Page Industries: Volume recovery ahead

While GST-led disruption led to muted growth in Q2, expect volumes to bounce back, led by market share gains

The Page Industries stock has gained 15 per cent over the last week on an expected uptick in volumes in the December quarter, market share gains and improvement in margins. The company, which is a franchisee of the Jockey brand, reported an eight per cent volume growth in the September quarter (Q2), well below estimates as goods and services tax (GST)-led disruption hit sales. Growth was especially sluggish in the male innerwear category, which at under four per cent, was one of the lowest the company has recorded. Growth, according to the company, has improved as retailer offtake is at June quarter levels when the company posted 13 per cent growth.
 
A key trigger for the stock is the market share gain from the unorganised segment, which, coupled with distribution expansion, is expected to keep the volume numbers strong. Analysts at Credit Suisse highlight that Page’s market share in the men’s innerwear category has doubled from 2010 levels to nine per cent levels in 2016. Despite the gains, the company’s base is still low in a segment where unorganised and smaller players account for 63 per cent of the market. This should help it to gain a larger share of the pie. Despite the volume miss in Q2, analysts at Emkay Research expect the company to report 13 per cent growth in the menswear segment over the next two fiscal years. The segment accounts for half of its revenues and 60 per cent of volumes. 
 
The opportunity in the women’s innerwear category is higher, given that 86 per cent of the market is controlled by the local unorganised players. The company posted 17 per cent growth in the category for Q2, driving the overall volume growth of eight per cent in the quarter. Given the 17-18 per cent growth expected going ahead, expect the company to improve its market share in this segment of six per cent. Overall growth will also be driven by the sportswear segment, which includes the Speedo brand of swimwear products. A large number of new products, coupled with gains from the unorganised market, should help the segment, whose per unit realisations are almost double that of menswear products.

In addition to the existing portfolio, innovation in category extensions, a strong distribution network and an expansion into the kids’ wear segment should reflect in revenue growth, believe analysts at Emkay Research. What will help is the expansion, which will increase its capacity by 54 per cent by FY20 to 400 million units. Analysts expect margins, which came in at 20.5 per cent in Q2, to improve led by moderating yarn costs, price increases and gains from implementation of the GST.
 
At the current price, the stock is trading at 64 times its FY19 estimates and given the recent spurt in prices, investors should await more attractive entry levels.