Analysts cautious on Page despite management optimism

The firm expects a full recovery in 6-9 months

Despite significantly weakerthan-expected March 2020 quarter (Q4) results, shares of Page Industries (Page) — the Indian franchisee of popular inner-wear brand ‘Jockey’ — surged over 9 per cent on Wednesday to ~20,930. Though the Street had reacted negatively to the results on Tuesday, positive management commentary enthused investors later.

In Q4, Page’s net sales fell 11 per cent year-on-year (YOY) to ~541.3 crore, and profit before tax plunged 63 per cent to ~43.2 crore, as against consensus estimates of ~597 crore and ~74.7 crore, respectively.

The miss is despite an improvement in sales mix aided by better offtake of high-priced products, which restricted the impact of the 18.7 per cent volume fall on the top line. Yet, Ebitda (earnings before interest, taxes, depreciation, and amortization) margin was down 900 basis points to 10.7 per cent due to higher input and employee costs.

Though lockdown-led disruptions hurt the overall performance, Page is now witnessing strong sales momentum and expects to reach the pre-covid-19 level in six-nine months, the management eluded during its earnings call on Tuesday after market hours. Page is operating at 85 per cent of its capacity, and 89 per cent of its exclusive outlets are now open. The highpriced athleisure segment is also witnessing strong demand with its revenue share rising by 700 basis points. The company also expects to sustain its margin at 20-22 per cent, supported by cost-saving measures.

While factors, such as Jockey’s strong brand equity and increased demand for leisurewear amid work-fromhome, back the management’s optimism, there are reasons for investors to be cautious.

Analysts at ICICI Securities believe Page will continue to witness pressure in the medium term. High discretionary nature of its portfolio, difficulties in new launches, and a potential delay in premiumisation are multiple headwinds, they note.

While lauding Page's past earnings and balance-sheet record, analysts at Motilal

Oswal Securities underscore: “The demand trend for the first two-three quarters of FY21 is likely to be weak. There is no evidence yet that Page has turned the corner toward recovering anywhere close to the 30 per cent earnings CAGR witnessed during FY08-18.”

A few analysts also expect pressure on profitability because of high fixed costs and limited pricing power in the current environment.

Therefore, any adverse deviation from the expected recovery path, a slowdown in demand or inability to improve profitability could hurt sentiment, given the pricey valuation.

Even as it is down 22 per cent from January highs, the stock is trading at 62 times FY20 earnings.