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Jockeying For Growth

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

Jockeying For Growth

Among garment makers in India, Bangalore-based Page Industries (PI) is one of the fastest growing. Over the last few years, PI’s stock has been on fire. Over the past one year alone, the value of its shares has increased by a whopping 32%. Founded by the Genomal family in 1995, the company is the brand licensee in the country for the international apparel brand Jockey. PI’s strength lies in aspirational value of the Jockey brand and its unparalleled retail presence. It’s a veritable value leader in the inner wear and leisure wear segments. It has 10 manufacturing facilities in Bangalore and a distribution network that spans 23,000 outlets in 1200 towns and cities in the country.
 PI’s  sales,  EBITDA  and  net  income  grew  39%,  36%  and  32% Y/Y respectively, during Q1FY14. The strong revenue growth (6%- 7%) is partially on  account  of  excise  duty  benefits  while  the rest  was  driven  by  volume gowth (17%) and  improving realizations on a better product mix. The company is  expected to pass on a direct price hike during H2FY14 due to higher raw material  and other input costs. 
The  company’s  top-line  grew  39.4%  Y/Y  to  Rs.  3,041 million  (when several analysts  expectated it to be around Rs  2,750 million)  during  Q1FY14.  During the  quarter,  volume  grew  by 17%  and the company’s realizations went up from Rs 98 to about Rs 109 per piece of garment sold.
 The EBITDA margin  for  the  quarter  declined  48 basis points  to  20.9%  on  higher  raw  material and  other  input  costs.  While  EBITDA  grew  36.3%  Y/Y  to  Rs  637  million  on  the back of higher  revenue  growth, PI’s  net  income grew 31.6% to Rs 431 million.
 
Comforting Growth of Leisure Wear
Jockey has a vice-like grip over the men’s inner wear market in India. Its products command a hefty premium over its competitors such as VIP, Lux or Dollar. In urban areas and metros, the brand has become a category definer as far as the inner wear segment goes. But it’s also making inroads into the leisure wear market that includes products such as knitted T-shirts and fitness clothes. Perhaps because of the slightly lower base, the sales growth in the leisure wear segment was almost 50% last quarter. The men’s  innerwear segment grew by 32%, whereas women’s innerwear and brassiere sales grew by 48%. The high growth in leisure wear is crucial for Page, contributing 17% and 27% in terms of total  volume and  revenue respectively, during the quarter. 
The  Company  is  undertaking a massive  capacity  expansion  to  keep  up  with  the soaring demand. The total installed capacity would reach about 160 million pieces by March 2014, which represents a total capital expenditure  of Rs  470 million.  Page  also  opened  more  exclusive  brand  outlets  (EBO’s)  during  Q1FY14, taking the total count to 102 such stores that have higher same store sales compared to multi-brand outlets.  It  is  looking  to  expand  its EBO base across tier-2 and tier-3 cities to cater to the growing number of aspirational buyers. 
  Going by the PI management, a decision on price hikes would  be taken sometime soon to  cover for higher input costs. We  expect volume and value CAGR of 16.8% and 27.7% over FY13-15. 
Jockey’s brand strength and PI’s extensive market presence would ensure that price hikes don’t have an adverse effect on sales. Moreover, its  second  largest  segment — leisure  wear — is  growing  fast,  where  average  realizations  are  high  with  better  profitability,  thus driving blended realizations up.  Page is well placed in a high growth consumer discretionary spending space, with a leading  brand  position  in  its  segment, delivering consistently high performance and growth.  
 
Outlook and Valuation 
Analysts expect top line and earnings growth at a compounded annual rate of of 28% and  31%  over  FY13-FY15.  At the current market price of Rs 4,100 per share,  the  stock  is  trading at  less than 25x its projected FY15E  earnings. That represents a good buying opportunity with the stock likely to go up to levels of Rs 5170 in the next one year—a growth of more than 25%.

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