Margins surprise for Page Industries in March quarter

Current rich valuations could cap significant gains from here

Surprise in Page Industries’ March quarter performance was the rise in margins. The company’s profit before interest, tax, depreciation and amortisation (Ebitda) margin inched up 23 basis points (bps) to 21.2 per cent over a year ago, with a favourable revenue mix and smaller rise in overall costs; analysts were anticipating a sharp fall, due to higher input costs.

Overall performance was healthy, with net sales growing 13 per cent to Rs 499 crore, a tad short of the Bloomberg consensus estimate of Rs 508 crore. Volume growth, estimated at nine per cent, was broadly in line with analysts’ expectations. 

Healthy margins, with a fivefold jump in other income, led to an 18 per cent rise in net profit at Rs 67 crore versus the Bloomberg estimate of Rs 66 crore. 

Following the results, the stock ended 1.2 per cent higher compared to the BSE Sensex’s 1.5 per cent gain on Thursday.

Page has been a consistent performer in recent quarters and has managed to weather demonetisation pressure. Thanks to the strong leadership position of the ‘Jockey’ brand in the men’s innerwear segment, Page enjoys good pricing power. 

This should help sustain the margins. While it expects a goods and services tax (GST) rate of 12 per cent on branded innerwear, analysts believe even if it comes higher at 18 per cent, Page will be able to pass it on without hurting consumer sentiment. The details should be known on June 3, when the GST council meets.

In addition to continued traction in men’s innerwear, the company is likely to see improved momentum in the leisure wear (31 per cent of revenue) and lingerie (20 per cent of revenue) segments. The Street expects premiumisation across categories, with an expansion in the distribution network, to drive market share gains. Strong earnings growth could also rub off favourably on its return ratios from here. 

Most analysts are positive on Page. However, there is a word of caution. At current levels, the scrip trades at 47 times the FY18 estimated earnings, much higher than its own historical average valuation of 30 times. 

Though strong growth prospects, economic moat and healthy return ratios will sustain these valuations, it would cap the upside from here. This is also reflected in the average target price of analysts of Rs 15,415, indicating only eight per cent upsides from current levels. A fall in the share price could provide good entry point for long-term investors.