Raymond Ltd witnessed a substantial 40% decline in its stock price today, driven by the company’s strategic decision to demerge its lifestyle business.
Demerger Explained
Imagine Raymond as a pie with three slices: lifestyle, real estate, and engineering. In a demerger, they’re taking the lifestyle slice and turning it into a whole new pie on the stock exchange. Raymond shareholders get a piece of this new pie (four slices for every five slices they had in the original Raymond pie). This means shareholders will now hold stakes in both Raymond (focused on real estate and engineering) and the newly formed lifestyle company.
Impact on Stock Price
Raymond’s stock price is diving because investors are reshuffling their decks (portfolios) for the big split. Analysts think the lifestyle business is a goldmine, so some Raymond shareholders are selling their Raymond shares now. They plan to use that money to buy shares in the new lifestyle company once it launches. It’s like selling stock in a company that owns both a grocery store and a gold mine, because you think the gold mine will be much more valuable on its own.
Raymond is streamlining its business. After the demerger, they’ll ditch the lifestyle slice of the pie (think clothing, fashion) and focus solely on the engineering slice. This lets them become an expert in a specific area (engineering) which could:
- Make their operations more efficient.
- Attract investors who are interested specifically in engineering companies.
- Ultimately, increase the value of Raymond stock for shareholders.
Buying opportunity or not
Raymond’s target price raised to Rs 3,650 due to strong real estate and engineering businesses. Brokerage values lifestyle business at Rs 1,982, real estate at Rs 1,086 and engineering at Rs 499 per share. Raymond’s estimated fair value after demerger is Rs 1,586. Any lower price could be a buying opportunity. The lifestyle business could list at Rs 2,930 per share.
