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Growth outlook improves on continued athleisure momentum and distribution push

Quarter Highlights

* Result highlights –

Better than expected revenue growth at 63% yoy led by 54% volume growth from a low base (but still a strong 2‐yr CAGR of 20%) continuing 3Q momentum; gross margins impacted by 120bps given RM inflation not fully passed on; normalization of operating expenses led to lower than expected EBITDA margins at 19.3% (up 192% due to low base), lower WC and tax led to 273% growth in PAT.

* Distribution expansion –

Company had record addition of 14,250 MBOs and 180 EBOs to its network in FY21 in addition to doubling of share of eCom revenues.

* Current situation –

Manufacturing shut for past one month but sufficient pipeline inventories, confident of continued momentum seen in 2HFY21 post unlock.

* Other highlights –

Athleisure and eCom only segments which saw positive volume growth in FY21, focus on rural markets and kids segment to add incremental growth, 90% ARS coverage, new CEO VS Ganesh to take charge from next month.

Valuation and view –

Page has seen a further improvement in growth trajectory with 2‐yr revenue CACGR improving from 12% in 3Q to 20% in 4Q.

Growth continues to be led by athleisure and kidswear segments. We believe it is a combination of better realizations due to higher athleisure mix, increased distribution reach, contribution from kidswear and a strong recovery in larger cities. With the company getting its marketing investments back on track with special emphasis on POS reach out, kids business and rural markets, growth should come back to the 15‐20% trajectory given penetration levels are still very low and scope for 8‐10% annual distribution expansion still exists.

Ongoing capex towards doubling capacity in 5‐6 years give increased confidence towards strong medium‐term growth. We believe most of this growth should sustain given a recovery in overall market. Margins should also get back to the 21‐22% range with strong brand equity and positioning coupled with product innovation making price hikes not very difficult. Higher distributor ROIs and lesser dead stock under the Auto Replenishment system to should also help solve the distributor attrition issue. We increase our FY22/23 EPS estimates by 2.2%/4.8% to build in higher revenue growth and slightly lower margins.

We build in 23%/36%/39% CAGR in revenue/EBITDA/PAT over FY21‐23E expecting a strong recovery from 2Q onwards coupled with normalized margins. Strong WC management and high dividend payouts of 80% plus should keep return ratios healthy further supporting premium valuations. We reiterate our ADD rating on the stock with a PT of Rs 35,558 based on 60x FY23E earnings, in‐line with its historic average. Key risks would be intense competition in the innerwear space impacting growth and/or margins & a prolonged lockdown of markets.

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