification pipeline: How many of the "one new part per day" are in serial production vs still in qualification? Rising serial % = margin expansion — check concall Q4 FY26

4. Auto EV exposure: What % of JKMPTL revenue is EV-specific vs ICE? Matters for 5-7 year auto runway — check investor presentation

5. JKMGAL standalone depreciation and tax: Needed for precise segment-level ROIC without estimation — check annual report

1. Business Summary

Raymond Ltd (post two demergers) is a pure-play precision engineering company operating through two subsidiaries: JK Maini Global Aerospace (JKMGAL, ~18% of Q3 FY26 revenue) manufacturing aero-engine components for GE, P&W, Safran, and Rolls-Royce; and JK Maini Precision Technology (JKMPTL, ~72% of revenue) in auto components, EV parts, and steel files. Two demergers completed — Raymond Lifestyle (FY24, textiles/apparel) and Raymond Realty (May 2025, Thane land bank) — leaving a clean engineering entity. The company has a ₹6,500 Cr+ order book (2.5-3x current revenue), is investing ~₹1,000 Cr (₹500 Cr aero + ₹430 Cr auto + shared infra) in an Andhra Pradesh plant to double aerospace capacity by May 2027, and sits inside the LEAP/GTF engine supercycle with 15-20% annual production growth. A new Sinnar plant was built in January 2026 and is now filling up, serving as a near-term capacity bridge before the AP plant comes online (per Q3 FY26 concall).

Structure — What RAYMOND.NS is today:

2. Quality Score + Kill Filter

Kill Filter

Kill Filter Verdict: PASS. No red flags. Aerospace contracts locked, materials fully pass-through, ₹214 Cr net cash, management credible. Historical financials distorted by two demergers — clean operations from Q2 FY26 onward only.

Quality Score

3. Compounding Engine — Q&A

Q1. Is incremental ROIC genuinely high (>20%) — and is it structural, not cyclical?

IMPORTANT CAVEAT: Raymond's consolidated ROIC cannot be computed from Screener's FY22-FY25 data because two demergers (Lifestyle FY24, Realty FY25) make the capital base non-comparable. Segment-level ROIC must be estimated from concall data.

Aerospace (JKMGAL) — structural path to high ROIC:

Once qualified as Tier-1 supplier for a specific part on a specific engine, the switching cost is 12-24 months of re-certification at a new supplier. GE/P&W/Safran cannot practically switch mid-production cycle. Market share moves from 35% (trial) to 65% (proven) and stays there.

`

ROIC estimate (aerospace, inference from concall data):

• 9M FY26 EBITDA ₹57 Cr → annualized ~₹76 Cr
• Estimated D&A: ~₹12 Cr (15% on ~₹80 Cr gross block) → EBIT ~₹64 Cr
• NOPAT at 25% tax: ~₹48 Cr
• Estimated invested capital: ₹320-380 Cr (gross block + net WC; heavy raw material

inventory with 6-12 month lead times from aerospace mills)

• Implied ROIC: ~12-15% currently — building phase, not mature

Post-AP plant (FY28+): unit costs drop 7-9%, volumes 2x+, fixed cost absorption

improves → ROIC trajectory to 20-25%

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Auto (JKMPTL) — improving but not structural:

ROIC likely 10-14%. The 330bps margin improvement in Q3 FY26 is real (operating leverage + SAP HANA rollout now confirmed "coming into play" per Q3 FY26 concall, synergies) but auto components does not have the certification moat. Auto provides cash flow to fund aerospace — it is the financial engine, not the compounding engine.

Honest check: If aerospace ROIC stays below 15% by FY28 (post-AP plant ramp), the compounding thesis breaks because it means either (a) margins didn't expand as guided, or (b) capital intensity is higher than estimated.

Q2. How much capital can be redeployed at these returns — what's the reinvestment runway?

Reinvestment rate (FY26E):

`

Total capex: ~₹200 Cr/year | EBITDA: ~₹360 Cr annualized

Reinvestment Rate ≈ 55%

`

Capital deployment opportunity:

Runway estimate: 8-12 years. The constraining variable is qualification pipeline (being addressed daily) and AP plant capacity (funded, under construction). Demand is not the constraint.

Q3. What's the implied compounding math?

Compounding formula:

`

g = Reinvestment Rate × ROIC

g (current) = 55% × 13% = 7.2%

g (at scale, FY28+) = 55% × 20% = 11.0%

`

FY26 annualized base (from 9M concall data):

• Aerospace revenue: ₹364 Cr (₹273 Cr × 4/3) at 20.9% EBITDA margin → ₹76 Cr
• Auto revenue: ₹1,633 Cr (₹1,225 Cr × 4/3) at 12.7% margin → ₹207 Cr
• Consolidated EBITDA: ~₹300-330 Cr clean

5-Year projection to FY31:

Smell test: The 22% base-case aerospace CAGR is below the current 34-49% run rate — conservative. It requires Boeing/Airbus to simply maintain current production ramp schedules (which are public). Sustainable.

Q4. What specifically kills the compounding?

The compounding breaks if: Boeing AND Airbus simultaneously announce production cuts >15% for >6 months, removing the volume base that justifies the ₹930 Cr AP plant investment and stalling the part qualification pipeline at current levels.

Leading indicators I'd see before the stock price tells me:

• Aerospace quarterly revenue falling below ₹85 Cr for 2 consecutive quarters
• AP plant construction delays >6 months (signals execution issues or demand doubt)
• Order book declining below ₹5,000 Cr (currently ₹6,500 Cr+)

Exit immediately if:

• Aerospace revenue growth <20% for 2 consecutive quarters (not seasonal)
• AP plant delayed beyond Dec 2027 OR cancelled
• Aerospace EBITDA margin <17% for 2 quarters
• Net debt turns positive >₹200 Cr without revenue acceleration
• Boeing or Airbus announces production cut >15%

Do NOT exit on:

• Quarter-to-quarter aerospace margin fluctuation (development write-offs create noise)
• AP plant construction delays of <3 months
• Auto margin dipping to 11-12% for 1-2 quarters (cyclical)

Q5. Can I hold through a 40% drawdown? What's my conviction anchor?

My conviction anchor (the sentence I re-read at -40%):

> "₹6,500+ Cr of contracted aerospace revenue at 2.5-3x current run rate, inside a business that has demonstrated the ability to move from 35% to 65% market share with GE/P&W/Safran — trading at 7.5x blended EBITDA when pure-play aerospace comps trade at 35-50x."

Three things must fail simultaneously for this to be a bad investment at current prices: (1) OEM production cuts, (2) AP plant execution failure, AND (3) auto margin reversal. In any single-failure scenario, downside is ~15-25% with high recovery probability. Upside in base case is 2.9x.

What I will NOT do in a drawdown: I will add to 5-6% position (from current ~4%) on dips to ₹330-350 if thesis intact. Max position: 6%.

4. Key Metrics

Screener.in Financials — DEMERGER WARNING

CRITICAL: Raymond's consolidated Screener data for FY22-FY25 is UNUSABLE for trend analysis:

• FY22-FY23: Old Raymond (textiles + realty + engineering combined)
• FY24: Includes ₹1,719 Cr demerger gains (Raymond Lifestyle)
• FY25: Includes ₹7,741 Cr other income (Raymond Realty demerger)
• FY26 onward = clean engineering-only entity

4a. P&L — Screener.in Consolidated (for record-keeping; DO NOT use for trends)

Why OPM and Net Profit are distorted: FY22-23 includes textiles (high revenue, lower margin). FY24 revenue drops to ₹973 Cr because lifestyle was demerged mid-year. FY25 net profit of ₹7,636 Cr is almost entirely the ₹7,741 Cr Realty demerger gain.

4b. Engineering Segment Actuals (from Q3 FY26 Concall — CLEAN DATA)

Two things to strip out:

1. Auto 9M FY26 EBITDA includes ₹13 Cr one-time land sale gain (Q2). Adjusted auto margin: ₹143 Cr / ₹1,225 Cr = 11.7% — still +130bps over FY25's 10.4%.

2. Aerospace Q3 margin (18.6%) lower than 9M (20.9%) — management says all new product development costs are expensed, not capitalized. During heavy dev phases, margins understate. Feature, not bug.

4c. Quarterly Trend — Screener.in Consolidated

Note: Screener consolidated OPM% is lower than concall segment EBITDA% because Screener includes corporate overhead, unallocated expenses, and different accounting treatment. The concall segment data in Section 4b is the accurate operating picture.

4d. Balance Sheet Snapshot (Screener.in Consolidated)

Demerger impact on balance sheet: FY22-23 = old Raymond (full conglomerate). FY24 borrowings spike to ₹4,181 Cr (pre-Lifestyle demerger). FY25 drops to ₹740 Cr post both demergers. Sep 2025 borrowings ₹1,032 Cr — but management states ₹214 Cr net cash in Q3 FY26 concall. The difference is likely gross borrowings vs net of cash/investments.

4e. Cash Flow (Screener.in Consolidated)

OCF/PAT ratio is MEANINGLESS for FY24-FY25 due to ₹9,400+ Cr of demerger gains in PAT. FY22-23 OCF (₹677-804 Cr) was healthy for the old conglomerate. FY26 full-year OCF will be the first clean data point.

4f. Shareholding Pattern (Dec 2025)

FII reduction is notable — 16.72% → 11.01% over 3 years. Likely due to demerger complexity and reclassification of holding. Monitor if FII selling continues post-clean FY26 results.

4g. Market Data

4b. Outlook — Base Estimate + Sensitivity

Horizon: FY28 — AP plant commercial production + 2 years of ramp

Primary driver: ORDER BOOK + CAPACITY

Raymond has a ₹6,500 Cr+ order book representing 2.5-3x current annualized engineering revenue (~₹2,200 Cr FY26E). The AP plant (₹930 Cr, May 2027) doubles aerospace capacity. At current aerospace growth rates of 30-49% YoY, and Boeing/Airbus production ramp schedules (public data), FY28 aerospace revenue of ₹600-800 Cr is mathematically implied by existing orders alone.

Base Fair Value (FY28):

• Aerospace EBITDA: ₹700 Cr × 22% = ₹154 Cr
• Auto EBITDA: ₹2,000 Cr × 13% = ₹260 Cr
• Total EBITDA: ₹414 Cr → PAT ~₹250 Cr (est. 25% tax, ₹50 Cr D&A, ₹20 Cr interest)
• At 18x P/E (blend of aerospace 25x + auto 12x) = ₹4,500 Cr → ₹675/share → +81% vs CMP

Key Sensitivities

Risk/reward: Downside ~25% (bear ₹280) / Upside ~81% (base ₹675) → 3.2:1 asymmetric upside

The one thing that makes the base case wrong: Boeing AND Airbus simultaneously cut production rates by >15%, removing the volume that justifies the AP plant investment and stalling part count expansion.

5. Valuation

• Current Price: ₹373 | Market Cap: ₹2,483 Cr | Shares: 6.67 Cr
• EV: Market Cap ₹2,483 + Gross Borrowings ₹1,032 − Cash (est. ₹1,246) ≈ ₹2,270 Cr
• Clean FY26E EBITDA (engineering): ~₹300-330 Cr → EV/EBITDA ~7.0-7.5x
• Current clean earnings (PAT, engineering only, annualized): ~₹190 Cr est.

5.1 — Valuation Parameters

Method: Quality-adjusted DCF — Grade B (17/25)

5.2 — DCF Calculation (Bear / Base / Bull)

Bear case (g=6%, n=6, terminal 10x):

`

Current Earnings (clean PAT): ₹190 Cr

Year-6 PAT = 190 × (1.06)^6 = 190 × 1.42 = ₹270 Cr

Terminal Value = 270 × 10 = ₹2,700 Cr

PV of Terminal = 2,700 / (1.13)^6 = 2,700 / 2.08 = ₹1,298 Cr

PV of interim CF ≈ 190 × 1.06/0.13 × [1 - (1.06/1.13)^6] ≈ ₹780 Cr

Intrinsic Value = 1,298 + 780 = ₹2,078 Cr

Per share = 2,078 / 6.67 = ₹312

`

Base case (g=10%, n=8, terminal 15x):

`

Year-8 PAT = 190 × (1.10)^8 = 190 × 2.14 = ₹407 Cr

Terminal Value = 407 × 15 = ₹6,105 Cr

PV of Terminal = 6,105 / (1.13)^8 = 6,105 / 2.66 = ₹2,295 Cr

PV of interim CF ≈ 190 × 1.10/0.13 × [1 - (1.10/1.13)^8] ≈ ₹1,240 Cr

Intrinsic Value = 2,295 + 1,240 = ₹3,535 Cr

Per share = 3,535 / 6.67 = ₹530

`

Bull case (g=15%, n=10, terminal 18x):

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Year-10 PAT = 190 × (1.15)^10 = 190 × 4.05 = ₹769 Cr

Terminal Value = 769 × 18 = ₹13,842 Cr

PV of Terminal = 13,842 / (1.13)^10 = 13,842 / 3.39 = ₹4,083 Cr

PV of interim CF ≈ 190 × 1.15/0.13 × [1 - (1.15/1.13)^10] ≈ ₹1,750 Cr

Intrinsic Value = 4,083 + 1,750 = ₹5,833 Cr

Per share = 5,833 / 6.67 = ₹875

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5.2 — Margin of Safety Assessment

Reverse DCF — what growth is the market implying?

• Market Cap: ₹2,483 Cr | Clean PAT: ~₹190 Cr | Implied P/E: ~13x on clean earnings
• At r=13%, n=8 years, Terminal Multiple=15x → Implied g ≈ 5-6%
• Is this reasonable? Too conservative. Engineering segment growing at 13-18% consolidated, aerospace at 30-49%. Even a long-term 10% CAGR is achievable.
• Gap between implied growth (5-6%) and estimated actual growth (10-15%) = 4-9 percentage points. This is the margin of safety.

What could go wrong:

If biggest risk materializes: A COVID-scale aviation halt would compress EBITDA to ₹180 Cr, but ₹214 Cr net cash provides survival buffer. Value floor: ~₹270/share. Maximum single-risk drawdown: ~27%.

5.3 — Position Sizing

• Conviction level: Moderate-to-High (1 phase moderate due to financial transition)
• Recommended position size: 4-6%
• Current position: ~4%
• Action: At low end of range. Add to 5-6% on dips to ₹330-350. Hold current. Exit >₹550 or thesis break.

5.4 — Sum-of-Parts Valuation (Alternative Model)

"What needs to be true for 5x in 8 years?"

• FY34 PAT target: ₹950 Cr (at ~22% CAGR)
• Exit multiple: 18x P/E — justification: aerospace dominant, still growing
• Requires: aerospace revenue ₹2,500+ Cr at 23%+ margins + auto ₹3,000 Cr at 14% margins
• Probability: Low-Medium — requires flawless AP plant execution AND sustained 25%+ aerospace CAGR for 8 years

Verdict: Undervalued — sum-of-parts alone shows 52% upside even without growth re-rating. Market is pricing in ~5-6% growth when 10%+ is realistic.

6. Competitive Landscape

Market Position

Raymond Engineering operates in two distinct competitive arenas. In aerospace (JKMGAL), it competes as a Tier-1 precision machining supplier to global OEMs (GE, P&W, Safran, Rolls-Royce) for aero-engine components. The addressable market is the global commercial aerospace engine components supply chain, where India's share is growing due to China+1 diversification. In auto components (JKMPTL), it supplies ring gears, flex plates, and bearings to domestic and global automotive OEMs — a more commoditized market with lower barriers to entry.

Structural Advantages vs Peers

1. Tier-1 OEM certification (Aerospace): 3-5 year qualification cycle per part per engine → switching cost is 12-24 months re-certification. Once at 65% market share on a part, competitors are locked out for the engine's production life (20-30 years). Current kit value ~$35,000 per aircraft (0.2-0.3% of engine cost), growing quarterly as new parts are added (per Q3 FY26 concall) — massive expansion runway from a low base. Quantified: 20.9% EBITDA margin vs auto components at 12.7%.

2. Dual-vertical cost synergies: JKMPTL (auto) and JKMGAL (aerospace) share manufacturing infrastructure, SAP HANA systems, and management bandwidth. Auto cash flow funds aerospace investment. No pure-play aerospace peer has this cost base.

3. AP plant scale advantage (upcoming): ₹930 Cr greenfield plant gives 7-9% unit cost reduction and doubles capacity. Smaller competitors cannot replicate this scale investment while maintaining cash flow.

Peer Comparison

Why Multiples Differ + Re-rating Thesis

Raymond at 7.5x vs peers at 35-50x:

• Blended structure: aerospace (18% of revenue) is hidden inside an auto-heavy entity. Market values the whole at auto multiples.
• Demerger complexity: 2 demergers in 2 years created P&L noise that makes the stock screen poorly on any quantitative filter.
• Size: at ₹2,483 Cr market cap, Raymond is smaller than "pure-play" peers despite having larger revenue — institutional money hasn't discovered the re-rated engineering story.

Re-rating thesis: As aerospace grows from 18% to 30%+ of revenue (FY27-28, driven by AP plant ramp), the blended EV/EBITDA should re-rate from 7.5x toward 15-18x. At current earnings, moving from 7.5x to 15x EBITDA alone = 100% price upside. Combined with 15%+ PAT CAGR → total return potential of 3-4x in 5 years.

Competitive Dynamics

• Market share trend: Gaining — aerospace revenue +34-49% YoY vs industry growth of 10-15%. Market share per part moving from 35% → 65%.
• Primary competitive threat: Azad Engineering (also targeting LEAP engine components, similarly India-based Tier-1). Probability of meaningful impact: Low in medium term — certification cycles mean both can grow without head-to-head competition on the same parts.
• Key vulnerability: Safran concentration (~35-40% of aerospace revenue) + Boeing production schedule dependency.
• Policy tailwind: India's Aero Engine Manufacturing PLI scheme (₹7,000 Cr approved) + AP state incentives (~₹380 Cr for Raymond's plant). China+1 OEM sourcing diversification is structural.

Supplier & Customer Data

Customers (from supplier/customer research):

OEM relationships: 25 OEM relationships worldwide, 5-6 strategic engine-side partners across 15+ engine programs (per Q3 FY26 concall).

Concentration risk: Safran = 35-40% of aerospace revenue — high single-customer concentration. Mitigated by long-term contractual structure and the impossibility of switching mid-production.

Suppliers:

Key supplier risk: Aerospace alloys concentrated among few global suppliers with 6-12 month lead times. However, materials are fully pass-through in all aerospace contracts (confirmed on Q3 FY26 concall) — this eliminates commodity price risk for Raymond.

7. Risks

8. Exit Triggers

• [ ] Aerospace revenue growth <20% for 2 consecutive quarters (not seasonal)
• [ ] AP plant delayed beyond Dec 2027 OR cancelled
• [ ] Aerospace EBITDA margin <17% for 2 consecutive quarters
• [ ] Net debt turns positive >₹200 Cr without revenue acceleration
• [ ] Boeing or Airbus announces production cut >15%
• [ ] Promoter holding drops below 40%

9. Review Schedule

• Next quarterly check: Q4 FY26 results (May 2026)
• Key events to watch:
• Q4 FY26 results — first full-year clean P&L; confirm engineering run rate
• AP plant construction update (every quarter)
• Boeing 737 MAX monthly production data
• FY27 guidance from management (May 2026 concall)

9a. Concall Analysis Notes — Q3 FY26 (Jan 27, 2026)

Yellow flag: 9M EBITDA margins 110bps lower YoY. Management attributes to non-operating income reduction (one-time income present in FY25 not repeating). Operating EBITDA trajectory improving. If 14.5%+ consolidated margin not achieved in Q4 FY26, investigate further.

11. Research Log

New learnings, commentary, and thesis updates — most recent first.

Full edit history: git log research/RAYMOND.md

2026-04-01 — Why Reported EPS Looks Collapsed (Demerger Accounting Noise)

Source: Screener.in consolidated data (April 1, 2026)

The puzzle: Raymond's reported quarterly EPS has collapsed — Q2 FY26 EPS ₹1.71, Q3 FY26 EPS ₹0.54 — versus FY25 annual EPS of ₹1,145.85. Is the business deteriorating?

The answer: No. This is entirely demerger accounting noise.

Why reported PAT (₹7-14 Cr/quarter) is misleading:

The Q3 FY26 concall showed ₹557 Cr revenue at 10.7% OPM = ~₹60 Cr operating profit. After depreciation (~₹25 Cr), interest (~₹5 Cr), and 25% tax, engineering PAT should be ~₹22-25 Cr per quarter. The gap between this estimate (~₹25 Cr) and reported (₹7 Cr) is driven by post-demerger adjustments — minority interest reclassification, one-time labour code costs (₹14 Cr in one quarter), and other below-the-line items that will wash out over 2-3 quarters.

The "real" engineering run-rate:

• Segment EBITDA: ₹83 Cr (Q3 FY26, 14.3% margin) — this is the honest number
• Annualized EBITDA: ~₹320-360 Cr
• Estimated clean annual PAT: ₹150-190 Cr (once adjustments finish)
• At ₹351 CMP and ₹190 Cr clean PAT: implied PE ~12x — genuinely cheap for a business with 34-49% aerospace growth

Screener PE of 12.3x is also distorted — it includes the ₹5,328 Cr one-time gain in TTM, making PE look lower than clean reality. Clean PE at ₹150-190 Cr PAT = 12-16x.

Key monitorable: Q4 FY26 (Mar 2026) will be the first fully clean quarter with no demerger noise. If reported PAT comes in at ₹25-35 Cr, our ₹150-190 Cr annual thesis is validated. If it's still ₹7-10 Cr, there's a structural margin problem we haven't identified.

2026-03-28 — Q3 FY26 Concall Deep Dive (standard 10-question framework)

Source: BSE filings 20260127_CONCALL_Q3FY26_Transcript.pdf and 20260202_Earnings_Call_Transcript...pdf (identical content). Full transcript cross-referenced against 10-question standard framework.

Key Numbers (Q3 FY26):

Thesis Confirmations:

1. Aerospace crossed ₹100 Cr/quarter — our monitorable #1 met. 49% YoY growth validates trajectory.

2. Auto margin expansion is structural — 13.7% is clean (no land gain like Q2). Management: "will definitely break the 15% barrier." Driven by operating leverage + SAP HANA rollout (confirmed as real operational change per concall).

3. Net cash maintained at ₹214 Cr despite ₹200 Cr/year capex. Self-funding thesis intact.

4. Order book at 2.5-3x aero revenue, continuously growing. "More than one new FAI every day."

5. LEAP market share mechanics confirmed: 35% → 65% progression, >50% of parts already at 65%. 300-350 part numbers for LEAP alone across 15+ engine programs, 25 OEM relationships.

6. Material costs fully pass-through in all contracts. Not a margin risk.

7. Boeing at ~42/month (vs pre-COVID ~52), LEAP-1B growing 15-20%.

Thesis Challenges:

1. 9M consolidated EBITDA margin declined 110bps YoY (15.8% → 14.7%). Management attributed to "temporary reduction in non-operating income" — vague and unsatisfying. Monitor.

2. Aerospace Q3 margin dipped to 18.6% from 9M 20.9%. Dev costs expensed. Long-run guidance 23-25% feels further away. AP plant cost advantages won't materialize until May 2027+.

3. Value unlocking timeline is "premature." Jatin Khanna pushed back on listing either segment. Two prerequisites: (a) tariff uncertainty stabilizes, (b) AP plant cost advantages realized. No near-term demerger catalyst. (Added to: Key Monitorables)

4. U.S. tariff risk acknowledged: 21% of aero and 10% of auto from U.S. Causing "temporary scheduling delays." (Upgraded in: Risks table)

New Data Points:

• New Sinnar plant built in January 2026 — filling up now. Near-term capacity bridge before AP plant. (Merged into: Business Summary)
• Kit value per aircraft quantified: ~0.2-0.3% of engine cost, ~$35,000 per aircraft. Growing quarterly as new parts added. Massive expansion potential. (Merged into: Compounding Engine, Competitive Landscape)
• LEAP-1C for COMAC C919 being introduced — new China market vector. (Merged into: Outlook)
• 25 OEM relationships worldwide, 5-6 strategic engine-side partners, 15+ engine programs. (Merged into: Customer section)
• Auto geo mix: 60% exports. Europe 30%, U.S. 10%. (Merged into: Customer section)
• Receivable days under 100 — first specific disclosure by CFO. (Merged into: Risks / working capital)
• AP plant capex revised to ~₹1,000 Cr (₹500 Cr aero + ₹430 Cr auto + shared infra). (Updated across sections)
• Long-run margin guidance: Aero 23-25%, Auto >15% yearly. (Merged into: Outlook)
• INR 14 Cr exceptional item = one-time labor code implementation cost, not recurring.

Sections updated: Business Summary (Sinnar plant), Compounding Engine (SAP HANA, kit value), Outlook (LEAP-1C, margin guidance), Competitive Landscape (kit value context), Customer section (OEM count, auto geo mix), Key Monitorables (value unlock timeline), Risks (tariff upgraded, receivables).

Valuation Impact: All key monitorables met. Score 17/25 unchanged. Value unlock timeline pushed out — patient capital required. Action: HOLD, BUY zone ₹300-360.

2026-03-22 — Full framework rewrite (new template)

• Restructured to match new _TEMPLATE.md format
• Added: Summary Verdict table, Bull/Bear Case, Key Monitorables, Data Gaps, Kill Filter checklist, DCF with formulas (Bear/Base/Bull), Competitive Landscape with peer table, Supplier/Customer data, Outlook section with sensitivities
• Retained: All Q3 FY26 concall data, management claims cross-reference, segment financials, quality score
• Screener.in data fetched — confirmed FY22-FY25 unusable due to demerger gains (₹1,719 Cr FY24 + ₹7,741 Cr FY25)
• DCF base case: ₹530/share (+42% vs CMP); SoTP: ₹567/share (+52%)
• Market implies ~5-6% growth; realistic floor is 10%+ → margin of safety exists

2026-03-21 — Q3 FY26 Earnings Call Analysis (Jan 27, 2026)

• Q3 aerospace: ₹105 Cr (+49% YoY), EBITDA ₹19 Cr at 18.6% (development write-offs explain compression vs 9M 20.9%)
• Auto Q3: ₹417 Cr (+15%), EBITDA ₹57 Cr at 13.7% (+330bps YoY). Note ₹13 Cr land gain in Q2
• Boeing at ~42/month; pre-COVID ~52 → 24% volume upside
• LEAP-1B growing 15-20%; >50% of parts at 65% market share
• Materials confirmed fully pass-through
• AP plant: ₹500 Cr aerospace + ₹430 Cr auto, target May 2027; AP govt incentives ~₹380 Cr
• Management quality upgraded 3→4
• Quality Score: 16/25 → 17/25
• Risk-reward: ~4.4:1 (2.9x base / 0.75x bear)

2026-04-09 — Exit decision + Q3 FY26 data

Exit triggered. R/R 1.3:1 (upside ₹530 = +44% / downside ₹240 = -35%) is insufficient for a 5-8 stock concentrated portfolio. Capital better deployed in NEWGEN (18/25 quality, 21x PE on 33% CAGR) than Raymond (17/25, aerospace mix still only 18% of revenue). Source: portfolio restructuring session Apr 9, 2026.

Q3 FY26 actuals: Revenue ₹557 Cr (+6% YoY), PAT ₹7.10 Cr (very thin). The low PAT is not alarming — it reflects operating leverage in early stages of aerospace ramp — but it confirms the thesis requires patience through thin headline numbers. Market cap ₹2,445 Cr, P/E 12.9x on actual engineering earnings (not demerger-inflated TTM). P/B 0.75x — still trading below book. Source: Screener.in Apr 2026.

Why the headline P/E of 88.5x was misleading: TTM PAT of ₹5,487 Cr includes ₹5,328 Cr of demerger-related other income in Q1 FY26 (June 2025). The actual engineering PAT run-rate is ~₹7-14 Cr/quarter → ~₹40-55 Cr annualised, giving a real P/E of ~45-60x on current earnings. This confirms the thesis needs the AP plant (May 2027) to unlock margin expansion before earnings catch up to the market's patience.

Order book and tailwinds: Raymond's ₹6,500 Cr+ aerospace order book is underpinned by a structural tailwind that is now strengthening: Boeing production ramp (from 38/month toward 52/month pre-COVID capacity) and Airbus A320neo backlog stretching to 2034 both increase demand for LEAP/GTF engine parts. India's PLI scheme for advanced chemistry cells and defence components indirectly benefits Raymond's AP plant economics (state incentives reduce capex burden). The LEAP supercycle is not a speculative bet — it is contractually committed production schedules from GE Aerospace and Safran.

Re-entry trigger: If exited, watch for AP plant commercial production confirmation (May 2027) or price below ₹340 (0.7x book, near asset floor). At that point R/R improves to >2:1.

2026-03-14 — Demerger & Aerospace Thesis

Major revision. Raymond Realty demerged May 2025. RAYMOND.NS = pure engineering. Aerospace 37-49% YoY. Quality Score: 11/25 → 16/25.

2026-03-12 — Initial Thesis

150 shares at ₹368.75. Grade C, 11/25. Hold small. Missed demerger + aerospace angle.

Version History