Sell Page Industries; target of Rs 15316: Cholamandalam Securities

November 22
17:42 2017

Cholamandalam Securities’ research report on Page Industries

Revenue grew by 17.1% YoY at INR 6,257.1mn, tad below our expectation (est. INR 6.5bn). Total volume grew 9.3% YoY and blended realization improved 8.3% YoY.  Men’s segment witnessed a strong volume growth of 4.94% YoY, Women’s segment (including brassier): +14.6% YoY and Leisure wear segment (+17.2% YoY). Speedo volume growth was flat. Kidswear (boy’s segment) launched in June 2017, witnessed encouraging response and company plans to launch girl’s wear by Jan 2018. In terms of realization, men’s wear realization grew by 9.6% YoY, women’s (including brassier): +5.6% YoY, Leisure wear (+4% YoY) and Speedo (+34.1% YoY).  Gross margin fell by 200bps YoY to 57.6%, owing to increase in cotton prices.  EBITDA at INR 1,284.4mn up 19.5% YoY; EBITDA Margin expanded by 40bps YoY to 20.5% in 2QFY18. Lower other operating expenses (160bps YoY) and lower employee cost (90bps YoY) negated the gross margin compression. Other income fell by 21.1% YoY to INR 48.9mn. PAT grew 22.4% YoY to INR 840.6mn. PAT margin improved by 60bps YoY at 13.4%. Total debt stood at INR 655.68mn, down 21.1% YoY; Debt to equity ratio stood at 0.09X in 2QFY18 compared to 0.14X in 2QFY17.


We like the company for its strong brand recall and healthy fundamentals. At CMP, the stock is trading at 75.8X and 58.7X to FY18E and 19E earnings respectively. We feel that the stock is richly valued and maintain a SELL rating on the stock, with a target price of INR 15,316 (a target multiple of 40XFY19E EPS).Risks: Continued slowdown in consumer discretionary spends, losing market share due to heightened competition from both organized and unorganized segment. Adverse raw materials price movement.

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