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All-round beat; growth acceleration to sustain

* Page Industries (PAGE) reported sales growth of 11% in 2QFY25 (est. 7%; 4% in 1Q), with healthy 7% YoY volume growth (est. 3.5%; 3% in 1Q) to 55m. Demand improved sequentially, but a full recovery would be visible in 2HFY25. Demand uptick during the festive season has helped to further liquidate trade inventory by 3 days. The implementation of ARS system has been driving inventory efficiency for distributors, resulting in better secondary order fulfilment. Primary growth was lagging behind secondary growth (~4% difference) due to high trade inventory; we believe it will converge in 2HFY25. Thereby, healthy volume growth is expected to sustain.

* Ecommerce channel continues to outpace overall brand growth, mainly led by quick commerce. 1HFY25 ecommerce growth was 41%. We expect demand improvement to continue in 2HFY25.

* GM expanded by 80bp YoY/230bp QoQ to 56.5% on stable input costs. Improved operating efficiency led to 180bp YoY expansion in EBITDA margin to 22.6% (10-quarter high). The management retains its EBITDA margin guidance of 19%-21% in the medium term. We model 20-21% EBITDA margin for FY25-27E.

* Recent launches of new SKUs in the women’s and kids' categories, supported by a dedicated sales team, are set to boost growth. Orissa facility is expected to start operations from 4QFY25 and will cater to rising demand.

* The stock has underperformed massively for the last two years (down 15%) owing to weak volume growth. With volume growth pressure bottoming out and benign input costs likely to lead to a better margin print, we expect the earnings cycle to pick up from hereon. We believe the valuation will remain rich, as we can find only a few consumer stocks with comfort on both growth and margin in the near term. We upgrade our rating from Neutral to BUY with a revised TP of INR54,000, premised on 60x Mar’27E EPS.

Improved growth print; volume up 6.7%

* Beat on volume growth: Sales grew 11% YoY to INR12.5b (est. INR12.0b), while demand remained subdued (but trend improved vs. 1Q). Sales volume was up 6.7% YoY (2.6% in 1QFY25; 3.5% our est.) to 55.2m pieces. The advancement in the festive season also partially supported growth in 2Q. Festive demand was healthy, with improvement in secondary growth.

* Network expansion to continue: Exclusive brand outlets (EBOs) are also a key area, with the company aiming to increase EBOs from 150-180 annually to around 1,550 by FY25. Technology upgrades, like the ARA system, are enhancing distribution and inventory management, while athleisure is emerging as a major growth area.

* Margin: Gross margin expanded ~80bp YoY to 56.5% (est. 56.3%) and EBITDA margin expanded 185bp YoY to 22.6% (est. 20.9%). The margin expansion was led by stable input costs and improved operating efficiency. Employee expenses were down 165bp, but other expenses were up 65bp YoY.

* Double-digit growth in EBITDA/PBT/PAT: EBITDA grew 21% YoY to INR2.8b (est. INR2.5b). PBT grew 31% YoY to INR2.6b (est. INR2.3b). Adj. PAT was up 30% YoY at INR1.9b (est. INR1.7b).

* In 1HFY25, net sales/EBITDA/APAT grew by 7%/11%/17%. In 2HFY25, we expect net sales/EBITDA/APAT growth of 11%/17%/20%.

Highlights from the management commentary

* A gradual pickup in rural consumption is driving positive shifts in overall demand trends.

* E-commerce has outpaced the company average, driven by quick commerce and the shift toward online shopping.

* The company raised prices two years ago due to higher input costs, but there have been no price increases since Jul’22.

* Inventory days decreased to 93 from 168 at the end of FY24.

* The operating margin at the EBITDA level is expected to stay within the range of 19% to 21% annually.

* It plans to expand EBOs by 150 to 180 annually.

* The e-commerce channel posted 41% growth in 1HFY25.

Valuation and view

* We have increased our EPS estimates by 5%/3% for FY25/FY26 on account of improvement in volume growth assumption and higher margin.

* We expect demand improvement to continue in 2HFY25. We estimate a CAGR of 13%/17%/19% in sales/EBITDA/PAT over FY24-27E.

* With PAGE’s strong execution history and a large market opportunity, we expect an uptick in the earnings cycle and the valuation will also see quick re-rating. We upgrade our rating from Neutral to BUY with a revised TP of INR54,000, premised on 60x Mar’27E EPS.

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