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Inner Comfort

Author: Administrator Account/Tuesday, February 23, 2010/Categories: Stocks

Inner Comfort

Traditional wisdom says if you want to ensure stability in your stock portfolio, invest in blue chips. But, if you want to add a tinge of diversification, then include mid-cap and small-cap stocks. Check out the returns delivered by the mid-cap stock Page Industries: 45% in three months, 228% in two years, 371% in three years, and a whopping 1188% in five years.

As on December 23, 2014, the stock of Page Industries was trading at a market price of Rs 12,486 on the BSE. Although it looks over-valued, analysts believe the company’s premium multiples are justified given its unique brand propositions. The stock is trading at 35x P/E FY17 (estimated), but despite that, the stock is still not a ‘Sell’ yet for many broking companies. Are you amazed by these numbers? While expecting every stock you invest in to be a multi-bagger is a pie-in-the-sky sort of idea, there are a few mid-cap stocks, such as Page Industries, that have given phenomenal returns in the short, medium as well as long term.

To the uninitiated, Page Industries is engaged in manufacturing and distribution of innerwear and leisurewear under an exclusive license from US-based Jockey International for India, Nepal, Bangladesh, Sri Lanka and the UAE.

Super Brand Tag

One of the key strengths of Page Industries is that it enjoys the super-brand image of ‘Jockey’ as a globally successful lifestyle name with strong brand recall value, innovation and R&D backup. Besides, the extensive distribution network gives the company added advantage over its peers.

It has a nation-wide distribution network across 1,200 cities, around 400 distributors with 139 exclusive brand outlets (EBOs) and 23,000 retail outlets. Its retail stores format is a mix of exclusive brand outlets (EBOs), large store formats, multi-brand outlets, hosiery stores and multi-purpose stores ensuring reach to every nook and corner of the country.

Not many market analysts or investors expected the company to grow the way it has. But it has, so much so that as on December 23, 2014 the market capitalization of the stock was a high Rs 13,942.34 crore on the BSE.

What has kept Page Industries’ stock on fire consistently and what’s the outlook? Will the company’s robust performance continue?

"Page Industries is a steady state revenue and earnings growth compounder. Earnings growth has come on the back of healthy revenue growth across segments, i.e., men’s and women’s sportswear. Margins have also been stable, led by better product mix and benign input costs," says Prashant Kutty, Research Analyst, Emkay Global Financial Services. The company has a phenomenal history of strong revenue and PAT growth. Consider this: Revenue during the period from FY08 to FY14 has been increasing consistently at 35% CAGR.

"The company’s financial performance is quite strong compared with its peers. The RoE and RoCE at Page is pegged at a robust 57% and 53%, respectively, in FY14," says Astha Jain, Senior Research Analyst, Hem Securities. Page Industries is seen improving consistently driven by high asset turnover and expanding margins. Going forward, given lower cotton prices and high volumes growth for the company, analysts expect EBITDA to see a 34% CAGR during FY14-16E and EBITDA margins to stabilise around 21% during the same period.

Another key strength of Page Industries is that it operates in the premium and mid-premium segment of the innerwear market while most of its peers such as Lovable Lingerie, Rupa and Co. and Maxwell Industries (VIP) operate in the low and economy segments.

Huge Market Potential

Analysts say Page Industries is in a business — the Indian innerwear industry — that is growing at a fast and still has a lot of ground to cover.

Accounting for about 8% of the domestic apparel industry, the Indian innerwear industry is valued at Rs 178 billion. Of that, men’s innerwear accounts for 40% at Rs 71 billion and women’s accounts for 60% at Rs 107 billion. The innerwear market is growing at a faster rate than the overall apparel market, and is estimated to see a 13% CAGR.

The premium and super-premium segments are branded markets witnessing faster growth. As per a Technopak Report, the men’s premium innerwear market accounts for 12%, while the super-premium innerwear market accounts for 2%. Women’s premium and super-premium innerwear markets accounts for 14.5% and 4.5%, respectively. The middle segments for men and women contribute nearly Rs 20 billion and Rs 38 billion, respectively, to the overall organised segment. Page’s market share is estimated at 21% in men’s and 12% in women’s segments, where sales on a MRP basis has crossed the Rs 8 billion mark.

Expansion Strategy

The Company has entered into an exclusive licensing agreement with Speedo International to manufacture and distribute ‘Speedo’ brand of swimwear, water shorts, apparel, equipment and footwear. The agreement initially is for a period of five years (till 2016) with royalty payment of 8% on sales. For starters, the products would be imported and distributed directly in India. Later, swimwear will be manufactured by Page domestically, while other accessories would be imported and distributed. The company has also launched a kids’ innerwear line which could become a new growth segment altogether.

For the Speedo brand, the company has 830 stores including large format stores across 62 cities and six Speedo outlets. While this market is still at a nascent stage in India, partnership with such a strong brand at an early stage ensures first-mover advantage to Page Industries, to reap benefits at the inflection point.

"Given the strong fundamentals of the company, the stock looks fully priced at the current level. However, if the company continues to show its growth momentum, then the stock is eligible for further rerating," says Jain of Hem Securities.

Analysts also raise a yellow flag that since cotton accounts for almost 80% of the raw materials for Page, any fluctuation or volatility in its price is likely to impact the margins of the company.

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The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.