Plant audit clearance, sales recovery to bolster Page Industries' stock

Valuations, however, are factoring near term gains

The stock of Page Industries gained about 3 per cent on Tuesday after the company’s Unit-3 plant located in Bengaluru was audited and cleared by the Worldwide Responsible Accredited Production (WRAP), after it re-certified the facility as socially compliant. 

The audit was undertaken after alleged human rights violations at Unit-3. Citing the same, Norges Bank Investment Fund, Norway’s $1-trillion fund, had left the stock and excluded it from its global portfolio. Given the importance accorded to the environmental, social and governance (or ESG) criteria before investment decisions, the clean chit clears this overhang. 

Analysts at Edelweiss believe the WRAP’s re-certification and, more importantly, a statement from Jockey International should settle the related uncertainty concerning the stock. 

With this risk behind it, the Street’s attention will turn to the recovery and market share trajectory for the company. While sales have started recovering from August, it will take a few months more for volumes to reach the pre-Covid levels. The company reported a 4.5 per cent drop in sales in Q2 and lost revenues in the earlier part of the lockdown, given that its 60,000 retail outlets were largely present in metro, tier1 and tier2 cities.  

While the urban recovery should help the company improve its share, analysts highlight that sharp gains are unlikely given stiff competition in the men’s and women’s innerwear categories. Edelweiss Research also highlights limited distribution expansion potential given its positioning. 

However, margins, which expanded 311 basis points in Q2, to 22.3 per cent are expected to remain at elevated levels. This is supported by price hikes, improved realisations, and a higher proportion of the athleisure segment. 

A volume and margin recovery is factored into the stock, which has gained 23 per cent since the start of November. At current levels, the stock is trading at 58x its FY22 earnings estimates. Investors should await a consistent improvement in volumes/revenues and a better entry point before considering the stock.