IGI Logo

On the road to recovery; long runway for growth ahead

* PAGE Industries (PAGE) is well-positioned to capitalize on India's growing innerwear (9% of the apparel industry) and athleisure markets, aided by favorable macroeconomic trends such as rising incomes, urbanization, and a young population. The company holds a dominant position in the mid-premium innerwear segment, driven by its first-mover advantage, strong brand equity of Jockey, low-cost manufacturing, and a well-diversified product portfolio.

* The company’s moat revolves around its strong in-house manufacturing (~80%) across 16 units, producing 280m pieces annually. Its distribution network spans 2,710+ cities, 1,07,702 MBOs, and 1,387 EBOs, with focused expansion strategies and a strong online presence (41% growth in 1HFY25). The company is focusing on expanding its user base by continuously growing its product range along with multiple marketing initiatives. The company is using many social media influencers (foreign influencers too) to drive women-innerwear and athleisure.

* After experiencing volume growth challenges over the past six to seven quarters, PAGE witnessed a recovery in 2QFY25 supported by festive demand, rural consumption, and normalizing trade inventory. The distributor inventory levels improved significantly and reduced to ~40 days in 2QFY25 from the elevated levels in FY23 and FY24. The improvement was driven by healthy secondary sales and the effectiveness of its ARS system in optimizing inventory management. We model a revenue and EBITDA CAGR of 13% and 17%, respectively, over FY24-27E. We reiterate our BUY rating on the stock with a TP of INR57,500, premised on 65x Mar’27E EPS (10-year and 5-year average P/E at 65x-70x).

PAGE has the right to win in India’s mega consumption theme

PAGE perfectly fits in India’s mega consumption theme, with 1) a fastchanging income prosperity (high- and upper-mid income is likely to contribute 51% by 2030 vs. <25% now); 2) a young population having a median age of under 32 years; and 3) increasing digital and social connectivity. India’s per capita innerwear consumption is significantly lower than global standards. PAGE is well poised for significant expansion, driven by rising disposable incomes, a young and working-age population, growing awareness of personal hygiene, and urbanization. It creates long-term growth prospects for masspremium brands such as Jockey. Though the Indian innerwear segment forms 9% of the apparel industry at present, it is the fastest-growing category. Going forward, this segment is likely to grow to INR835b in 2025 from INR610b in 2022, at an 11% CAGR. PAGE holds a dominant position in the mid-premium branded innerwear segment, supported by its strong first-mover advantage in brand building, integrated control over manufacturing, the global legacy of the Jockey brand, and a well-diversified product portfolio.

Men’s innerwear further bolstering the leadership

* Men's innerwear is the cornerstone of PAGE’s portfolio, contributing >50% to its revenue. The company’s penetration rate is 18-20% of its target high-income households (>INR0.5m income), demonstrating its leadership in the mid-topremium segment. The industry has registered a strong 10-year CAGR of 11- 12%, with PAGE outperforming at ~15% CAGR during the period. PAGE has a strong brand franchise with a wide price range that can capitalize on upgrading existing customers and expanding the customer base.

Women’s innerwear – more for more

* The women’s innerwear market accounts for 65% of India’s total innerwear market, while its contribution in revenue is <20%. PAGE has only 5-6% market penetration for its target high-income households. This category presents a significant untapped potential, especially among younger women who are increasingly seeking style, functionality, and comfort in innerwear. The company is also increasing its mix towards fashion to be relevant for youth. PAGE has been so far under-indexed for the segment, but now it is well-positioned to capitalize by focusing on product innovation and marketing efforts.

Athleisure a large canvas

* Athleisure has emerged as a fast-growing category for PAGE, contributing ~25% to its revenue. The product offering varies from daily wear, sleepwear, and performance wear, but daily wear contributes 60% of the segment. PAGE is looking to expand its customer base by continuing to launch the affordable entry-level products alongside premium collections to compete effectively with unorganized players, thereby ensuring a strong market presence.

Laying a strong foundation for success

* PAGE’s in-house manufacturing capacity, accounting for >80% of its production with a scale of 280mn pieces annually, provides a significant economic moat. Its robust backward integration across 16 units ensures stringent control over quality, design, raw materials, and the entire production process, differentiating it from competitors reliant on third-party contractors.

* Management’s focused expansion strategy through MBOs, EBOs, LFS, and ecommerce platforms has enhanced PAGE’s distribution network across 2,710+ cities and towns. As of Sep’24, PAGE had 1,07,702 MBOs and 1,387 EBOs serviced by 3,987+ distributors. By consolidating and relocating stores to larger, strategically positioned properties, PAGE has been able to optimize customer experience, operational efficiency, and product visibility.

* PAGE continues to lead in product innovation by addressing evolving consumer needs through diversified offerings in athleisure, women’s wear, and innerwear. The recent launches, including segments such as plus-size, work-leisure, and premium intimate wear, have demonstrated PAGE’s ability to cater to emerging market trends and sustain industry leadership.

* Investments in advanced digital tools, including ARS, SAP, and SFA, have streamlined supply chain management and improved distributor returns. Furthermore, its redesigned website has significantly enhanced online engagement, leading to growth in online business (30% in FY24 and 41% in 1HFY25).

* PAGE benefits from Jockey’s strong aspirational brand equity, maintained through iconic campaigns such as "Freedom or Nothing" and "Jockey or Nothing." These campaigns resonate deeply with the younger demographic, enhancing brand loyalty and solidifying its premium positioning in the innerwear and athleisure segments.

Trade inventory eases; demand revival on the way

* PAGE has effectively addressed trade inventory challenges, significantly improving its distributor inventory levels to ~40 days by 2QFY25, compared to higher levels seen in FY23 (48-50 days) and FY24 (~43 days) amid weak demand and oversupply. This reduction shows the healthy secondary sales and the success of its ARS system in optimizing inventory management. While the elevated inventory was an industry-wide issue, PAGE’s efficient distribution network enabled it to navigate more effectively than peers.

* PAGE has faced volume growth challenges over the past six to seven quarters due to subdued demand and high trade inventory. However, 2QFY25 marked a recovery, driven by festive demand, improving primary and secondary growth, and a gradual revival in rural consumption. Growth in Tier 3 and 4 cities outpaced the average, while premiumization and rising e-commerce sales contributed to the value growth.

* Innerwear companies faced margin pressures due to increased discounts, volatile raw material prices, and higher A&P spending to stimulate demand. However, PAGE avoided aggressive discounting, maintaining margins within a stable range. With stability in RM prices, we model a 55-56% gross margin during FY25/FY26.

* We expect PAGE’s revenue to grow 13% over FY24-27 and EBITDA margin to be around 20-21% (close to the long-term average).

Valuation and view

* PAGE has had a robust track record of revenue and earnings growth over the past decade. For the period ended FY24, its sales/EBITDA/PAT posted a 15%/13%/15% CAGR despite headwinds. Earnings growth was fueled by best-ofbreed sales growth, with lower utilization of the margin lever. Moreover, it has delivered a RoE of over 40% in the last 10 years.

* The women’s innerwear and athleisure segments still have several white spaces in their product portfolio. We expect PAGE’s management to fill these portfolio gaps. Digital and marketing efforts will be helpful to gain share for these segments.

* The company maintains a healthy dividend payout ratio. An excellent track record, strong earnings growth potential (~20% EPS CAGR over FY24-FY27E), and high ROEs of over 40% are a great combination and deserve high multiples. We reiterate our BUY rating on the stock with a TP of INR57,500, premised on 65x Mar’27E EPS (10-year and 5-year average P/E at 65x-70x).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412