Page Industries: Buy

In the clutter of local players crowding the largely unorganised innerwear market, Page Industries' Jockey commands strong national brand recall. The non-discretionary nature of its products shields it from consumers cutting back on spending. Apparel retailers have had a tough couple of quarters due to shrinking disposable incomes and rise in apparel prices.

Page Industries, though, has been able to pass on cost increases. Its vast retail reach and its expansion into other product lines have also helped. With inflation beginning to slow down, consumer demand may pick up as disposable incomes rise.

At Rs 2,473, the stock trades at 32 times the trailing 12 month earnings, at a discount to the closest comparable, Lovable Lingerie. Investors with a medium-term perspective can buy the Page stock.

Product lines

Page operates in the mid-to-premium price range, where much of the demand lies. Product lines, initially restricted to innerwear for men and women, diversified gradually to include casual wear and gym-wear. The company's target consumer group is willing to fork out more for quality products; innerwear is also rather less discretionary a purchase than apparel. This has helped Page clock good growth. The December '11 quarter saw a sales growth of 28 per cent, well above listed apparel retailers.

Page's competition in the mid-priced branded innerwear segment too is rather restricted. Providing the most competition is Lovable's Daisy Dee or the lower end offerings of the otherwise premium Lovable, Enamor or Triumph. Further, as inflation begins to let up and consumer confidence returns, consumers may begin trading up to mid-to-premium brands from low-priced brands. Consumers who had previously downtraded from Jockey could return. Page has 70 exclusive outlets and retails through more than 20,000 lingerie shops across the country, far more than most peers. This reach helps it tap a wide market across metros and small cities and towns.

With a strong foothold in the innerwear market, Page moved into other segments, becoming the exclusive licensee of Speedo swimwear in India late last year. Speedo too comes with a strong brand recall, being an international name in swimwear and equipment. Slated to begin sales in the current quarter, Speedo's contribution to revenues will kick in from FY-13 onwards.

Sustained growth

Page has managed consistent good growth in revenues and profits over the past several quarters. Compounded annual growth in revenues and net profits in the past three years stood at 38 and 35 per cent to Rs 503 crore and Rs 59 crore respectively.

Excise duty being levied on branded apparel in last year's budget sent prices up. High cost of materials such as cotton and elastics added to cost pressures. Page took on price increases of approximately 25 per cent over the past nine months, but demand proved quite resilient. The nine-month period ending December '11 has seen sales grow 39 per cent. With cotton prices on a downswing due to slackening global and domestic demand, cost pressures may let up. But the December '11 quarter saw material prices account for 51 per cent of revenues from the 48 per cent in the year-ago period. The rise, at a time when cotton prices are easing, could be attributed to Speedo, which begins sales only this quarter. Operating margins for the December '11 quarter thus slipped to 19.2 per cent against the 22.2 per cent in the year-ago quarter. Still, margins are superior to comparable listed peers.

Page reduced debt to 0.44 times equity by end-September, from the 0.93 times it had been at end-March. The savings in interest costs prevented a steep slide in net margins. For the December 2011 quarter, net margins stood at 11.6 per cent, unchanged from the 11.7 per cent in the year-ago period.

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