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Soft demand, strong margins

Page Industries’ (PAG IN) Q3 performance was a 4.5% miss on revenue, while higher margins and other income resulted in in-line EBITDA and 10.5% beat on PAT estimates. This outperformance was led by cost control measures and operating leverage supported by gross margin expansion on account of lower raw material cost. PAG continued to expand its distribution and retail reach, which augurs well for future growth. Adjusting for 1.7% cut in sales growth and increase in other income, we raise our earnings by 2.9% for FY25E while maintaining FY26E/27E earnings estimate. We reiterate Accumulate with TP of INR 52,268 on 62.8x FY27E P/E (unchanged).

Expect revenue CAGR of 11.6% in FY24-27E:

PAG reported revenue growth of 6.9% YoY to INR 13,131mn, primarily led by 4.7% YoY volume growth and 2.1% YoY growth in average selling price. Demand environment remained soft in Q3, as demand strength in the festival season could not sustain. Tertiary sales growth outpaced primary sales, reflecting improving retail-level demand. Channel inventory declined by five days in 9MFY25. PAG’s inventory declined by 34 days in 9MFY25 to 59 days. ARS implementation is nearing completion, with 84% of the distributors accounting for 92% of sales (now onboarded). This suggests that primary sales are likely to resume with improving tertiary sales. We expect a revenue CAGR of 11.6% in FY24-27E, led by 7.5% volume CAGR, premiumization and improved product mix.

Controlled costs led to margin expansion:

EBITDA margin expanded 435bps YoY to 23.0%, led by gross margin expansion, lower other expenses and controlled staff cost. Gross margin expanded by 327bps YoY to 56.3% in Q3FY25. We expect margin to sustain >20%, led by premiumization, raw material tailwinds and cost control measures. We expect margin to be at 21.3% in FY25E, 21.3% in FY26E and 21.4% in FY27E.

Price chart

Source: Bloomberg

Distribution reach continues to expand:

PAG added ~2,474 multi-brand outlets (MBOs) in Q3. It added 49 Jockey exclusive brand outlets (EBOs) in Q3, taking the total count to 1,436 EBOs. It continued to consolidate its city presence from 2,850 in FY23 to 2,710 in Q3FY25. Among distribution channels, revenue growth for e-commerce remained the fastest, followed by modern retail and general trade.

Reiterate Accumulate with a TP of INR 52,268:

PAG sustained robust post-pandemic sales despite rising competition, posting a revenue CAGR of 9.9% in FY19-24. We expect a revenue CAGR of 11.6% and a PAT CAGR of 17.7% in FY24-27E, higher than past fiveyears’ CAGR. We expect PAT CAGR to be led by raw material tailwinds and premiumization. We believe that gross margin benefit will continue for the next 2-3 quarters due to subdued cotton prices. Adjusting for slight cut in sales growth and increase in other income, we raise our earnings estimates by 2.9% for FY25E while maintaining FY26E/27E earnings estimate. We reiterate Accumulate with a TP of INR 52,268 on 62.8x FY27 P/E (maintained). Key risk is long-term demand slowdown.

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