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PAG’s in-line Q2 result was a combination of a 5-9% revenue miss and a 160- 180bps margin beat, on lower marketing spend, hiring freeze and an accounting change (Emkay: 40bps benefit). Volume decline persisted, with 9%/11% degrowth in Q2/H1, while the economy-segment players (Lux/Rupa/Dollar) saw 10-20% volume growth in H1, albeit lackluster revenue growth on pricing cuts. Headwinds—in the form of weak demand trends, inventory-laden peers (unusually high schemes to the trade) and senior-level (CRO/COO) exits—are unrelenting and may keep near-term growth in check. Even distribution expansion took a breather in H1FY24. While there is no change in our FY25/26 estimates, we upgrade our rating to HOLD (TP: Rs39,000/sh), as the stock has lagged benchmark indices by ~30% in the last 1 year. We adopt a conservative stance, as some company-specific issues may stretch the recovery.

Page Industries: Financial Snapshot (Standalone)

Topline miss in Q2; hopes pinned on macro+channel inventory improvement:

PAG saw revenue decline of ~8% in Q2, due to a 9% drop in volume. The revenue decline was owing to weak macros, channel rationalization and lower primary sales on account of a remnant ARS impact. Discounts/schemes remain high for peers, but PAG is not an active participant. Degrowth was seen across categories, with women’s innerwear faring relatively better. Among channels, MBO/EBO saw decline in revenue, while E-commerce is seeing encouraging growth trends. Distribution expansion for MBOs was subdued, as PAG reduced its MBO distribution by 2,300 outlets sequentially. EBO expansion continued, with 40/83 additions in Q2/H1, taking the total count to 1,372. EBITDA margin was up by 180bps to ~21%, owing to lower marketing spend, hiring freeze, and change in accounting policy (Emkay: 40bps benefit). PAG expects margins to remain within the guided band of 19-21%, given focus on cost savings and inventory optimization.

Earnings-call KTAs: 1) The major share of ARS and channel rationalization is done, and the primary channel should largely reflect secondary sales going ahead; the EBO channel has always been under ARS. 2) Consumer trends should start improving with the onset of the festive season; but PAG has not yet seen a noticeable trend in the urban/premium segment. 3) PAG saw healthy growth of 31% in its e-commerce business in H1; overall, PAG has seen 9% de-growth in H1, indicating low traction in MBO/EBO channels. 4) PAG has not taken any price hike, and has no such intention in the near term either, given moderation in RM costs/other cost optimizations; benefit of the low-cost inventory should also gradually flow in. 5) With the industry logging high inventory in the premium segment, discounting pressure remains intense. PAG expects discounting to reduce, or it will lead to a sustainability issue in the long term for peers. 6) Efforts to improve the D2C channel continued, which grants confidence to PAG on improvement in customer acquisition. 7) Employee cost came in lower, with reasonable attrition in place and hiring freeze adopted, in view of the muted macro. 8) For CXO level exits, PAG is confident of a smooth transition through internal elevations. 9) PAG attributed the demand weakness to the rise in health cost and rentals as well as challenges in the IT services sector.

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