Despite weak revenue growth, the company managed to improve its working capital cycle (6.3x in Q1FY20 vs. 6.0 in Q4FY19) in Q1FY20. Driven by higher focus on product quality & innovation, coupled with enhancement of distribution reach, the management believes that Page could benefit from the improvement in the market scenario as and when the same materialises. However, we expect near term pressure to persist. We revise our estimates downwards and expect revenue and earnings to grow at a CAGR of 10% and 12% respectively. We reiterate our HOLD rating on the stock, with a revised target price of | 18050 (41.0x FY21E EPS) (earlier TP: | 19000).
Outperformance on most fronts. Valuation and view: There is no material change in our EPS forecasts. Volume growth for the quarter was in double-digits, led by the festive season mismatch, which impacted PAG in 2QFY19, but worked in its favor in 3QFY19. In our view, PAG remains a compelling investment case in the Indian consumer space, with potentially better earnings growth compared to peers and healthy RoCEs. The special dividend (INR180 per share YTD so far) is also encouraging and not unexpected given the ongoing balance sheet improvement. Nevertheless, volume growth has tapered off from the earlier levels and competition is intensifying in the men’s innerwear space. Valuations at 50.8x FY20E EPS leave little room for upside from a one-year perspective. Valuations are at premium levels, despite assuming a healthy 22.6% EPS CAGR over FY18- 21. We maintain Neutral with a target price of INR25,755 (47x Dec’20E EPS, ~20% discount to three-year average).
Volume growth back on track. Page Industries’ reported ~12% volume growth – strong recovery after reporting flat volume growth in Q2. The growth was impressive considering strong base of 11% and increased competition in the category. We attribute this to shift in festive season which resulted in pent up demand during the quarter. The operational performance during the quarter came ahead of our estimate primarily due to 150bps expansion in GM. We continue to believe that with the changing economy, branded innerwear market would continue to report double-digit volume growth and Page will enhance the most, being a leader in the category. We do not see price pass on as a challenge during inflationary environment as the company has robust brand recognition in the premium category. Though the company is likely to mitigate the competition with strong brand positioning, ongoing innovations, increasing number of stores and wide distribution reach, we believe that the monopoly of the company has come to an end in the category. Consequently, we believe that the historical P/E multiple would not sustain. Hence we have revised our target multiple to 50x (in line with HUL vs 20% premium earlier). Considering recent price correction, we view the stock as an attractive investment opportunity at CMP. Maintain BUY with TP of ` 30,030.