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(Usual) business momentum back with efforts underway for sustenance

Page delivered a good 2Q with 46% YoY revenue growth (2-year CAGR 18%). We reckon, (1) there may be some benefit of pent-up demand – 1HFY22 revenues are lower by 1.5% compared to 1HFY20, (2) GM contraction was contained (down only 70bps YoY) despite higher RM inflation (GM contraction is a near-term risk).

We like efforts to find new avenues for growth – kids and athleisure range along with penetrating the rural markets. Focus also continues on expanding distribution and adding EBOs (across segments). We believe in 2020-30, volume growth will have to be the key driver of growth unlike 2010-20, where Page enjoyed good price/mix benefit (price increases should now be more calibrated). ADD; TP Rs42,500.

* Strong quarter with 18% 2-year CAGR revenue growth: In Q2FY22, revenue / EBITDA / recurring PAT was up 46% / 41% / 45% YoY, respectively with volume growth of 43.6% YoY. On 2-year CAGR basis, revenue was up 18%. We note that while revenue performance was good (1) there may be some benefit of pent-up demand – 1HFY22 revenues are lower by 1.5% compared to 1HFY20, (2) distribution expansion would have led to some benefit (even as management highlighted secondary and primary trajectory were similar). We note that while management has highlighted price hike of 4-5%, the effective mix benefit is slightly lower (management has highlighted broad-based segmental growth though).

* EBITDA margin in the guided range: Gross margin contracted 70bps YoY to 54.8% due to slightly inflationary RM. Management highlighted that it was able to mitigate the sharp RM inflationary pressure on the back of inventory (in stock), cost covers and productivity benefits. EBITDA margin came in at 21.5% (down 80bps YoY) with operating leverage benefit in staff costs (down 120bps YoY) partly offset by sharp increase in other expenses (management highlighted higher brand investments and impact of cost variabalisation).

* Other highlights: (1) Distribution expansion – it added 54 EBOs in 2Q and now has 1,000+ EBOs in 350+ cities; 22,000 MBOs have been added this calendar year, (2) re-iterated strong growth potential in rural, tier 3 and tier 4 cities and women and kids potential, (3) 30-33% of volumes is outsourced, (4) intent is to go closer to the consumers (both in urban and rural).

* Valuation and risks: We cut our earnings estimates for FY22 by 3% while we increase our earnings estimates for FY23E by 4%; modelling revenue / EBITDA / PAT CAGR of 24% / 35% / 42% over FY21-23E. Maintain ADD with a DCF-based revised target price of Rs42,500. Key downside risks are underperformance of men’s innerwear and sharper-than-expected RM inflation.

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