Muted demand, cautious outlook dampens Page Industires' turnaround hopes

The delay in demand recovery, changes in inventory system, slew of senior management exits, and competition headwinds have led to uncertainty and impacted the earnings outlook of Page Industries.

After witnessing muted sales in the September quarter and more downgrades, the stock, which is down 11 per cent from its highs three months ago, could remain under pressure in the near term. 

The company posted an 8 per cent decline in revenues both over the year-ago quarter as well as on a sequential basis in the September quarter.

Volumes were lower by 8.8 per cent in the quarter. 

The company highlighted that demand in the rural segment was robust on account of festivities while urban and mid-premium segments lagged. 

Amid sluggishness in demand, unsustainable business practices in the industry including higher discounting, promotions and trade schemes brought on by excess inventory accumulation have continued and this has impacted growth.

The volumes of the market leader may have been impacted given the prudence on the pricing aspect.

Systematix Research has cut its FY24-25 estimates by 5-6 per cent given the near-term growth and competition headwinds.

It has a ‘hold’ rating based on 55 times FY25 estimated earnings, which is at a 10 per cent discount to the company’s long-term valuation multiple.
 

The uncertainty related to the medium-term sales and earnings outlook as well as elevated valuations has also led Motilal Oswal Research to maintain its ‘neutral’ rating.

While the company has indicated that the implementation of the auto-replenishment system (ARS) across the distributor network is progressing well, there are still some concerns.

Quoting an innerwear expert, Vaishnavi Mandhaniya and Shreya Baheti of Anand Rathi Research point out that the company has implemented ARS version 3, based on 30 days’ inventory, but is facing teething issues that led to a 5-7 per cent loss of sales in the last two months.

ARS version 2, based on 45 days’ inventory, worked well for distributors.

Management has acknowledged the issues and hopes to soon get matters back on track, say analysts. 

The bigger worry for the company is the delay in demand recovery, which could weigh on sales going ahead.

Page’s quarterly volumes have exhibited seasonality, with the first half accounting for 54 per cent of the annual volumes.

Even as IIFL Research factors in a pick-up in year-on-year (Y-o-Y) growth propelled by a soft base for the second half, it highlights a risk of a 6 per cent downgrade in FY24 volumes/sales estimates if the typical seasonality plays out and there is a delay in demand recovery.

The other factor that could have a bearing on growth is the changes in senior management with a new chief executive officer from June 2021 and the chief financial officer from May 2023.

Last month, the chief operating officer resigned and the same has come at an inopportune time, say analysts.

Even though valuation is reasonable at 54 times FY25 earnings per share, the stock lacks near-term triggers, along with the possibility of further downgrades in earnings estimates, say analysts led by Sameer Gupta of IIFL Research.