Hold Page Industries, target price Rs 19,000: ICICI Securities

ICICI Securities has given a hold rating to Page Industries with a target price of Rs 19,000. The share price moved down by -2.48 per cent from its previous close of Rs 20753.90. The stock’s last traded price is Rs 20239.60.

According to the brokerage, the fourth quarter was disappointing with a 19 per cent volume decline. The brokerage expects the weakness to continue in the medium-term and see multiple headwinds – (1) prolonged period of weak performance given a highly discretionary product, (2) difficulties in new category launches / scale up and (3) potential delay in premiumisation journey. Profitability is also likely to come under pressure given the high fixed cost structure and limited headroom for price hikes in the current environment. That said, there are long-term benefits from potential weakness in competitive intensity, says the brokerage. Essentially, a likely instance of market share gains in a downturn.

Investment Rationale

Page Industries’ working capital improved by 10 days to 38 days – driven by improvement in inventory and receivables (down 7 days each) and partially offset by lower payables (down 4 days). This led to a significant growth in cash flows – operating cash flow / free cash flow grew 125 per cent / 130 per cent to Rs 5.2 billion / Rs 4.4 billion.

The brokerage’s earnings estimates are largely unchanged; modelling revenue / EBITDA / PAT CAGR of 7 per cent / 11 per cent / 12 per cent over FY20-22E. It maintains a hold rating with a discounted cash flow-based revised target price to Rs 19,000 (Rs 18,000 earlier). At this target price, the stock will trade at 49 times P/E multiple Mar’22E.

Key upside risk is faster-than expected recovery in athleisure segment and key downside risk is potential labour issues in Karnataka where there us a high concentration of manufacturing facilities.
Source: ICICI Securities

Financials

For the quarter ended March 31, 2020, the company reported standalone sales of Rs 541.26 crore, down -31.81 per cent from last quarter sales of Rs 793.80 crore and down -10.96 per cent from last year's same quarter sales of Rs 607.86 crore. The company reported net profit after tax of Rs 31.02 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 48.31 per cent stake in the company as of March 31, 2020, while FIIs held 29.17 per cent, DIIs 10.31 per cent and public and other 12.21 per cent.