Page Industries: Category slowdown, competitive headwinds pose challenges

Sustaining growth rates, however, will be key for rerating

Page Industries’ September quarter (Q2) performance came in lower than Street estimates. Revenues declined by over 4 per cent, largely on the back of a 13.6 per cent fall in volumes. The higher value growth in the quarter was led by a better product mix, which aided the 9 per cent improvement in realisation. The athletic/leisure segment saw double-digit growth in the quarter.
 
While the fall in sales during the quarter was in contrast to the positive trend for some peers in the category, growth has been reviving gradually, according to the company. September recorded double-digit growth, with normalcy returning across distribution and manufacturing. The company’s sales in the June quarter dropped 66 per cent. 
 
Analysts expect growth in Q3 to revive strongly, aided by e-commerce channels, the retail network at over 92 per cent, and new launches ahead of the festival season. The management expects full recovery by Q4, as it increases marketing investments across categories and expands distribution to smaller towns and cities.
 
Even as growth in the quarter was low, the company reported margin expansion of 310 basis points (bps) to 22.3 per cent, largely on the back of lower other expenses. While some of gains on account of a cut in advertising spends are likely to be reversed, other cost initiatives could sustain helping the company sustain its margins in the long-term range of 21-22 per cent; FY20 margins had come in at 18 per cent.

While the company has taken multiple steps to regain growth and earnings momentum (net profit growth has been flat over the last two years), analysts at Motilal Oswal Research believe category slowdown and competitive headwinds present significant near-term challenges.
 
They believe sales growth may not revive to even half the 30 per cent run rate reported over the FY08-18 period.
 
On the alleged human rights violations at one of its units in Bengaluru, the company has asked for a reassessment and independent audit of its facilities, and believes it has complied with all regulations.
 
Going ahead, the Street will track growth across segments (including kids, athletic/leisure wear) and efforts to increase its presence in the women’s innerwear segment, in which its presence is much weaker than the men’s segment.