Page Industries: Trusting the Jockey

Dear Patrons,

This edition of Investor Compass talks about Page Industries Q4FY23, our views on the company, and the course of action going forward.

Results:

• Page Industries’ revenues in Q4FY23 declined by 13% YoY primarily led by a decline in volumes on account of a weak demand scenario and supply chain disruption due to ARS (Auto Replenishment System) implementation across all the product categories.
• EBITDA margin reduced to 13.9% (down 190 bps sequentially) due to operating deleverage along with normalized discretionary expenses i.e. advertisement expenses.                
• The results were sharply below the street’s expectations (PAT miss by 41%) plus moderate narrative for the near term resulted into a sharp correction in stock price (~10%) on 26^th May 2023.
• Post the results, the street has also cut earnings to the tune of 12-15% for FY24 and 10-12% for FY25.

Deep dive down the memory lane:

While the street is spooked by the earnings volatility, we believe the concerns are short-sighted. We take precedence of 2017-20 when Page Industries’ growth had been subdued. Page’s growth reduced from ~21% CAGR from FY2014-17 to ~11% in FY2017-20 mainly due to a slowdown at the industry level, discontent among the distributors and rising competitive intensity(Van Heusen).

However, once disruptions subsided, the company grew 18% CAGR over FY20-23, much faster than the industry. Even during the tougher times, Page Industries has managed to garner market share from organized and unorganized players, a testament to the company’s execution.

Source: Ambit Asset management, company

Future Outlook:

• Though the near-term demand trends in the category are muted we anticipate that demand for innerwear will pick up in H2FY24 owing to moderating inflation & consumption picking up.
• ARS – It is a streamlined process that automatically restocks inventory based on predefined criteria at the retail outlet without manual intervention. As per management, the ARS implementation will take another 2 quarters leading to supply chain challenges in the near term, we believe this is a step in the right direction to further strengthen the competitive moats due to:

1. Better demand forecasting, optimization of channel inventory & reduction in lead time
2. Improvement in working capital resulting into better operating cash flows.

• Page Industries historically has managed to outpace the market by focusing on branding and distribution both in terms of growth and financial matrices.
• The ARS implementation will further strengthen the competitive moats

We believe Page Industries is ideally placed to face the near-term hiccups and come out as a stronger franchise, with lower penetration levels, men’s wear (18%) & other categories (2%-6%). The current short-term pain is temporary in nature and will lead to long-term gains.

For any queries, please contact:

Umang Shah- Phone: +91 22 6623 3281, Email - aiapms@ambit.co. Ambit Investment Advisors Private Limited - Ambit House, 449, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

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