Page Industries’ Pricey Shares Need A Growth Push To Shine
Page Industries Ltd has ended the year on a strong note. Despite the disruption caused by the Omicron wave of coronavirus, revenues grew by 26% year-on-year (y-o-y) in the March quarter to ₹1,111 crore, primarily driven by higher price realizations. The Ebitda (earnings before interest, taxes, depreciation and amortization) margin at 24% has exceeded the consensus estimate of 20.5%. Page is the exclusive licensee of Jockey International Inc. for the manufacture, distribution, and marketing of the Jockey brand in India and a few other countries.
The company’s Q4 results reflect the positive influence of around 8% price hikes taken towards the end of Q3. In Q1 too, Page took price hikes, of 5%. In its earnings call, Page’s management said sales growth was robust across product categories and sales channels in Q4. Growth was driven by retail expansion and the introduction of new products. The company sold 50 million pieces in the March quarter, representing 8.7% y-o-y growth. A favourable base aided FY22 sales volume growth of 29% to 191 million pieces. FY22 Ebitda margin stood at 20%.
For now, the company has navigated inflation pressures with two rounds of price hikes. Even so, inflation pressures are a looming concern for the stock.
“Their business growth is likely to be stable as they operate in a virtually monopolistic industry, but the macro risk on the inflation front remains. They have seen decent volume growth in FY22, despite price hikes because of their loyal customer base,” said Akhil Parekh, analyst, Centrum Broking Ltd.
The company also benefited from low-cost inventory during the quarter. The management has said that the price of its key raw material, yarn, has almost doubled in the last 14-15 months. It would closely monitor the raw material situation, and further price increases would depend on that.
The management aims to maintain operating margins in the 20-21% range going ahead. “Although we believe that A&P spends would remain high, to support volume growth, reduction in operating overheads would help the company to sustain margins in 20-22% range,” Dolat Capital Market said in a report.
Further, Page has set a revenue target of $1 billion by FY26. Dolat Capital’s analysts reckon the children, women and athleisure segments would be key growth drivers for the company in the long run.
As such, investors appear to be factoring in the optimism. The stock is just about 5% away from its 52-week high of ₹46,737.70 seen in April. So far this year, Page’s shares have risen nearly 10%, beating the Nifty500 index, which has dropped.
Analysts caution that steep upsides in the stock in the near future could well be difficult to come by given the rich valuation multiple.
“The Page Industries stock is trading at FY24 price-to-earnings of 65x, higher than its historical average of 58-59x. The stock is among the most expensive bets in the discretionary segment, so that will cap a significant upside in the stock from its current levels,” said Himanshu Nayyar, an analyst at Yes Securities (India) Ltd.
Cost pressures are also biting. Against this backdrop, further price hikes need to be closely tracked.
Parekh does not expect Jockey customers to down trade to Lux, Rupa or Dollar brands if prices were to rise further, but they might cut down on the number of units purchased. “That, along with rich valuations, may hinder the stock from seeing a significant rally in the near-term,” he said.