Page Industries has a lot of factors going for it — two good brands in Jockey and Speedo, a wide distribution and sales network, steady growth in volumes, healthy margins, and investments in raising manufacturing capacities.
While the stock has gained handsomely — 30 per cent in the past one year — in a reflection of these positives, it has begun to correct since late July. Considering the company’s long-term prospects, the recent stock price decline provides investors with a two to three year perspective an opportunity to accumulate the stock in phases.
At the current market price of Rs 3,999, the price-earnings multiple of the stock is at 36 times. That’s well above that of closest comparables Lovable Lingerie. Even so, this premium is justified by the consistency in sales and earnings growth, its larger operations and stronger brands. Page’s PE multiple is also well within its five-year band. The company also pays out good dividends regularly, with the payout ratio maintained above 45 per cent for the past five years.
CONSISTENT GROWTH
Page holds the exclusive licensing for Jockey (innerwear) and Speedo (swimwear), both of which are renowned in international and domestic markets. Its products, priced in the mid-to-premium range, also offer better margins.
Sales over the past five years have grown 35 per cent annually. Similarly, net profits clocked an annual 36 per cent expansion. In the June 2013 quarter, sales grew a strong 40 per cent while profits expanded 32 per cent. Page has kept volume growth steady at 14-17 per cent in the past three quarters, though this is short of the 20 per cent growth of earlier quarters.
Still, most consumer companies have ceded far more volumes to consumer spending cutbacks. Page also took on steep price hikes of about 20 per cent in mid-2012.
Operating margin, over the past several quarters, has hovered between 19-23 per cent. Benefits will accrue from the removal of excise duties on branded apparel in the recent budget, since all branded players had raised product prices in the wake of the duty levy two years ago.
But these gains may be short-lived. For one, input costs may rise - cotton yarn prices have risen 7 per cent in the year so far, while the weak rupee will lift cost of imported materials such as elastics.
Page shells out about 40-45 per cent of its sales towards raw materials.
Second, efforts to promote and advertise the brands to maintain sales, besides marketing drives as it enters smaller cities could add to expenses. Operating margin, thus, is unlikely to improve from the current levels.
Page benefits from the nature of its key segment — innerwear, which is less discretionary than apparel. In the nascent branded innerwear market, its Jockey brand commands a good standing. Competition is limited to Lovable Lingerie and the lower priced lines of otherwise premium Triumph and Enamor.
Further, Page’s efforts to broaden its product basket have helped. While innerwear is still the biggest segment for the company, leisure wear which gives higher margins, is slowly gaining. In the June 2013 quarter, for instance, leisure wear accounted for 27 per cent of revenues compared to the 22 per cent in the same quarter in 2012.
In 2012 fiscal, Page hopped onto the fitness bandwagon taking up the licensing of swimwear brand Speedo. This line completed the first full year of operations in 2012-13. While contribution to total revenues is currently just 2 per cent, it does hold good promise with the growing trend towards fitness. Such diversification reduces Page’s reliance on a single segment and allows it to tap a wider consumer base.
A strong distribution network also plays a key role in Page’s ability to grow sales. Apart from its 100 exclusive outlets, products are retailed through more than 23,000 retail outlets in 1,200 cities. This reach is unmatched by competitors in the branded innerwear segment.
Page plans to take distribution further into smaller cities, gaining a first-mover advantage, and is aiming at a network of 40,000 outlets. The company has also steadily increased and modernised manufacturing capacities over the years. For this fiscal, it aims at adding about 7 million pieces to reach 135 million pieces a year.
LOW DEBT
Bankrolling expansion will not be a challenge, with Page’s low debt-equity ratio of 0.47 times. Much of the manufacturing expansion will find funding from the scheme run by the textiles ministry, which provides low-cost debt for textile players modernising equipment. With low interest, net profit margin is higher than most textile or retail players. Net profit margin has ranged between 14 to 16 per cent for the past eight quarters.
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