Weak results but encouraging commentary
* Page reported an 11% fall in revenues (decline was 5% above expectations), dragged by a loss in volumes (down ~19%) due to non-fulfilment of orders and store closures. Covid19 impacted revenues by ~Rs1.5bn in Q4FY20.
* Commentary was encouraging, with sales surpassing expectations and pre-Covid-19 levels in some of the open stores. Page attributed the strong demand to WFH-led leisurewear purchases, closer proximity and strong brand recall. It expects healthy balance sheet and strong supply chain to help gain the market share.
* Comparable EBITDA margins disappointed and fell by ~1,100bps YoY in Q4 on account of loss of sales in Mar’20. It expects a freeze on employee hiring, IT investments and other cost optimizations to help margins in FY21E.
* Factoring in the delayed reopening, we reduce our FY21/22E EPS by ~10%. Valuations at 47x FY22EPS are not attractive yet and we await a better entry point. We maintain Hold, with a revised TP of RS17,500 (from Rs18,200) based on 40x Jun-22 EPS
* Consumer behavioral changes and upbeat supply chain can aid market share gains: Page was able to open 64% of its 2,000 LFS and 89% of 760 EBOs. The response from MBOs has also remained encouraging, with peers witnessing supply-chain disruptions. Page indicated a change in consumer behavior toward leisure-wear on account of work-from-home implementation across companies. Page also expects to re-coup some of the lost Q4YF20 sales in Q1FY21E. Realization improvement trend can continue, with the revenue mix moving toward higher-realization athleisure products (700bps higher revenue mix so far in Q1FY21E). Management remains bullish on sales from the ‘Junior’ segment, with the segment given an independent experienced sales team. The segment’s contribution is low currently (<2% of sales), but the segment grew at 58% YoY in FY20.
* Lower investments and cost rationalizations should help margins: Comparable EBITDA margins fell ~1,100/500bps YoY in Q4FY20/FY20, largely due to loss of sales in Mar’20. Page expects the freeze on employee hiring, IT investments, absence of one-time business development costs and other cost optimizations to help margins in FY21E. PAGE reiterated that its endeavor is to move to the 21-22% EBITDA range (vs. 16.7% in FY20).
* Encouraging commentary but await more clarity on recovery trends; maintain Hold: Factoring in the delayed reopening and gradual recovery from 2H, we reduce our FY21/22E EPS by ~10%. While Page seems to be benefitting from WFH-led demand for its products and share gains, we await better clarity on recovery trends. Despite the underperformance, valuations at 47x FY22EPS are not attractive and we await a better entry point. We maintain Hold, with a revised TP of RS17,500 (from Rs18,200) based on 40x Jun-22 EPS.
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