Page’s expensive stocks need growth to shine
Page Industries Ltd ended the year on a high note. Despite the disruption caused by the Omicron wave of coronavirus, revenue grew 26% year-on-year (yoy) in the March quarter to reach ₹1,111 crores, mainly due to higher price realizations. Ebitda (earnings before interest, tax, depreciation and amortization) margin at 24% beat the consensus estimate of 20.5%. Page is the exclusive licensee of Jockey International Inc. for the manufacture, distribution and marketing of the Jockey brand in India and a few other countries.
The company’s fourth quarter results reflect the positive influence of price increases of approximately 8% taken towards the end of the third quarter. Also in the first quarter, Page took price increases of 5%. In its earnings call, Page management said sales growth was robust across all product categories and sales channels in the fourth quarter. Growth was driven by retail expansion and the introduction of new products. The company sold 50 million pieces in the March quarter, representing year-over-year growth of 8.7%. A favorable base contributed to FY22 sales volume growth of 29% to 191 million pieces. FY22 EBITDA margin was 20%.
So far, the company has dealt with inflationary pressures with two rounds of price increases. Even so, inflationary pressures are a looming concern for the stock.
“Their business growth is expected to be steady as they operate in a virtually monopolistic industry, but the macroeconomic risk on the inflation front remains. They had decent volume growth in FY22, despite increases prices due to their loyal customer base,” said Akhil Parekh, analyst at Centrum Broking Ltd.
The company also benefited from low-priced inventory during the quarter. Management said the price of its main raw material, yarn, had nearly doubled in the past 14 to 15 months. It would closely monitor the commodity situation, and further price increases would depend on it.
Management aims to maintain operating margins in the 20-21% range going forward. “While we believe A&P spending will remain elevated, to support volume growth, reduced operating overhead will help the business maintain margins in the 20-22% range,” Dolat Capital Market said. in a report.
Additionally, Page has set a revenue target of $1 billion by FY26. Analysts at Dolat Capital believe the children’s, women’s and sports recreation segments would be key growth drivers for long-term business.
As such, investors seem to be pricing in optimism. The stock is around 5% off its 52-week high. ₹46,737.70 seen in April. So far this year, Page shares are up almost 10%, beating the Nifty500 index, which has fallen.
Analysts warn that strong increases in the stock in the near future may well be difficult to obtain given the richness of the valuation multiple.
“Page Industries stock is trading at a 65x P/E ratio for FY24, above its historical average of 58-59x. The stock is among the most expensive bets in the discretionary segment, which will cap a significant rise in the stock from its current levels,” said Himanshu Nayyar, analyst at Yes Securities (India) Ltd.
Cost pressures are also biting. In this context, further price increases should be closely monitored.
Parekh does not expect Jockey customers to reduce their trade to Lux, Rupa or Dollar brands if prices were to increase further, but they may reduce the number of units purchased. “That, combined with high valuations, could prevent the stock from seeing a meaningful recovery in the near term,” he said.