Published on 31/10/2020 12:14:25 PM | Source: Motilal Oswal Financial Services Ltd

Neutral Page Industries Ltd For Target Rs.20,000 - Motilal Oswal

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Recovery underway; growth path remains uncertain

* Page Industries (PAG) reported an extremely weak set of numbers in its 1QFY21 results, with a particularly stark miss on EBITDA and PAT, both of which came in at loss.

* Recovery has been rapid, with August nearly back at last year’s levels for the corresponding month. However, there is no indication that the company, which has reported flattish EPS over the past two years, has turned the corner on the path to topline and earnings growth. Rich valuations of 47.6x FY22 EPS present a significant stumbling block to turning constructive on the stock. Maintain Neutral.


Significant miss on all fronts

* In 1QFY21, PAG posted 65.9% YoY sales decline to INR2.8b (est.: INR5.5b). EBITDA loss stood at INR347m (est.: INR720m profit), PBT loss at INR524m (est.: INR522m profit), and adj. PAT loss at INR396m (est.: INR389m profit).

* Volumes declined ~69% for the quarter (est.: 45% decline).

* The gross margin contracted by 700bp YoY to 48.1%.

* Employee expenses declined by 4% YoY to INR1.2b, and other expenses fell 66% YoY to INR488m.

* EBITDA margins stood at -12.2% in 1QFY21 (est.: +13.1%) v/s +22.4% in 1QFY20.

* Cash and cash equivalents increased by 56% to INR 1.7b during the quarter, led by efficient working capital management.


Highlights from management commentary

* Volumes declined 69% in 1QFY21 and Average Selling Price (ASP) grew on higher athleisure sales.

* In 1QFY21, an INR107m provision was taken on slow-moving goods, which may be reversed later.

* While July had some supply chain issues, recovery was seen to near last year’s numbers in August.

* LFS (large-format store) sales are still weak as footfall at malls remains low. This has been offset by e-commerce sales, which are now in the high single / double digits from 2–3% earlier, and could sustain at these levels.


Valuation and view

* While there is an upward revision in sales on faster-than-expected recovery, there is actually a ~10% reduction in EBITDA and PAT in FY21 due to unexpected loss in 1QFY21. FY22 EPS estimates have been raised by 6%.

* PAG has an immensely impressive earnings growth track record. Its recent efforts on balance sheet improvement are commendable. Also, management endeavors to improve channel efficiency and revitalize growth are likely to eventually turn fruitful. However, the path to earnings recovery is unclear. EPS growth has been flat for the past two years.

* Category slowdown and competitive headwinds present other significant near-term challenges.

* The stock is trading at 47.6x FY22E EPS. We value the company at 45x Sep'22E EPS to arrive at TP of INR20,000. Maintain Neutral.


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