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%.