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Strong beat led by growth recovery coupled with opex controls; reiterate ADD

Page Industries delivered a significant earnings beatled by strong growth in athleisure and kids wear segments, significant expansion in distribution footprint and strong festive sales trends which has sustained even post November. Volume growth also bounced back to double‐digits at 10% led by athleisure and women’s innerwear while men’s innerwear remained flattish. A key reason for the growth would be strong supply chain management, accurate production planning and distribution execution and addition of 7,000 new MBOs and 80 EBOs to the company’s distribution network in FY21 so far. In terms of future drivers, athleisure growth should sustain with strong repeat purchase trends from new consumers (contribution now similar to men’s innerwear), while kids wear and rural markets are two specific segments being targeted by the company, This quarter was a good example of the company’s pricing power and margin levers where it displayed its frugal cost structure. Ongoing capex towards doubling capacity in 5‐6 years give increased confidence towards strong medium‐term growth given still low penetration levels. We believe most of this growth is genuine led by a recovery in overall market and therefore should sustain. We revise our FY22 and FY23 earnings estimates upwards by 10% and 12% to reflect better growth rates and normalized margins of 22‐23%. We reiterate ADD rating on the company with a revised PT of Rs 33,920 based on 60x FY23E earnings.We believe the company can get back to its historic earnings multiple of 60x given a recovery in its growth trajectory led by athleisure as margins,return ratios and competitive moats remain strong.

* Management commentary ‐ Strong festive demand and gradual lifting of lockdown which increased footfalls, volume growth of 10% yoy, 95% MBOs now operational, 100% EBOs open, 93% LFS operational, ecommerce growth remains strong, manufacturing and warehousing completely normalized, m‐o‐m growth continues since August, focus on POS investments helped, kids wear showed strong acceptance, now have 28 EBOs, 192 distributors and 150 sales people for Jockey Junior, strong potential in tier 3,4, rural markets which are being focused on, confident on growth sustaining going forward; revenue growth of 17% and volume growth of 10%, EBITDA margins at 24% led by strong opex controls on discretionary spends, A&P and labour efficiency; PAT up 77%; strong WC controls led to strong cash generation taking up net cash to 494crs.

* RM inflation and pricing – Yarn price increases slightly above normal inflation, had taken appropriate pricing actions in August and would re‐evaluate pricing in next couple of months.

* Kidswear – Trying to place kids wear in women’s EBOs given women being the target audience, 20 more EBOs in pipeline, opportunity size quite large.

* Rural strategy – Have designed a bouquet of 30 products suited for smaller tier 4 and below markets, extending the pilot across markets given encouraging response in few markets in South and West, will push in FY22 with a separate team being put in place.

* 3Q growth drivers – Changed demand pattern in favor of at‐home wear, close connect with channel partners, strong supply chain management, 3Q growth led by thermal wear demand surge, Increased MBO count  by 7000 YTD and EBO count by 80; upswing in athleisure business (2‐3x innerwear realization).

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