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Demand environment remains challenging

Page Industries’ revenues declined by 10% YoY (volumes: -9% & realization: -1%) to Rs11.25bn, marginally below our estimate of Rs11.55bn. Decline in volumes was on largely on account of muted demand environment and high base effect. Gross margins stood at 55.7%, -11/+270bps YoY/QoQ. With benign RM prices we expect GM to stable. Better overheads management led to EBITDA margins improvement by 180/130bps YoY/QoQto 20.8%. Keeping muted demand environment in context we have accordingly cut our EPS estimates by 1/0.4% for FY24/FY25. We maintain Add rating with reduced target price of Rs44,916 – valuing at 55x (earlier 60x) 1HFY26E EPS.

Sales decline led by muted demand environment and high base effect

Sales decline was on account of overall weak demand environment and high base of last year. Volumes declined by 9% while ASP by 1%. There has been no negative impact on sales on account of ARS implementation (as realized during 2HFY23) during the quarter. Primary and secondary sales were largely in-line as per the management. Management believes that its peers are even in tougher situation than Page is. Some of them have inventory pile up of 9-12 months. Peers have retorted to more channel schemes and higher discounting to exhaust the inventory. As highlighted in our past channel check note, demand for athleisure segment has moderated from a very high base of last two years (as people stopped WFH and started going back to the offices) and increased competitive intensity (as supply chain got normalized for other players).

Demand revival possibly in 2H; 19-21% of operating margins sustainable

Management has guided that EBITDA margin range of 19-21% look comfortable despite the muted demand in 1H. Operating efficiency should allow Page to keep tab on its costs. We too, believe that visibility of EBITDA margins is better than the visibility of demand recovery. Management alluded that festive season during 3Q should led to sales recovery. Despite the recovery in sales in 2H, we anticipate that for FY24 sales trajectory should broadly be flattish on a YoY basis.

ARS expected to help improve company’s long term performance

Company had delayed implementing ARS system at MBOs during the pandemic as supply chain situation remained crunched. However, management decided to implement the system starting 3QFY23 as it is expected to help improve long term business performance. ARS has now led to decline in inventory days by 20-25 days at distributor level. This will help improve RoIs of channel partners and help company keep a tight lid on its inventory days. Players across the supply chain, including company, distributors, retailers and end consumers are expected to benefit out of the ARS.

Valuation

We have cut our EPS estimates 1/0.4% for FY24/FY25. We maintain Add rating with reduced target price of Rs44,916 – valuing at 55x (earlier 60x) 1HFY26E EPS. We have cut our estimates keeping longer than anticipated time for sales recovery.

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