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Margins hit, to improve ahead; upgrading to a Buy

Page’s Q3 FY23 revenue/EBITDA were 4%/21% below our estimates. It attributed the low revenue growth to poor consumer sentiment and ARS implementation, which hurt its primary sales. The EBITDA margin was hit by lower absorption of factory overheads, normalised media spends and high-cost stocks. Ahead, demand per management is still affected. Margins should improve now as its high-cost stocks are almost exhausted. In the past it maintained margins of 20-21% and will now control costs to ensure this continues. To bake in the slower demand, we reduce our FY23e-FY25e sales 2-3%. Our FY23e/FY24e/FY25e EPS are ~15%/14%/12% lower as we expect a slightly lower EBITDA margin. Key monitorables are growth and margins. Core-innerwear growth pace being maintained is a key positive. On the steep stock-price drop, we upgrade our rating to a Buy, with a TP of Rs45,938 (55x FY25e EPS of Rs835).

Hit by ARS implementation, low absorption cost. Q3 revenue grew ~3% y/y to Rs12.2bn due to realisation growth as volumes fell ~11% y/y to 52.8m pieces. Secondary sales were more than primary sales, which were hurt by the ARS implementation. The gross margin, incl. other manufacturing expenses, was 37.5% (39.4% a year ago) due to lower absorption of labour & factory overheads and high-cost stocks. EBITDA fell~23% y/y to Rs1.9bn due to the lower gross margin and normalised ad-spends. The EBITDA margin slid ~530bps y/y to 15.8%. Q4 demand is still challenging, per management, ARS implementation will have some impact. Margins are expected to benefit from lower-cost stocks. Men’s innerwear grew in double digits and Bra’s did well while athleisure faced sluggish demand.

Investment in inventory, network continues. Cash reserves were lower at Rs408m (Rs833m the quarter prior) because of higher inventory at Rs14.9bn (Rs13.6bn the quarter prior). Management said, ahead, inventory would shrink. It will continue to invest in marketing initiatives and network expansion. At end-9M FY23, it was seen in 118,838 MBOs, 1,228 EBOs and 2,967 LFS.

Valuation. We upgrade our rating to a Buy, with a TP of Rs45,938 (earlier Rs53,019) 55x FY25e EPS (earlier 56x FY25e P/E). Risks: Continuing slowdown, mounting competition, rising raw-material prices.

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