Page Industries - The right fit; visit note;:: Edelweiss

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Page Industries (PAG IN, INR 2,496, Not Rated)

We recently interacted with the management of Page industries (Page), one of the leading manufacturers of men’s and women’s innerwear in India. With focus on branding, the company has been able to garner 21% market share in men’s innerwear and 12% in women’s wear with a strong nationwide distribution network. It has a strong balance sheet, steady return ratios (52.2% ROAE and 41.2% ROCE in FY11), strong dividend payout, besides robust free cash flows.

Strong brand positioning with healthy market share

Globally, Jockey is positioned as a premium brand and in India Page has been successful in positioning it as an aspirational brand by maintaining high quality standards and through brand building exercise. Page is a leading brand with 21% market share in men’s and 12% market share in women’s innerwear. The company has an integrated manufacturing process, ranging from yarn knitting to finished products, with an installed capacity of 87mn units, likely to expand to 136mn units over the next two years. In July 2010, the company renewed its licencing agreement with Jockey USA, which makes Page the exclusive licencee to manufacture and distribute JOCKEY® brand of products until December 31, 2030, with UAE being added to the list.

Strong distribution gives edge over competition

Page has a well-channeled distribution network of over 400 distributors and around 20,000 retail outlets spread across 1,100 cities of India. The company is increasing focus on tier 2 and 3 cities as these are at an an early stage of evolution towards branded market. It sells products directly to large format stores like Shoppers Stop etc., and balance sales are done via distributors. The company pays around 11% margin to distributors and around 25-30% margin to retailers, thereby creating significant entry barriers for competition.

Outlook: Positive

With strong brand positioning and distribution network, we believe Page is poised for growth over the next few years. We do not have a recommendation on the stock.