Sell Page Industries Ltd For Target Rs.34,277 - Geojit Financial Services
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Tepid volume and margin pressure to continue...
Page Industries Ltd. is engaged in the manufacturing, distribution and marketing of innerwear, athleisure, sleepwear and swimwear for men, women and kids.
• Page Industries reported a weak set of results, volume in Q3FY23 witnessed a degrowth of 11% YoY, while sales were flat with 2.8% YoY growth.
• EBITDA margin shrank by 532bps YoY to 15.8% in Q3FY23, due to high cost inventory and increase in marketing spends.
• We expect tepid volume and margin pressure to continue in Q4FY23 as well, due to higher competition and increased Ad spending.
• The competition intensity has increased after Covid period as many players have entered into the athleisure category. • We downgrade our earnings estimates for FY23/FY24 by -19% and –18%, respectively.
• Due to rich valuation and headwinds on margins, we assign SELL rating and value the stock at a P/E of 43x FY25E EPS with a revised target price of Rs 34,277.
De-growth in volume…
Page Industries declared a weak set of results in Q3FY23. Volume witnessed a de-growth of 11% YoY (5.28 cr pieces) owing to weak demand and the implementation of ARS (Auto Replenishment System), which impacted primary sales. The top-line during the quarter was flat at Rs 1,228cr, a growth of 2.8% YoY. The economy has opened up, therefore the demand for athleisure wear impacted as the consumers preference are shifted towards formal wear. The company indicated that double digit sales growth was witnessed in men’s inner wear during the quarter. We expect the high base of athleisure will adversely affect Q4FY23 sales growth as well. Accordingly, we reduce FY23/FY24 revenue estimate by 5%/7% respectively.
High cost inventory and Ad spend impacted margins
In Q3FY23, EBITDA margin declined by 532bps YoY to 15.8%, owing to high cost inventory, employee costs and increased advertisement expenses. The management has not yet decided about further price hike due to high competition in the market. While the company is likely to maintain its higher spend on advertising to enhance brand visibility. Therefore, we reduce the margin estimate by 250bps YoY to 18.5% and 200bps YoY to 19.5% in FY23/FY24, respectively. The adj. PAT came in at Rs 124cr (-29% YoY) in Q3FY23
Key highlights…
• The company added 97 EBOs in 9MFY23 (37 in Q3FY23), total EBOs now at 1,228 stores present in 415 cities.
• Not experiencing any slow-down in premium product sales, performance was better than economy products.
• Competition has increased as new players have entered into the athleisure category.
Valuation…
We expect the tepid volume growth and pressure on margins to continue in Q4FY23 as well, due to competition and higher spending on promotional activities. Further, given its rich valuation and limited upside potential, we assign SELL rating and value the stock at a P/E of 43x FY25 EPS.
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