Page Industries Walking on a Tight Rope:: Emkay

n Jockey’s growth story remains intact. Richer product mix,
product launches and capacity ramp ups to drive 19%
earnings CAGR over FY12-30E
n However, mix improvement from men’s innerwear to
women’s & sportswear to increase working capital days by
48% over FY12-30E, while asset turns to be capped at 7x
n At crossroads - Free cash flow insufficient to maintain
average payout of 55-60%. Page may have to increase debt
to retain dividend payout ‘OR’ reduce payout ratio
n De-rating inevitable- Only timing depends on company action
(payout reduction or maintenance). To pare Page’s premium
valuations despite strong growth. Initiate with a Sell

�� -->


Multiple growth triggers to drive sustainable earnings CAGR
Page has several growth triggers in place, which include improved market dynamics,
higher premiumisation, richer product mix (higher share of sportswear and women’s
innerwear), capacity ramp up, new product launches, etc that would ensure sustainable
gains in market share over the license period. We expect Page’s market share to see
sustained and realistic rise during its license period till 2030 at 20% (+230bps). This
would be led by 170bps rise in men’s innerwear premium market share to 22.4% and
500bps rise in women’s innerwear market share to 16.6%. This should translate into
revenue CAGR of 21% and earnings CAGR of 19% over FY12-30E.
But, mix change to result in higher working capital & cap on asset turn
Page’s gradual shift in revenue mix from men’s innerwear (56.9% in FY12 to 35.9% in
FY30E) to women’s & sports wear (41% in FY12 to 63.8% in FY30E) will deliver
sustainable revenue & earnings growth. However, it will also result in increased working
capital cycle from 50 days in FY12 to 74 days (48% increase) by FY30E, largely due to
higher inventory requirement. We also believe Page might not be able to increase its
asset turns beyond its all time high of 7-7.5x.
At crossroads – raise debt to retain dividend payout or reduce payout
Although we expect Page to deliver healthy cash flows over the license period, we are at
crossroads regarding Page maintaining its high dividend payout ratio. If Page is to
maintain its usual payout ratio of 55-60%, its free cash flows may not be sufficient to pay
the dividends. Thus, Page would either have to continue increasing debt on its books to
maintain its payout ratio “OR” it would have to reduce its high payout ratio – both
negative triggers.
Either scenario could lead to de-rating; Initiate with Sell
We like Page for its robust business model, ample growth drivers and healthy return ratio
profile. However, we feel the company’s free cash flows would be insufficient to fund its
high dividend payout, which might lead to debt addition or payout reduction. We have
valued Page on DCF basis on the assumption that the current payout ratio would
continue. We initiate coverage on Page with a ‘Sell’ rating and a DCF price target of Rs
2,849, which is a 14% downside from current levels.