Should Page Industries' small investors worry?

There is cause for concern despite the company saying stake sale by promoters is for personal reasons

Page Industries fell 10 per cent intraday on Wednesday as promoters further cut stake 2.2 per cent to 49 per cent. Some large funds sold 0.8 per cent stake. All this triggered panic as the IPO (initial public offering) prospectus said if promoters’ stake fell below 50 per cent, Jockey International could end their licensing pact within 30 days. Page has the licence to market and distribute Jockey’s products in India, the United Arab Emirates, Sri Lanka, Nepal, and Bangladesh. Page has reported strong growth for many years on the back of Jockey-branded innerwear sales.

The firm said the prospectus had been modified to lower the threshold limit. The firm said the stake sale was due to personal reasons. This helped soothe nerves. The licence comes up for renewal in 2030. The stock recovered to end the day 1.5 per cent lower. The question is to what level was the threshold limit brought down to? The promoters have been reducing their stake from 75 per cent at the time of the IPO. Should small shareholders be worried?

The opinion is divided. “Given that India is among the key money-making markets for Jockey, the management has always been given a free hand in terms of their stake in the company. Wednesday’s stock correction was clearly an over-reaction and reflects a worry over Page’s slowing growth,” says an analyst.

Page’s revenue growth moderated from 36 per cent in FY14 to 29 per cent in FY15 and is expected to be 16 per cent this financial year (FY16). Softening demand is the key reason.

Mmany analysts remain positive, given the strong brand value of Jockey and Page’s efforts to expand product offerings into sport, leisure, and gym wear, among others. Analysts expect the company’s earnings to grow 20 per cent annually over the next two-three years.

While many remain positive and believe corrections should be bought into, this development does raise some concerns.

Hetal Dalal, operating chief, Institutional Investor Advisory Services, says, “Investors need to push for greater disclosure on the terms of the agreement with Jockey. Page cannot hold a stand that this re-negotiation is confidential.” A lot of panic comes from the fact that promoters’ holding has gone below 50 per cent and the market does not understand where it will end, she says.

The price-earnings works out to 45 times the FY17 estimated earnings — high, given slowing growth.