Page Industries: Stitching up a growth story

The company is in a sweet spot, as it has a robust distribution network and good pricing strategy

Even as market pundits debate between cyclicals and defensives, stock-pickers are busy hunting for the next TTK Prestige or Jubilant FoodWorks. Clearly, India’s consumption story remains a compelling theme, even amid slowing growth. Changing demographics, rapid urbanisation and rising per capita incomes are creating a good business case for consumer companies. From pizza chains to kitchen appliances and innerwear, the market wants to own shares of all consumption themes that the middle-class consumer spends on. One such company to have caught brokers’ fancy is Page Industries, the franchisee for Jockey International, an American innerwear and leisure apparel brand, in India, Sri Lanka, Nepal, Bangladesh and UAE.

The company has managed to capture 21 per cent of men’s innerwear market and 12 per cent of women’s, claims Edelweiss Capital, on the back of a strong distribution network. It straddles the entire production chain, from yarn to finished products, with an installed capacity of 87 million units. Page Industries is expected to scale up its capacity to 137 million units over the next two years. Analysts expect the company to grow at 31 per cent a year over FY12-14.

Analysts say the company is in a sweet spot as it has a robust distribution network and a good pricing strategy. CLSA says the company’s pricing is at a 50 per cent premium to large local brands, while being at a significant discount to luxury brands. With peers at similar price points failing to scale up, Jockey has emerged as the primary beneficiary of consumers migrating to branded clothing, which is why the brand is growing faster than the market.

Though the company manufactures the products in-house, its return on equity is reasonably high and is moderately leveraged. Most retail and garment manufacturing companies are highly leveraged due to high working capital requirements, but Page has struck the right balance, claim analysts. The company’s net debt/equity ratio stood at 0.88 in FY11 and is estimated to end calendar 2012 at 0.71. Reasonable levels of debt, high asset turns and earnings growth of 30 per cent have made this company a top pick. CLSA says, “Given the strong franchise, room for maintaining growth rates and high dividend payout, we believe a premium valuation is warranted. Our price target of Rs 3,250 (21 per cent upside) is based on 22.5x FY14 PE.”