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Is this a good time to buy Page Industries?
The stock price of India’s premium innerwear maker has corrected 40% after posting weak growth in FY19

Ritesh Gupta, director - research, Ambit Capital

While Page Industries continues to be a very strong brand on the innerwear side, we believe there will be a slowdown in the sector for the next few quarters. It continues to persist even this month as per our channel checks. The liquidity concerns for dealers will also take two-three quarters from here to correct. Secondly, growth also will reset for Page, because distribution led expansion on the female innerwear/outerwear side is going to peak out and in the male innerwear segment, the competition is getting fairly aggressive and expanding distribution. There also seems to be some discontent amongst dealers of Page which needs to be ironed out. There was a time, about two years ago when the markets were euphoric about the opportunity in female innerwear and outerwear, which in my view, is now getting rationalised. There are product gaps which Jockey needs to address in female innerwear and the customer is spoilt for choice in the outerwear category. They have typically grown at 20-25% for so many years and now there has been a gradual moderation. The earnings expectation has got reset from 25% compounding to 15%. So to that extent, the valuation correction of about 40% is justified. While the current valuation of 62x P/E on 12-month trailing basis is not steep for a market leader with strong ROCE, there are a lot of uncertainties around the business in the short term. The market will focus on volume growth which will change from 6% to 10% as macro issues get corrected. We expect more correction in the near term before the market starts taking a constructive view on the same.

Rakshit Ranjan, portfolio manager, Marcellus Investment Managers

Over the past five quarters, Page Industries’ average year-on-year volume growth has been around 5%. The slowdown didn’t start from Q4 FY19, as the company had reported 0% volume growth even in Q2FY19. One of the factors for moderation in these growth rates is to do with widespread issues faced by the distribution channel. These issues started with the implementation of GST, and have intensified lately because of other factors such as the NBFC crisis which is affecting working capital financing of the distribution channel. As a result, large format stores and Jockey’s exclusive brand outlets (EBOs) have not witnessed the degree of moderation in sales of Jockey’s products, which multi-brand outlets (hosiery stores) have witnessed. Competitive intensity has also increased over the last 12 months in the premium innerwear segment, with some players offering higher margins and longer credit period to the trade channel. As a result, although Page remains one of the fastest growing innerwear firms over the past 12 months, the gap between growth rates reported by Page Industries and its competitors has narrowed down significantly. Page Industries still offers comfortable, high quality innerwear and leisure wear, at affordable prices, with an aspirational brand recall — a combination difficult to replicate by its competitors. New category launches such as kidswear are doing well at retail shops, and the firm is rapidly expanding its network of EBOs. If you believe that the company will grow earnings annually at 20% over the next five to 10 years, then the stock was cheap even before the recent correction. We say so because longevity of a firm is not factored in P/E multiples. As long as Page retains its competitive advantage, we are not worried about its current P/E valuation. It is a good bet for long-term investors.

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