Angel Broking on Page Industries: Jockeying for growth-Buy

Page Industries: Jockeying for growth
Page Industries is the exclusive licensee of Jockey International,
Inc. (USA). The company manufactures and distributes the
JOCKEY® brand of innerwear and leisurewear for men and
women in India, Sri Lanka, Bangladesh and Nepal. Considering
the company's dominant presence in a fast-growing market,
strong brand recall and consistent financial performance, we
believe Page Industries is an ideal contender to get re-rated.
Exclusive licensee for JOCKEY® through 2030: Page Industries
has entered into a new licensing agreement with
Jockey International, which makes Page Industries the exclusive
licensee to manufacture and distribute the JOCKEY® brand of
products up to the end of CY2030. Under this agreement,
United Arab Emirates (UAE) will be added to the list of existing
markets served by Page Industries. In essence, this agreement
of exclusivity for 20 years, of a well renowned global brand,
lends good growth visibility.
Huge market size, with a fast-growing premium segment: We
estimate the potential national innerwear and leisurewear
market size at Rs15,600cr. In India, JOCKEY® is positioned as
a premium innerwear and leisurewear brand, catering to the
premium and super premium segments. We estimate the current
market potential of these segments at Rs3,740cr.
Strong brand recall + Wide distribution network: JOCKEY® is
one of the most trusted and well-respected innerwear brands
in India. The company's advertising and branding budget is a
good ~6% of its net revenue. Page Industries commands a
wide, pan-India distribution network, encompassing 16,000
retail outlets in 1,100 cities and towns.
Financial performance
During FY2010, the innerwear segment contributed about 76%
to the company's net sales, the leisurewear segment added 21%
and the remaining 3% came in from sale of factory seconds.
We estimate the innerwear segment to witness a 32% CAGR,
the leisurewear segment to log in a 40% CAGR and the factory
seconds segment to witness a 35% CAGR over FY2010-12E.
All the segments put together, we estimate total net sales to
grow at a 34% CAGR over FY2010-12E. Due to rising yarn
prices, Page Industries may not be able to fully pass on the
prices, thus affecting the core operating EBITDA and PAT
Initiating Coverage
Research Analyst - Naitik Mody
margins. Also, considering the sound capex funding model with
a higher leveraging ratio aided by zero equity dilution and high
dividend payout ratio, we believe Page Industries will command
higher RoEs and RoCEs.
Outlook and valuation
Since its listing in FY2007, Page Industries has traded in the
one-year forward P/E band of 12x-20x. From FY2007 to
FY2010, the company has delivered a 32.5% earnings CAGR
and an average RoE of almost 40%.
Considering the company's predominant presence in a
fast-growing market, strong brand recall and consistent financial
performance, we believe Page Industries is an ideal contender
to get re-rated. Estimating the company's PAT to grow at a 28%
CAGR over FY2010-12E, we have assigned a P/E multiple of
24x FY2012E earnings.
For FY2011E and FY2012E, we have estimated an EPS of Rs44
and Rs58, respectively. Assigning a P/E multiple of 24x for
FY2012E earnings, we Initiate Coverage on Page Industries
with an Accumulate rating and a Target Price of Rs1,392.