IGI Logo

Aggressive distribution initiatives getting growth back on track but valuations remain rich; maintain ADD

Our view

PAG delivered one of its best quarters both in terms of revenue growth and margin performance despite the steep inflation in yarn prices. Robust double‐digit growth across Menswear, Womenswear and Leisurewear underscores PAG’s strengths of leveraging its strong brand equity coupled with aggressive network expansion to cater to less penetrated geographies. We believe PAG is on track to deliver 15‐20% growth in medium term driven by higher athleisure mix, increased distribution reach, contribution from kids wear and increasing traction in online. With the company getting its marketing investments back on track with emphasis on womenswear, kids business and e‐com channel, strong growth should sustain 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 on getting close to the ambitious USD 1bn sales target by 2026. Post the recent run‐up, expensive valuations limit upside potential which makes us maintain our ADD rating.

Result Highlights

* Revenue – Revenue came in in‐line with our estimate growing 46% YoY to Rs10.8bn on a 4.5% decline in base quarter implying 18% 2‐yr revenue CAGR and market share gains. Strong performance was aided by increased momentum in sales across all product categories backed by expansion in portfolio and aggressive distribution expansion in both MBOs and EBOs.

* Margins – Gross margin declined 70bps/290ps YoY/QoQ to 54.8% with the company taking a 3% price hike. EBITDA margin came in at 21.5% vs 22.3% owing to lower employee expenses partially offset by higher other expenses. Sales incentives were at Rs 320mn vs Rs 206mn YoY.

* Dividend – Company declared second interim dividend of Rs150/share during the quarter and Rs50/share in Q1, given improved WC and cash generation.

* Footprint Expansion – 13,950 MBS added during the quarter taking total to 94,200, 54 EBOs taking total EBOs more than 1,000, also added 6 LFS in Q2.

Valuation

We build in revenue/EBITDA/PAT CAGR of 21%/29%/32% over FY21‐24E. We raise our estimates by 2‐6% in FY23/24 to incorporate higher sales led by aggressive distribution expansion driving market share gains across channels. We revise our TP to Rs 42,160 and maintain our ADD rating based on 60x FY24E earnings.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer