Page Industries (PAGIND)

CMP: | 23930 Target: | 23430 (-2%) Target Period: 12 months HOLD

November 15, 2019

Revenue growth improves while margins decline…

Page Industries reported a beat on the topline front in Q2FY20, mainly owing
to better than anticipated volume growth. Volumes for the quarter grew
9.14% YoY to 45.6 million pieces, albeit on a low base of Q2FY19 (flat

Result Update
volume growth). As per the management, growth was broad based- men’s,
womenwear and athleisure reported good growth. Kidswear continues to
be the key focus area of the company. The management highlighted that
green shoots were visible, with a gradual pick-up in footfalls across its
exclusive branded outlets (EBOs). Realisations increased 2.7% YoY to Particulars
| 166.8/ piece in Q2FY20, with the management affirming its guidance to Particular Amount
increase prices by 4-5% for FY20E. Overall revenues grew 12.3% YoY to Market Capitalisation (| Crore) 26,691.2
| 775.4 crore. EBITDA margins for the quarter declined 270 bps YoY to
Debt (FY19) (| Crore) 72.5
18.0%, owing to lower gross margins (down 180 bps YoY), higher sales
Cash (FY19) (| Crore) 44.1
incentives and employee expenses. However, the management has affirmed
EV (| Crore) 26,719.7
its stance of maintaining EBITDA margins of 20-21% for FY20E.
52 week H/L 28200 / 17140
Products, distribution enhancement to aid revenue growth Equity Capital (| Crore) 11.2

For H1FY20, revenues grew 7% YoY to | 1610 crore, with volume growth of Face Value (|) 10.0

2.8% YoY to | 94.8 million pieces. The management indicated that

consumer sentiments improved gradually with same store sales growth Key Highlights
coming in better in Q2FY20 compared to the previous quarter. Increase in  Reported revenue growth of 12.3%
marketing spends, new product launches and enhanced distribution touch

ICICI Securities – Retail Equity Research

as volumes grew 9.1% and average
points has translated into steady volume growth in Q2FY20. We expect realisation increased 2.7%
volume growth trajectory to gain traction in H2FY20 on the back of new
category launches and aggressive addition of new touch points.  The company plans to focus on EBO
expansion and kids segment to revive
Aggressive expansion in kids wear continues…
revenue growth. To focus on the kid’s
The company is enhancing its focus on kidswear segment through its brand inner-wear segment the company
Jockey Junior, which would entail investments in sales and marketing to has invested in building a separate
build an independent sales network. The management is investing in team and has hired 100 sales
building a separate team to focus on kid’s innerwear segment and has added personnel and new sales manager.
a new team with hiring a new national sales manager for the kid’s innerwear
segment. As per the management, its target audience is 15.5 million kids  Maintain HOLD with target price of
(boys 8.1 mn and girls 7.5 million girls), of which it has mere 2% penetration. | 23430

Valuation & Outlook Research Analyst

Our earnings estimates remain largely unchanged. We pencil in revenue and Bharat Chhoda
[email protected]
earnings CAGR of 11% and 18%, respectively, in FY19-21E. Driven by higher
focus on product quality & innovation, coupled with enhancement of Cheragh Sidhwa
distribution reach, we believe that Page could benefit from the improvement [email protected]
in the market scenario. A sustainable improvement in volume trajectory
would remain the key monitorable ahead. We ascribe a HOLD rating to the
stock with a revised target price of | 23430 (earlier: | 23490).

Key Financial Summary

| crore FY18 FY19E FY20E FY21E CAGR (FY19-21E)
Net Sales 2,551.4 2,852.2 3,110.6 3,519.4 11.1%
EBITDA 540.7 617.0 646.1 751.0 10.3%
PAT 347.0 394.0 461.1 544.8 17.6%
P/E (x) 76.9 67.7 57.9 49.0
EV/Sales (x) 10.5 9.4 8.6 7.6
EV/EBITDA (x) 49.3 43.3 41.3 35.5
RoCE (%) 57.2 69.1 60.8 58.6
RoE (%) 41.0 50.8 48.2 46.5
Source: Company, ICICI Direct Research
 Result Update | Page Industries ICICI Direct Research

Exhibit 1: Variance Analysis

Q2FY20 Q2FY20E Q2FY19 YoY (%) Q1FY19 QoQ (%) Comments
Beat on the revenue front, mainly owing to volume growth of 9% to
Revenue 775.4 723.6 690.8 12.3 815.3 -4.9
45.6 million pieces. Realisation grew 3% YoY to | 166.8/piece
Other income 5.8 5.6 10.8 -46.9 7.2 39.7
Higher employee expenses on account of hiring of senior level
Employee Expense 134.3 130.2 118.6 13.2 107.8 24.6
personnel across supply chain, manufacturing and technology
Raw Material Expense 341.0 303.9 291.3 17.1 367.4 -7.2 Gross margins declined 180 bps YoY to 56.0%
SG&A Expenses 151.1 144.7 138.0 9.4 150.8 0.2
Reported EBITDA margins are higher owing to implementation of Ind-
AS 116
Adjusted EBITDA declined 2% YoY to ~| 140.0 crore, with EBITDA
EBITDA 149.0 144.7 142.8 4.4 189.3 -21.3
margins contracting 270 bps YoY to 18.0%
EBITDA Margin (%) 19.2 20.0 20.7 -145 bps 23.2 -399 bps
Depreciation 14.7 8.1 7.7 91.6 7.3 102.2
Interest 8.1 5.0 4.0 100.7 4.0 104.3

PBT 132.1 137.2 142.0 -7.0 185.3 -28.7 Lower other income (down 47% YoY), led to PBT decline of 7% YoY
Tax Outgo 17.5 34.6 49.4 -64.5 60.8 -71.2
Lower effective tax rate (13.3% vs. 35.0% in Q2FY19) boosted PAT
PAT 114.5 102.6 92.6 23.6 124.4 -8.0
growth
Source: Company, ICICI Direct Research

Exhibit 2: Change in estimates

FY20E FY21E
(| Crore) Old New % Change Old New % Change
Revenue 3,080.6 3,110.6 1.0 3,456.7 3,519.4 1.8
EBITDA 656.9 646.1 -1.6 754.4 751.0 -0.5
EBITDA margin (%) 21.3 20.8 -55 bps 21.8 21.3 -49 bps
PAT 472.2 461.1 -2.4 548.1 544.8 -0.6
EPS (|) 422.0 413.4 -2.0 491.0 488.4 -0.5
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2

 Result Update | Page Industries ICICI Direct Research

Conference call highlights

 The management highlighted that the market conditions continue to
remain challenging. However, footfalls had improved in Q2FY20
while consumer sentiment appeared to be better during the quarter

 Employee cost was higher on account of employee addition in sales

and production teams

 Exclusive business outlets (EBO) contribute ~16% to total revenues.

The company currently has ~650 EBOs and is looking to expand
aggressively through this channel in FY20. The management has
affirmed its guidance of taking total EBOs to 1000 stores over the
next few years

 On the long term outlook, Page remains bullish. As per the

management, the target consumer size is ~150 million while the
company has a market share of ~20% in the premium men’s
innerwear with 5% market share in the premium women’s innerwear
and ~8% in the athleisure segment

 The current share of outsourcing in sales is ~30% while the

company is planning to maintain the same over the next few years

 The company has enriched the kids product portfolio by adding 100
styles with multiple SKUs and rolled out the presence in top 50 cities.
Another significant step has been the setting up of a national sales
team for the kids segment with a sales force of 100 sales personnel
and headed by a separate national head. The company has
appointed ~150 distributors (40 exclusive distributors for the kids
segment) and has extended its reach by addition of 2000 multi brand
outlets to its kids segment network in Q2FY20

 The company is working on implementation of automatic

replenishment system (ARS) for its distribution network. This aims
to focus on optimal inventory levels that the distributors should
hold. Currently ~22% of revenues are generated through
distributors linked to the ARS. The company has linked large
distributors to the network and is looking to further increase the
number of distributors to be linked to the system

 On the margin front, the margin was lower on account of higher

material cost (100 bps impact), higher employee cost (60 bps
impact) and increased selling expenses (due to a sales event which
had a negative impact of 60 bps on the margin). Over the longer
term, the company reiterated its policy of maintaining EBITDA
margin in the range of 21-22%. The management indicated that they
were averse to doing business at sub-par (below 20%) EBITDA
margins just to push the revenue growth trajectory though on a
quarterly basis it may vary marginally owing to fluctuation in
material and other costs

 On the capacity expansion front, the company reiterated its target to

double its capacity from 260 million pieces to 520 million pieces in
the next four to five years through greenfield expansion projects in
Anantpur (Andhra Pradesh) and Mysore (Karnataka).

ICICI Securities | Retail Research 3

 | crore

FY19
FY18
FY17

FY21E
FY20E
% | crore

-
200.0
500.0

100.0
300.0
400.0
600.0
10
15
20
25
30
-
1,000
1,500
2,000
2,500
3,000
3,500
4,000

500
FY14 Q4FY15 20.2
Q1FY15 54 153.8 Q3FY15 377
FY15 21.1
Q2FY15 50 Q4FY15 372
Q1FY16 22.4

Exhibit 6: Valuation
Q3FY15 45 FY15 1,514
Q2FY16 21.7

Sales
(| cr)

3519.4
3110.6
2852.2
2551.4
2128.5
Q4FY15 47 Q1FY16 445
Q3FY16 18.7
Exhibit 3: Revenue trend

FY15 196.0

Exhibit 5: Net profit trend

Q2FY16 462

Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Source: Company, ICICI Direct Research

Q1FY16 63 Q4FY16 20.6
Q3FY16 439

ICICI Securities | Retail Research

Q2FY16 60 FY16 20.9 Q4FY16 441

(%)

13.1
9.1
11.8
19.9
18.5
Growth
Exhibit 4: EBITDA margin trend
Financial story in charts

Q3FY16 52 Q1FY17 19.2

Result Update | Page Industries

FY16 1,796
Q4FY16 57 Q2FY17 20.1
FY16 231.5 Q1FY17 569
Q3FY17 18.8

EPS
(|)

488.4
413.4
353.2
311.1
238.7
Q1FY17 68 Q2FY17 534
Q2FY17 69 Q4FY17 19.6 Q3FY17 528
Q3FY17 63 FY17 19.4 Q4FY17 497
Q4FY17 67 Q1FY18 19.6 FY17 2,129

(%)

18.1
17.0
13.5
30.3
15.0
Growth
FY17 266.3 Q2FY18 20.5 Q1FY18 697
Q1FY18 85 Q3FY18 20.8 Q2FY18 626
Q2FY18 84 Q3FY18 621

(x)

49.0
57.9
67.7
76.9
100.2
Q4FY18 24.1

PE
EBITDA Margin
Q3FY18 83 Q4FY18 608
Q4FY18 94 FY18 21.2
FY18 2,551
FY18 347.0 Q1FY19 23.2
Q1FY19 815
Q1FY19 124 Q2FY19 20.7
Q2FY19 691
Q2FY19 93 Q3FY19 22.4
Q3FY19 738

EV/EBITDA
(x)

35.5
41.3
43.3
49.3
64.8
Q3FY19 102 Q4FY19 19.7
Q4FY19 75 Q4FY19 608
FY19 21.6 FY19 2,852
FY19 394.0
Q1FY20 22.4 Q1FY20 835
Q1FY20 111

RoNW
(%)

46.5
48.2
50.8
41.0
40.0
Q2FY20 115 Q2FY20 19.2 Q2FY20 775
FY20E 461.1 FY20E 20.8 FY20E 3,111
FY21E 544.8 FY21E 21.3 FY21E 3,519

(%)

58.6
60.8
69.1
57.2
51.6
RoCE
ICICI Direct Research

4
 Result Update | Page Industries ICICI Direct Research

Exhibit 7: Recommendation History vs. Consensus

40,020 100.0
35,020 90.0
80.0
30,020
70.0
25,020 60.0
(|)

20,020 50.0

(%)
15,020 40.0
30.0
10,020
20.0
5,020 10.0
20 0.0

Sep-18

Sep-19
Dec-18
Feb-17
Jan-17

Jan-18

Jan-19
Oct-17

Oct-18
Jun-18

Jun-19
Jul-17
May-17

Jul-18

May-19
Aug-17

Aug-19
Nov-16

Nov-17

Nov-19
Mar-18

Mar-19
Apr-17

Apr-18
Price Idirect target Consensus Target Mean % Consensus with Buy
Source: Bloomberg, Company, ICICI Direct Research

Exhibit 8: Top 10 Shareholders

Rank Investor Name Last Filing Date %O/S Position (m) Change (m)
1 Genomal (Nari) 30-Sep-19 16.1% 1.8 0.0
2 Genomal (Ramesh) 30-Sep-19 16.1% 1.8 0.0
3 Genomal (Sunder) 30-Sep-19 16.1% 1.8 0.0
4 Nalanda Capital Pte Ltd 30-Sep-19 7.6% 0.8 0.0
5 IIFL Inc 30-Sep-19 4.8% 0.5 0.0
6 Mirae Asset Global Investments (India) Pvt. Ltd. 30-Sep-19 2.1% 0.2 0.0
7 Cartica Capital, Ltd. 30-Sep-19 1.9% 0.2 -0.2
8 The Vanguard Group, Inc. 30-Sep-19 1.6% 0.2 0.0
9 Fidelity Management & Research Company 30-Sep-19 1.3% 0.1 0.0
10 BlackRock Institutional Trust Company, N.A. 31-Oct-19 1.3% 0.1 0.0
Source: Reuters, ICICI Direct Research

Exhibit 9: Recent Activity

Buys Sells
Investor Name Value Shares Investor Name Value Shares
Kotak Mahindra Asset Management Company Ltd. 12.5 0.0 Axis Asset Management Company Limited -75.6 -0.3
Reliance Nippon Life Asset Management Limited 7.3 0.0 Cartica Capital, Ltd. -54.1 -0.2
Fidelity Management & Research Company 3.1 0.0 IIFL Inc -14.3 0.0
Motilal Oswal Asset Management Company Ltd. 2.6 0.0 HSBC Global Asset Management (India) Private Limited -3.3 0.0
Fidelity Management & Research (Hong Kong) Limited 1.1 0.0 William Blair Investment Management, LLC -2.8 0.0
Source: Reuters, ICICI Direct Research

Exhibit 10: Shareholding Pattern

(in %) Sep-18 Dec-18 Mar-19 Jun-19 Sep-19
Promoter 48.3 48.3 48.3 48.3 48.3
FII 37.8 38.4 37.0 34.9 34.4
DII 4.5 3.0 3.2 5.4 6.9
Others 9.4 10.3 11.6 11.4 10.4
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 5

 Result Update | Page Industries ICICI Direct Research

Financial summary

Exhibit 11: Profit and loss statement | crore Exhibit 12: Cash flow statement | crore
(Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E
Total operating Income 2,551.4 2,852.2 3,110.6 3,519.4 Profit after tax 347.0 394.0 461.1 544.8
Growth (%) 19.9 11.8 9.1 13.1 Add: Depreciation 28.0 31.1 36.4 40.3
Raw Material Expenses 1,087.3 1,196.7 1,307.5 1,470.1 (Inc)/dec in Current Assets (12.4) (190.7) (69.2) (114.1)
Employee Expenses 406.5 467.5 528.8 587.7 Inc/(dec) in CL and Provisions 116.3 (10.2) 14.6 18.1
Other Expenses 516.8 571.0 628.1 710.7 Others - - - -
Total Operating Expenditure 2,010.7 2,235.2 2,464.4 2,768.5 CF from operating activities 478.9 224.2 443.0 489.1
EBITDA 540.7 617.0 646.1 751.0 (Inc)/dec in Investments (165.9) 218.0 (50.0) (70.0)
Growth (%) 30.9 14.1 4.7 16.2 (Inc)/dec in Fixed Assets (29.8) (93.7) (65.0) (48.0)
Depreciation 28.0 31.1 36.4 40.3 (Inc)/dec in CWIP (34.4) 51.3 2.2 -
EBIT 512.7 585.9 609.7 710.6 Others (0.2) 23.0 (3.1) 1.5
Growth (%) 32.0 14.3 4.1 16.6 CF from investing activities (230.3) 198.5 (115.9) (116.5)
Interest 16.6 16.3 15.0 14.0 Issue/(Buy back) of Equity - - - -
Other Income 21.5 36.4 21.8 31.7 Inc/(dec) in loan funds (38.1) 23.0 (26.9) (5.6)
PBT 517.6 606.1 616.4 728.3 Others (164.1) (468.5) (278.3) (328.9)
Growth (%) 31.1 17.1 1.7 18.1 CF from financing activities (202.2) (445.5) (305.2) (334.4)
Total Tax 170.5 212.1 155.3 183.5 Net Cash flow 46.4 (22.8) 21.9 38.1
PAT 347.0 394.0 461.1 544.8 Opening Cash 20.5 66.9 44.1 65.9
Growth (%) 30.3 13.5 17.0 18.1 Closing Cash 66.9 44.1 65.9 104.1
EPS (|) 311.1 353.2 413.4 488.4 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Exhibit 13: Balance sheet | crore Exhibit 14: Key ratios

(Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E
Liabilities Per share data (|)
Equity Capital 11.2 11.2 11.2 11.2 EPS 311.1 353.2 413.4 488.4
Reserve and Surplus 836.2 763.9 946.0 1,161.2 Cash EPS 336.2 381.1 446.1 524.6
Total Shareholders funds 847.3 775.0 957.2 1,172.3 BV 759.7 694.9 858.1 1,051.1
Total Debt 49.6 72.5 45.6 40.0 DPS 121.0 338.0 206.7 244.2
Deferred Tax Liability 11.0 12.5 12.5 12.5 Cash Per Share 60.0 39.5 59.1 93.3
Other long term liabilities 13.1 9.3 10.0 10.7 Operating Ratios
Total Liabilities 921.0 869.4 1,025.3 1,235.6 EBITDA Margin (%) 21.2 21.6 20.8 21.3
Assets PBT Margin (%) 20.3 21.2 19.8 20.7
Gross Block 292.2 384.8 449.8 497.8 PAT Margin (%) 13.6 13.8 14.8 15.5
Less: Acc Depreciation 62.2 89.7 126.1 166.5 Inventory days 81.2 96.0 94.0 93.0
Net Block 230.1 295.1 323.7 331.4 Debtor days 21.2 15.8 16.0 16.0
Capital WIP 58.5 7.2 5.0 5.0 Creditor days 19.5 15.6 16.0 16.0
Intangible Assets 7.9 5.5 5.5 5.5 Return Ratios (%)
Total Fixed Assets 296.5 307.9 334.2 341.9 RoE 41.0 50.8 48.2 46.5
Investments 218.0 - 50.0 120.0 RoCE 57.2 69.1 60.8 58.6
Inventory 567.9 750.1 801.1 896.7 Valuation Ratios (x)
Debtors 148.0 123.8 136.4 154.3 P/E 76.9 67.7 57.9 49.0
Loans and Advances 2.1 - 5.7 6.2 EV / EBITDA 49.3 43.3 41.3 35.5
Cash 66.9 44.1 65.9 104.1 EV / Net Sales 10.5 9.4 8.6 7.6
Total Current Assets 837.0 1,004.9 1,095.9 1,248.1 Market Cap / Sales 10.5 9.4 8.6 7.6
Sundry Creditors 136.3 122.1 136.4 154.3 Price to Book Value 31.5 34.4 27.9 22.8
Current Liabilities 327.5 343.2 343.2 343.2 Solvency Ratios
Provisions 27.6 15.9 16.2 16.4 Debt/EBITDA 0.1 0.1 0.1 0.1
Total Current Liabilities 491.4 481.2 495.8 513.9 Debt / Equity 0.1 0.1 0.0 0.0
Net Current Assets 345.6 523.6 600.1 734.2 Current Ratio 1.7 2.1 2.2 2.4
Other Non-current Assets 60.9 37.9 41.0 39.5 Quick Ratio 0.5 0.5 0.6 0.7
Application of Funds 921.0 869.4 1,025.3 1,235.6 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 6

 Result Update | Page Industries ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

ICICI Securities | Retail Research 7

 Result Update | Page Industries ICICI Direct Research

ANALYST CERTIFICATION
I/We, Bharat Chhoda, MBA; Cheragh Sidhwa MBA , Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the
subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned
Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report

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use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in
all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

ICICI Securities | Retail Research 8