Page Industries: No comfort despite growth in top line

THE COMPASS Margin pressure weighed on earnings in September quarter

Despite the better-thanexpected top line growth in the September quarter (Q2) for Page Industries, which was led by a 9 per cent increase in volumes, the near-5 per cent jump in the stock during the first half of Friday’s session did not last.

The stock closed with just 0.6 per cent gains at ~23,724.35 on the BSE. The margin pressure in Q2, coupled with worries over near-term volumes and profitability, pulled investor enthusiasm.

The Indian maker of popular innerwear brand Jockey clocked 12.3 per cent year-on-year (YOY) growth in its top line to ~775.4 crore, versus analysts’ expectations of ~732 crore, according to a Bloomberg poll.

However, profit before tax (PBT) fell 7 per cent YOY to ~132.1 crore, against estimates of ~143 crore. This miss was mainly on account of the pressure on operating profit margin. A sharp 23.6 per cent YOY increase in net profit, however, was driven by lower corporation tax rates and hence not comparable.

Page’s reported volume growth across product portfolios looks better amid the weaker consumption scenario. However, this was also supported by the year-ago quarter ’s soft base (2 per cent volume decline), and retail schemes and higher sales incentives by the company.

These schemes and incentives, along with higher raw material as well as employee costs, weighed on the company’s operating profit margin in

Q2. Page witnessed a 145basis-point YOY contraction in Ebitda (earnings before interest, tax, depreciation and amortisation) margin to 19.2 per cent, the lowest in the last 12 quarters.

In fact, adjusting for the new lease accounting norm, IND -AS 116, the Ebitda margin shows a 270-bp YOY contraction to 18 per cent.

How the company garners volumes on a high base (about 6-7 per cent growth in H2FY19) going ahead, as well as price hikes, would be key factors. The management has retained its 20-21 per cent margin guidance for FY20-FY21.

According to analysts at ICICI Securities, “A sustainable improvement in volume trajectory would remain the key monitorable ahead.” The analysts foresee 11 per cent annual growth in revenue over FY19-FY21, versus about 16 per cent over FY17-FY19.

Overall, though longterm prospects of Page Industries remain bright, investors are recommended to await a clear picture on the volume and margin fronts, given the pricey stock valuation of 49-50 times its FY21 estimated earnings.

Though long-term prospects of Page Industries remain bright, investors are recommended to wait for clarity on the volume and margin fronts, given the pricey stock valuation of 49-50 times its FY21 estimated earnings