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Buy Page Industries Ltd For Taregt Rs.36,500

Exceeding growth expectations; upgrade to Buy

* We upgrade PAG to Buy from Hold as the strong Q4 beat and management’s aggressive growth initiatives provide confidence of robust growth momentum ahead. Step-up in growth plans for athleisure/women/kids portfolios, faster network ramp-up (incl. MBO/EBO addition) and focus on rural penetration offer an improved mid-teens growth outlook.

* Q4 performance exceeded expectations. Sales grew 63% to Rs8.8bn (8% beat), led by 53% volume growth. Growth in EBITDA/PAT was in line with estimates and was impacted by higher overhead spends, up 37%, which should normalize ahead.

* Excluding the lockdown impact in Q1FY22, management commentary pointed to a strong growth outlook. Secondary growth was higher vs. primary in Q4. Margins are expected to remain stable as the 4-5% price hike effected in Apr’21 is likely to offset the input inflation.

* Factoring in the strong revenue run rate in Q3/Q4, we raise our FY23 estimates by 15%. FY22E EPS is unchanged due to the lockdown impact. We raise the TP to Rs36,500, valuing PAG at 55x Jun’23E EPS (vs. 50x earlier) supported by DCF working.

Aggressive product and distribution expansion plans improve growth outlook: PAG’s strong beat in Q4 and aggressive growth plans provide increased confidence of better growth momentum ahead. PAG’s stronger growth was led by 1) acceleration in athleisure growth, which should continue; 2) aggressive growth plans for women and kids juniors with increased focus from separate sales teams; 3) faster ramp-up in distribution, including MBO’s/EBO’s (added 12k+ MBO and 180 EBO’s), special focus on rural and increasing contribution from ecommerce (up from 4% to 8%); and 4) improved supply chain (ARS implementation 90% covered) providing better sales efficiencies. Management appeared confident of sustaining growth momentum post the lockdown impact in Q1FY22.

Q4 performance exceeded expectations: PAG recorded 63% growth in Q4, led by healthy 53% volume growth. Distribution expansion was healthy with ~14,000 MBO additions (up ~18%) and 180 EBO additions (up ~29%) in FY21. Manufacturing operations are currently suspended but PAG expects a quick recovery post unlocking, based on strong supply chain and last year’s learnings. EBITDA margins at 19.3% were up 850bps YoY but declined sequentially due to higher ad/corporate overheads (up 37%). Gross margins improved 220bps on low-priced inventory. Price hikes of 4-5% effected in Apr’21 is expected to offset input inflation. Working capital saw strong improvement to ~6% of sales (vs. 15% of sales in FY20).

Increase earnings by 15%; upgrade to Buy: Factoring in the improved revenue run rate in Q3/Q4, we increase our FY23 forecasts by 15%. FY22 estimates remain largely unchanged due to the lockdown impact in Q1. With supply chain issues behind, PAG’s stronger product expansion plans and faster increase in distribution offer better visibility of mid-teens growth sustaining ahead. Valuations at 50x FY23E are at a discount to other high growth peers. We, hence, upgrade the stock to Buy and raise the TP to Rs36,500, (from Rs28,000) based on 55x Jun’23E EPS (vs. 50x Mar’23 earlier).

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