Page Industries: Hold

Expansion in product lines, a wide distribution network and a strong brand have sustained positive sentiments.



A unique presence has come in handy for Page Industries, whose stock has climbed 60 per cent since the start of this year even as most other retail and textile stocks faltered. The company primarily operates in the mid-to-premium innerwear market which has little competition in the listed space. Expansion in product lines, an ability to pass on cost increases, a wide distribution network and a strong brand presence helped sustain positive sentiments.

Still, the stock's impressive run has left it at high valuations. At Rs 2,506, it trades at 35 times the trailing 12-month earnings, a premium to most textile stocks and on a par with larger and more diversified retail stocks.

The Indian consumer has borne the brunt of high fuel and food bills for a long time now and has begun to scale back spending. The mid-to-premium of Page's products may deter purchases, especially by the vast middle income segment.

The company is further not invulnerable to fluctuating input costs, given negligible margin improvements over the past three quarters. The stock also suffers from a relatively lower float. Investors can retain their holdings, but refrain from fresh buying at current levels.

Wide presence

Page markets its products through a combination of exclusive Jockey stores and other lingerie retailers. Exclusive brand outlets currently number 70 while the company distributes products through more than 20,000 retail outlets. This presence across the country helps it target a wide consumer base.

Page's flagship brand, Jockey, has a strong standing in the high-quality category, with quality-conscious consumers willing to fork out more. Extending this brand into related garment categories has proved successful for Page, which has introduced categories, apart from men and women's innerwear over the past couple of years.

For instance, it added sportswear and other leisure wear such as stretch pants and shorts for men and women. Such a diversification helps address a wider market and increase its share in the customer's wallet.

In July this year, Page became the exclusive licencee of global swimwear major, Speedo. Page will begin rolling out swimwear from the March '12 quarter onwards. Significant revenue contribution from this line is likely to kick in from the next financial year.

Sustained growth

Revenues have grown at a compounded annual rate of 37 per cent over the past three years. Net profits have similarly grown 35 per cent. Cotton, the primary input, had seen prices spiralling last year. Excise duties on branded apparel also took a toll on costs. Page accordingly took price hikes, but faced dented demand.

The March '11 quarter saw revenues and net profits grow at their most sedate pace of 35 and 29 per cent respectively against the 40-plus growth rates of the earlier quarters. Operating margins in the quarter too dipped two percentage points to 15 per cent compared to the same quarter the year before.

However, cotton prices have cooled off over the past few months. Demand has also adjusted to higher prices, and growth picked up by the September '11 quarter.

Revenues grew 43 per cent while net profits jumped 55 per cent. Operating margins however showed no improvement, staying at 20 per cent. A lower materials bill in the quarter was compensated by a hike in other expenses as the company stepped up promotional campaigns. Given its new product line in Speedo swimwear, advertising outgo may sustain at higher levels.

Page has also brought down its debt in the September '11 quarter. Debt-to-equity now stands at 0.44 against 0.93 at end-March '11. Interest costs and debt, therefore, do not pose a risk to earnings. The company is also well-placed to fund expansion.

Consumption slowdown

Even strong brands and a diversified presence cannot beat an overall consumption slowdown. Inflation has eaten into disposable incomes with consumers already cutting down on discretionary spends.

Page's products are present in the mid-to-premium price range while being more or less non-discretionary in nature. Even so, the middle-income segment's shrinking disposable income could result in down-trading into less pricey products.

Given the fragmented innerwear market, there is plenty of competition in lower-priced products.

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