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UBS Investment Research
Page Industries
S trong 1Q
1Q’12 PAT beat estimates on stronger growth and higher one-off margins
PAGE reported 1QFY12 PAT of Rs277mn (+115% QoQ, +102% YoY), sharply
ahead of UBS and street expectations. This was led by strong revenue growth of
47% YoY (backed by 18% volume growth and higher realisations) and higher
EBITDA margins at 24.8% (up 620bps YoY). The improvement in margins was
led by lower advertising spend, lower cotton prices and operating leverage. The
company debt declined to Rs600mn in 1Q from Rs1.15bn in FY11 (was high
earlier due to higher stocking of cotton at lower prices and reduced billing).
Management positive on FY12 outlook
The management expects volume growth to pick up from 2Q onwards and guided
towards overall volume growth of 20-25% and operating margin estimate of 21.5%
for FY12. The operating margin of 24.8% in this quarter will come down to its
normal levels of 20-21% in next quarter as the advertising spend is back to trend
and product realisations catch up with lower cotton prices. The management plans
to pass on the benefits of lower cotton prices to consumers in the form of value
packs and will not do any price cuts, to maintain brand positioning.
Beneficiary of rising consumer demand
We believe that PAGE remains well placed to benefit from the rising demand in
the domestic innerwear market with its strong brand and wide distribution network.
Valuation: Rating and PT under review
We will revisit our estimates and PT post detailed call with the management. We
derive our price target on a PE based methodology
Key results highlights / conference call
takeaways
Strong revenue growth: Page Industries 1QFY12 revenues grew strongly
by 47% YoY to Rs1.8bn, led by overall volume growth of 18% and higher
price realisations. The ASP increased by 16% YoY to Rs91 from Rs78 in
1QFY11. The volumes grew strongly in women innerwear (22% YoY), bras
(68%) and leisurewear segments (35%) while the growth in the men
innerwear segment was slightly slow at 12%.
Margins improvement was one-off: 1QFY12 EBITDA grew strongly by
97% YoY to Rs437mn and margins went up by 620bps to 24.8%. This
improvement in margins was primarily led by lower advertising spend in this
quarter which came down to Rs40-50mn against its normal level of Rs100mn.
The margins were also helped by lower cotton prices and operating leverage.
Cotton cost (65% of overall raw material cost) for the company has come
down by 25% YoY.
Expanding distribution network: The Company plans to increase its retail
outlets from 20,000 presently to 22,000 by March’12. PAGE launched its
first exclusive brand outlet ‘Jockey Women’ for women innerwear in FY11
and has plans to open another 4 EBOs for women innerwear. It presently has
70 EBOs.
Capacity expansion: The Company plans to incur capex of Rs380mn in
FY12 which includes Rs260mn for expanding its capacity from 87mn pcs.
currently to 109mn pcs. by Mar’12, Rs80mn for one time shifting to
automatic cutting and another Rs30-40mn for setting up fabric inspection
units. The company also has plans to expand its capacity further to 220mn
pcs by December’12 to in line with its strong volume growth expectations.
Inventory levels declined: Page Industries inventory came down from
Rs1640mn in FY11 to Rs1570mn in this quarter. The company usually has
normal inventory period of 3.5months (includes 2 months for raw materials,
0.5m for WIP and 1m for finished goods) which had earlier went up to 5
months in March’11 on account of lower cotton prices.
Decline in debt: The total debt for the company also declined to Rs600mn in
this quarter from Rs1150mn in FY11. The higher debt of Rs1150mn as of
Mar’11 was led by two reasons 1) higher stocking of cotton at lower prices
and 2) Rs50mn lesser from stopped billing for 15 days.
Agreement with Speedo international: In 1Q the company had entered into
an agreement with Speedo International for manufacture and distribution of
Speedo products in India. Speedo is the world’s leading and most sold
swimwear brand. The initial agreement period is set for 5 years, effective
from July 1, 2011, under which Page is required to pay royalty fees of ~8%
of ex-factory price annually. The management estimates zero capex and only
working capital support of Rs100mn for Speedo, as Page plans to only
manufacture the swimwear products in India while the rest of merchandise
would be imported and distributed. It is expected to launch the Speedo
products in Jan’12.
Outlook: The management was positive on 2Q outlook and guided towards
topline growth of 45-50% YoY in FY12 driven by its strong overall volume
growth expectations of 20-25%. The volume growth of 18% in this quarter was
lower than normal trend and management expects volume growth to pick up
from 2Q onwards. The advertising expense is also expected to be sequentially
higher in 2Q. The operating margin of 24.8% in this quarter was one-off and is
expected to come down to its sustainable levels of 20-21% in next quarters. The
management targets to achieve operating margins of 21.5% in FY12.The
management plans to pass on the benefits of lower cotton prices to consumers in
the form of value packs but will not do any price cuts.
Page Industries
Page Industries is a leading underwear company in India. The company's
founders and largest shareholders are the Genomal family. It is the sole licensee
of Jockey International for the manufacture and distribution of the Jockey
innerwear and leisurewear brand in India, Sri Lanka, Bangladesh, Nepal and the
United Arab Emirates. It launched the Jockey brand in India in 1995 and offers a
range of products in the men's and women's underwear and leisurewear sectors.
Statement of Risk
We believe the key risks facing the company are rising cotton prices, stiff
competition from international companies entering the Indian market and a
global macro slowdown.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Page Industries
S trong 1Q
1Q’12 PAT beat estimates on stronger growth and higher one-off margins
PAGE reported 1QFY12 PAT of Rs277mn (+115% QoQ, +102% YoY), sharply
ahead of UBS and street expectations. This was led by strong revenue growth of
47% YoY (backed by 18% volume growth and higher realisations) and higher
EBITDA margins at 24.8% (up 620bps YoY). The improvement in margins was
led by lower advertising spend, lower cotton prices and operating leverage. The
company debt declined to Rs600mn in 1Q from Rs1.15bn in FY11 (was high
earlier due to higher stocking of cotton at lower prices and reduced billing).
Management positive on FY12 outlook
The management expects volume growth to pick up from 2Q onwards and guided
towards overall volume growth of 20-25% and operating margin estimate of 21.5%
for FY12. The operating margin of 24.8% in this quarter will come down to its
normal levels of 20-21% in next quarter as the advertising spend is back to trend
and product realisations catch up with lower cotton prices. The management plans
to pass on the benefits of lower cotton prices to consumers in the form of value
packs and will not do any price cuts, to maintain brand positioning.
Beneficiary of rising consumer demand
We believe that PAGE remains well placed to benefit from the rising demand in
the domestic innerwear market with its strong brand and wide distribution network.
Valuation: Rating and PT under review
We will revisit our estimates and PT post detailed call with the management. We
derive our price target on a PE based methodology
Key results highlights / conference call
takeaways
Strong revenue growth: Page Industries 1QFY12 revenues grew strongly
by 47% YoY to Rs1.8bn, led by overall volume growth of 18% and higher
price realisations. The ASP increased by 16% YoY to Rs91 from Rs78 in
1QFY11. The volumes grew strongly in women innerwear (22% YoY), bras
(68%) and leisurewear segments (35%) while the growth in the men
innerwear segment was slightly slow at 12%.
Margins improvement was one-off: 1QFY12 EBITDA grew strongly by
97% YoY to Rs437mn and margins went up by 620bps to 24.8%. This
improvement in margins was primarily led by lower advertising spend in this
quarter which came down to Rs40-50mn against its normal level of Rs100mn.
The margins were also helped by lower cotton prices and operating leverage.
Cotton cost (65% of overall raw material cost) for the company has come
down by 25% YoY.
Expanding distribution network: The Company plans to increase its retail
outlets from 20,000 presently to 22,000 by March’12. PAGE launched its
first exclusive brand outlet ‘Jockey Women’ for women innerwear in FY11
and has plans to open another 4 EBOs for women innerwear. It presently has
70 EBOs.
Capacity expansion: The Company plans to incur capex of Rs380mn in
FY12 which includes Rs260mn for expanding its capacity from 87mn pcs.
currently to 109mn pcs. by Mar’12, Rs80mn for one time shifting to
automatic cutting and another Rs30-40mn for setting up fabric inspection
units. The company also has plans to expand its capacity further to 220mn
pcs by December’12 to in line with its strong volume growth expectations.
Inventory levels declined: Page Industries inventory came down from
Rs1640mn in FY11 to Rs1570mn in this quarter. The company usually has
normal inventory period of 3.5months (includes 2 months for raw materials,
0.5m for WIP and 1m for finished goods) which had earlier went up to 5
months in March’11 on account of lower cotton prices.
Decline in debt: The total debt for the company also declined to Rs600mn in
this quarter from Rs1150mn in FY11. The higher debt of Rs1150mn as of
Mar’11 was led by two reasons 1) higher stocking of cotton at lower prices
and 2) Rs50mn lesser from stopped billing for 15 days.
Agreement with Speedo international: In 1Q the company had entered into
an agreement with Speedo International for manufacture and distribution of
Speedo products in India. Speedo is the world’s leading and most sold
swimwear brand. The initial agreement period is set for 5 years, effective
from July 1, 2011, under which Page is required to pay royalty fees of ~8%
of ex-factory price annually. The management estimates zero capex and only
working capital support of Rs100mn for Speedo, as Page plans to only
manufacture the swimwear products in India while the rest of merchandise
would be imported and distributed. It is expected to launch the Speedo
products in Jan’12.
Outlook: The management was positive on 2Q outlook and guided towards
topline growth of 45-50% YoY in FY12 driven by its strong overall volume
growth expectations of 20-25%. The volume growth of 18% in this quarter was
lower than normal trend and management expects volume growth to pick up
from 2Q onwards. The advertising expense is also expected to be sequentially
higher in 2Q. The operating margin of 24.8% in this quarter was one-off and is
expected to come down to its sustainable levels of 20-21% in next quarters. The
management targets to achieve operating margins of 21.5% in FY12.The
management plans to pass on the benefits of lower cotton prices to consumers in
the form of value packs but will not do any price cuts.
Page Industries
Page Industries is a leading underwear company in India. The company's
founders and largest shareholders are the Genomal family. It is the sole licensee
of Jockey International for the manufacture and distribution of the Jockey
innerwear and leisurewear brand in India, Sri Lanka, Bangladesh, Nepal and the
United Arab Emirates. It launched the Jockey brand in India in 1995 and offers a
range of products in the men's and women's underwear and leisurewear sectors.
Statement of Risk
We believe the key risks facing the company are rising cotton prices, stiff
competition from international companies entering the Indian market and a
global macro slowdown.
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