After a difficult couple of years, growth comes back in August and holding up well; set for a multiple re‐rating
* Valuation and view – The stock is currently trading at 47x FY23 earnings and is expected to see some upgrades now after exhibiting a positive growth outlook after more than 2 years. With manufacturing excellence, pricing power and margins never in question, it looks that the business transformation initiatives have started bearing results and now the long‐awaited growth phase seems to be coming back, which should bring in a phase of multiple re‐rating for the stock over the next few quarters.
* Quarter Highlights – Page reported a much better than expected performance with a 4.5% revenue decline (13.6% volume decline) and 11% EBITDA and PBT jump led by a sharp 310bps margin improvement; strong revival in sales especially in e‐commerce channel and athleisure category; optimist about ongoing festive season, 100% EBOs (opened 60 new EBOs in 2Q), 94% MBOs and 92% of LFS operational now, manufacturing and warehousing attendance back to 95% in October, strong cost controls without any layoffs, cash on books rose to Rs 400cr given strong cash flows led by inventory reduction, multiple new launches in face masks and athleisure.
* Management commentary – Channel confidence levels have increased with company adding channel partners and launching new products in a difficult environment; September saw double‐digit growth, on course for a strong 3Q, retain ambition of reaching USD 1bn top line in 4‐5 years, further strengthened sales management and back‐end capabilities, aggressive cost optimization agenda to continue, expect full recovery by 4Q, marketing investments continue especially on digital side, kids wear remains focus segment with 10 new EBOs – now 15 Junior EBOs, reaching 8k MBOs, expanding distribution in tier 4 and rural markets.
* Secondary sales trends – Secondary sales higher than primary sales in all 3 months of quarter; faced some supply constrains in July which have normalized now.
* Yarn price outlook – Already taken some price adjustments to counter the 10‐12% recent but expected hike in yarn prices; expect prices to come off with the new crop coming in.
* Return to normalcy – Seeing a positive trajectory since August which can lead to double‐digit growth in 3Q itself.
* Volume‐value gap – Saw bitter mix in innerwear and higher sales of athleisure which drove much better realizations (9% increase); double‐digit growth in athleisure.
* Distribution expansion – Opened 60 new EBOs; for MBOs after a pause in 1H, will restart the normal MBO addition trajectory of 5% per annum to 67,000 outlets.
* eCommerce channel – Demand from online channel has settled at about 2‐2.5x of last year levels, further gearing up the infrastructure to cater to online demand.
* Overhead costs – While 17cr reduction in ad spends can come back, other cost initiatives should sustain bringing margins back to 21‐22% historical range.
* Urban demand trends – Certain pockets in metros still impacted, overall urban demand has recovered well after 1Q.
* Slow moving inventory – Provision created last quarter still remains on books but should come down in 2H.
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