Page Industries – 2QFY2011 Result Update Angel Broking

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Page Industries – 2QFY2011 Result Update

Angel Broking recommends a Neutral on Page Industries.

For 2QFY2011, Page Industries posted a robust set of numbers, above our

expectations. The company posted strong revenue growth, led by volume growth

and higher price realisation. Operating margins also came in above our

estimates, which we believe are not sustainable going ahead due to increasing

raw-material prices.

Strong top-line growth: The company’s top line grew by 44.4% yoy and 6% qoq

to `126cr (`88cr). Operating margin expanded by 191bp qoq to 20.5% (18.6%)

and EBITDA grew by 44.6% yoy to `26cr (`18cr).

Robust profitability growth: During the quarter, Page Industries posted robust PAT

growth of 55.1% yoy and 19.5% qoq to `16cr. PAT margin stood at 12.9%,

expanding by 87bp yoy and 150bp qoq.

Outlook and valuation: Considering the immense potential of India’s

consumption story, the company’s predominant presence in a fast-growing

market, strong brand recall and consistent financial performance, we remain

positive on the stock. As per our revised estimates, Page Industries would witness

a PAT CAGR of 31% over FY2010–12E. For FY2011E and FY2012E, we have

revised our EPS estimates to `45.9 and `60.5, respectively. Assigning a P/E

multiple of 24x for FY2012E earnings, we have arrived at a fair price of `1,452

for Page Industries, which provides a 2% upside. Hence, we recommend a

Neutral rating on the stock.

Investment rationale

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 JOCKEY® brand of products, up to the end of CY2030. Under this

agreement, United Arab Emirates (UAE) will be added to the list of the 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 to

Page Industries.

Huge market size, with a fast-growing premium segment

We estimate the current potential national innerwear and leisurewear market size

at `15,600cr. 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 `3,740cr.

At present, Page Industries is the market leader with a 14.4% market penetration

level in these segments.

Strong brand recall and a 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 sales.

In addition, Page Industries commands a wide, pan-India distribution network,

encompassing 16,000 retail outlets in 1,100 cities and towns.

Outlook and valuation

Considering the immense potential of India’s consumption story, 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. We have revised our numbers on account of betterthan-

expected estimates.

Estimating the company’s PAT to witness a 31% CAGR over FY2010–12E, we have

revised our EPS estimates to `45.9 and `60.5 for FY2011E and FY2012E,

respectively. Assigning a P/E multiple of 24x for FY2012E earnings, we have

arrived at a fair price of `1,452 for Page Industries, which provides a 2% upside.

Hence, we assign a Neutral rating to the stock.