Wait for firm volume uptick before taking exposure to Page Industries stock

After a dismal volume growth in the March 2019 quarter amid liquidity crunch and overall slower demand, the stock of Page Industries (also known as Jockey India) has shed 8 per cent in the last one month, against 2 per cent gain on the BSE Sensex.

Valuations, too, have corrected after an indifferent and volatile show over the last few quarters. The stock currently trades 42x its 2020-21 estimated earnings, which is a 12 per cent discount to its average one-year forward valuation in the last five years.

The consumer shift in the innerwear category from being price sensitive to brand sensitive should help Page, according to JM Financial. Volume gains could come from the distribution expansion the company is undertaking, especially in tier-II and -III cities and towns.

Page is expected to increase its store counts from 620 to 1,000 over the next few years. In fact, the company is also focusing on improving productivity in its existing outlets, mainly exclusive brand outlets that currently account for 17 per cent of its revenues. Further, faster growth in e-commerce channels (4 per cent of revenues) would supplement Page’s overall distribution enhancement plans.

The efforts on the distribution front and brand loyalty should help Page drive sales momentum for other segments such as kidswear. Besides men and women segments, Page plans to focus aggressively on kidswear — Jockey Junior, where it currently has a market share of less than 2 per cent.

Given the exponential growth potential of kidswear, Page has invested in an independent sales team across the country for the same. Given the long-term opportunity, this could yield significant revenue upside for the company, believes an analyst at a domestic brokerage.

Page also aims to double its production capacity, from the existing 260 million pieces — further improving its volume share. However, given new entrants, the competitive intensity has increased. This could impact its pricing and margins.

Though the Street still awaits the near-term improvement in overall demand situation, there has been some improvement in offtake of Jockey’s products in May-end in markets such as Delhi and the trend is expected to continue. 

While valuations have corrected somewhat, investors should await firm volume uptick trend before taking exposure to the stock.