Demand trajectory, valuations weigh on Page Ind despite stellar Q3 show

The company posted a strong Q3 led by higher athleisure sales

For the second quarter in a row, Page Industries outperformed its listed apparel peers on the sales growth front. The country’s largest listed innerwear company posted a 17 per cent YoY growth in the December quarter, even as sales of most other apparel companies reported a decline as compared to the year-ago period. Revenue gains were led by volume growth of 10 per cent, which came after four consecutive quarters of volume decline.

In addition to festival demand, higher seasonal demand for thermal wear aided volume and revenue growth. The easing of lockdown conditions led to the opening of more than 95 per cent of stores and greater footfall. There was a surge in sales of the athleisure segment. The segment that refers to clothing for exercise and everyday wear saw double-digit growth, given the higher proportion of time spent at home.

So strong was the performance of the athleisure segment that its sales were as high as men’s innerwear segment, which had been stagnating for the last three quarters. The women’s wear segment, too, posted double-digit growth. While growth in the athleisure segment is positive, brokerages are not sure whether the growth momentum will continue once the pandemic’s impact recedes and normalcy returns. Analysts led by Krishnan Sambamoorthy of Motilal Oswal Research said: “Interestingly, whether there is sustained momentum in athleisure — a segment that has benefited immensely from people spending more time at home and thus spending less on formal wear — remains to be seen.”

While the company was able to outperform retail peers given the essential nature of the product and presence in the general trade channel/multi-brand outlets in neighbourhood areas, it lagged innerwear peers. According to analysts at IIFL Research Page has fared better than Rupa, which posted 10 per cent growth, but it lagged Lux and Dollar, which registered 22-27.5 per cent sales growth in Q3 as compared to 17 per cent for Page. This was on account of having a higher metro sales contribution, they added.

To expand its presence, the company is targeting the rural segment (tier-4 regions) through the ongoing pilot projects and has identified a basket of 30 products that will be sold through a separate rural arm.

In addition to top-line growth, the Street will be looking at the margin trajectory. Operating profit margins expanded by 700 basis points YoY to 24.4 per cent. Price hike, operating leverage, cost efficiencies, and lower sales and marketing costs led to the expansion of margins. Analysts expect margins to moderate going ahead as costs related to advertising, travel and digital transformation initiatives make a comeback. Though input costs have gone up, the company is confident of maintaining margins and can look at further hikes in FY22. The firm is eyeing medium-term margins of 21-22 per cent.  While the Q3 results were better than expectations, the stock has been down 12 per cent since results, with brokerages citing demand uncertainty and expensive valuations for their sell or hold recommendations. 

Analysts at Edelweiss Research have downgraded the stock due to uncertainty over sustenance of athleisure demand, stagnant core growth, and rising competitive intensity. At the current price, the stock is trading at 70 times its FY22 earnings estimates.