Page profits driven by cost management

Net surged 46% aided by 361 bps expansion in operating profit margin

Investors cheered the stellar June 2018 quarter (Q1) numbers of Page Industries on Thursday, with the stock rising over seven per cent to close at ~32,391 after hitting an alltime high of ~32,750.

Though the company’s revenue of ~8.2 billion (17.1 per cent up yearon-year) was tad below the Street’s expectations of ~8.3 billion (as per Bloomberg consensus), its reported net profit of ~1.24 billion (up 45.9 per cent year-on-year) was well above the estimations of around ~1.14 billion.

Improved profitability, led by better cost management, drove the bottom-line growth during the quarter. Like many players in the consumer space, Page too witnessed high inflationary pressure.

But a likely eight per cent price hike undertaken in Q1 and a fall in operating expenses, led to a sharp 361 basis point year-on-year expansion in operating profit (earnings before interest, taxes, depreciation and amortisation) margin to 23.2 per cent.

Employee costs and other operating expenses of the company as a percentage of net sales declined by 128 basis points and 162 basis points year-on-year, respectively in Q1.

Besides, after 5.5 per cent volume growth in Q4FY18, the maker of well-known Jockey innerwear in India clocked about nine per cent volume growth in Q1, on the back of 6-7 per cent rise in men and women segments’ volumes (as per analysts). Importantly, the overall volume performance was despite high base of Q1FY18, when volumes surged an estimated 13 per cent.

“Post 8.8 per cent growth in Q1, volume expansion of Page would persist in near term. Continuous demand and brand loyalty coupled with geographic and capacity expansion planned by the company would provide upward thrust to Page’s overall performance,” said Sachin Bobade, analyst at Dolat Capital, who is positive on the stock.

After extension of license agreement with Jockey International Inc till December 2040 and increasing the installed capacity across various units in Karnataka in FY18, Page is further expanding its capacity in men and women wear segments, as per its FY18 annual report.

Overall, analysts do not see any major concerns for Page in the near term, despite rich valuation (66 times FY20 estimated earnings) thanks to its strong growth potential.