Page Industries

Investors with a medium-term perspective can buy the stock of textile-and-retail player, Page Industries, trading at Rs 850, at 24 times its trailing 12-month per-share earnings. The stock lacks direct comparables, whether in the textile or retail space. Still, closest comparable Maxwell Industries trades at a discount to Page.

We had given a ‘buy' call on the stock at Rs 710 in early December 2009, when the stock was trading at 22.6 times the trailing 12-month per share earnings. The company has since clocked a 40 per cent growth in sales (for the second half of 2009-10), while profits grew 30 per cent.

Our recommendation is also supported by Page's sustained financial performance, good brand presence in a niche market, multiple product lines, vast geographical reach and good dividend payouts. Investors with moderate return expectations can buy this stock.

Product lines

Innerwear for men and women is the primary product line. To mitigate risks of product concentration, Page branched out into leisure wear and thermals for men and women. Both innerwear and leisure are collectively sold under the Jockey brand.

The product range is in a mid-to-premium band, providing it with the ability to make the most of the vast market of both the value-conscious and the lifestyle consumers. Product depth in innerwear is also quite strong, and it is the innerwear segment that accounts for majority of revenues.

The apparel market is dominated by menswear, though women's wear is a fast-growing segment. Menswear currently makes up more than half of revenues for Page. However, with established product lines in both categories, the company is well-placed to make the most of the dominant and growth segments.

Page has the licence to market the Jockey brand in Bangladesh, Sri Lanka and Nepal. However, revenues from exports are still negligible and are unlikely to be a revenue driver even in the coming quarters.

Page has production capacities for garment and elastic manufactures, which allow cost-controls leading to better operating margins. Manufacturing capacities have increased significantly, post the infusion of funds raised from its initial public offer in 2007.

Brand and retail reach

A key factor supporting Page is the strong brand recall that Jockey commands, especially in the mid-priced everyday innerwear segment, and compared with other international brands.

The company also benefits from the technological and design support of Jockey International. Additionally, Page benefits from the non-discretionary nature of its primary product offering and its presence in the value-for-money segment. However, the company aims to scale up leisure wear as a lifestyle brand, besides pushing sales in its premium category, both of which may be a tad difficult to achieve given its mid-priced foothold.

Another factor buoying sales is the extensive reach of Page's products. Page retails through its own exclusive branded stores, a whole host of multi-brand outlets such as Shoppers' Stop and Lifestyle, and finally through regular hosiery stores. Its retail network thus spans over 17,000 outlets in more than a thousand cities, up from the 14,000 two years ago.

Such a vast reach indicates its ability to address a wide customer space and mitigate risks of area concentration. Even with its exclusive outlets, stores are quite evenly distributed in the north, west and southern zones.

Current-owned store count stands at 55, up from the 43 at the end of FY-09. Plans are on reach a store count of 100 by the end of FY-11. With debt-equity on the lower side at 0.5 times, bankrolling such expansion may not be hard to come by.

Financial performance

Over a three-year period, sales clocked a 36 per cent compounded annual growth while net profits grew at 33 per cent. Sales in FY-10 grew 33 per cent over the figure in FY-09, while net profits posted a 26 per cent growth.

Operating margins stood at 21 per cent for FY-10. Margins are a shade lower than the 22 per cent of FY-09, on the backs of higher raw material costs. With cotton prices on an upswing, margins are likely to come under further pressure. Even so, margins are substantially higher than most retailers.

Depreciation costs have also been on the rise, as a result of significant capacity expansion, more than doubling from FY-07. However, depreciation as a percentage of sales has remained more or less constant at 2-2.5 per cent, implying that capacity addition has at least contributed to sales. Net margins have hovered around 12 per cent over the past three years. Given its low debt, interest costs do not drag earnings and margins; interest cover is healthy, having been maintained at over 10 times for the past three years.

via BL