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E-com/non-metro markets fueling growth

Page Industries’ Q2FY25 print was ahead of our estimates; Despite weak consumer sentiments revenue/EBITDA/PAT grew 10.8%/ 20.5%/29.9% YoY backed by 6.7% volume growth (55.2mn pcs). Management alluded growth to, (1) non-metro markets driving volumes, (2) consumer up-trade to premium mix, and (3) strong growth in B2B/B2C channels driven by improved retail metrics. Further new product launches and marketing efforts aided Q2 sales. Further reorganising distribution channel and ARS implementation, helped to lower system inventory by 3 days. Given stable RM costs, gross margin inched up to 56.5% (+83bp). Despite higher employee cost (+0.7%), other expenses (+15.0%) and elevated ad spend (~5% sales), EBITDA grew to Rs2.8bn settling EBITDA margins at 22.6% (+183bp). Moreover higher other income (+773.1%) supported PAT at Rs2.0bn. Management remained sanguine to deliver EBITDA margin ~19-21% on back of operational excellence, improved store throughput, and efficient supply chain management. With better 1HFY25 we have increased earnings and retain ADD with a revised TP of Rs46,991 (55x Sept FY27E EPS).

Early sign of consumption revival; Q2 value/volume grew 10.8%/7.0%

Page’s Q2FY25 revenues at Rs12.4bn grew healthy by 10.8%, backed by 6.7% growth in volume (55.2mn pcs). Higher growth in E-commerce and demand for premium mix indicate shift in consumer preferences. Management alluded growth to, (1) non-metro markets driving volumes, (2) consumer up-trade to premium mix, and (3) strong growth in B2B/B2C channels driven by improved retail metrics. Further new product launches and marketing efforts aided Q2 sales. Further reorganising distribution channel and ARS implementation, helped to lower system inventory by 3 days. Page said strong demand recovery in men's innerwear and athleisure while reducing system inventory with distributors. Controlled discounting and strategy of holding product prices in the past 9 quarters, has narrowed gap with competition while preserving brand premium. Distribution network as on Jun’24 - MBOs: 107k, EBOs: 1387 and LFS outlets: 1153. Page consolidated large format EBO to align with long term strategy, yet saw marginal impact on revenues. Page guided for 150-180 EBO addition in 2HFY25.

With stable RM cost and premium product mix gross margins inched-up by +83bp to 56.5%

Given stable prices for RM basket, improved product mix and controlled discounting resulted in gross margins improvement by +83bp to 56.5%. Despite higher employee cost (+0.7%), other expenses (+15.0%) and elevated ad spend (~5% sales) EBITDA grew 20.5% to Rs2.8bn, settling EBITDA margins at 22.6% (+183bp). Further higher other income (+773.1%) supported PAT at Rs2.0bn (+29.9%). Management remain optimistic to deliver EBITDA margin ~19-21% on back of operational excellence, resource optimization, improved store throughput, and efficient supply chain management.

Valuation

We reckon Page’s performance was under pressure due to subdued demand conditions coupled with, (1) higher than expected system inventory and (2) rising regional competition. However strategic action executed in past few quarters now yielding volume growth trajectory in our view. Moreover, company’s focus on improving profitability has yielded good results. Page declared 2nd interim dividend of Rs250/share. With improved operating performance and stable outlook we increased earnings for FY25E/ FY26E by 11%/6.4% and retain ADD with a revised TP of Rs46,991 (55x Sept FY27 EPS). Risks: prolonged channel inventory correction, rising local competition.

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