Initiating Coverage on Page Industries - Cholamandalam Securities

Page Industries is the exclusive licensee of Jockey International Inc (USA) to manufacture and distribute Jockey brand in India, Sri Lanka, Nepal, Bangladesh and UAE till 2030. They broadly operate in premium men's innerwear, women's innerwear and leisure wear segments. Jockey enjoys high brand recall and they spend ~5% of their annual sales for brand building and promotional activity, which enables them to dominate most of the segments in which they operate. In the men's and women's segment, they have a market share of ~21% and ~12% respectively. They are also exclusive licensee of Speedo swimwear brand in India. Page has network of 400 distributors and ~20,000 retail outlets in India. They compete with major brands like Crusoe, Hanes, Lovable and Enamor.

'Best fit on the consumer discretionary space'

Revenues have grown at~35% CAGR between FY04-12, supported by volume and realization improvement. Jockey brand has been positioned in the premium segment, which accounts for ~37% of the Indian Innerwear market. We believe rising income level, under penetrated market and growing urbanization will lead to up-trading from mass market brands to premium brands. We expect the premium segment to grow faster than the overall innerwear market.

We believe Page Industries is best suited to benefit from this trend, as it holds a long term exclusivity to manufacture and distribute the Jockey brand (CY2030) and Speedo brand. Given its focus on branding (ASP cost: ~5% of revenue), high return ratio, high payout ratio with a decade of dividend paying history makes Page industries a 'Best fit on the consumer discretionary space'. We expect Page Industries top line and bottom line to grow at a CAGR of 22.9% and 30.2% between FY12-14E respectively.

Strong top line growth

Page Industries revenue grew at CAGR of 42% from INR 3,393mn in FY10 to INR 6,834mn in FY12. The growth was driven by volume (~23% CAGR) and realization improvement (~15% CAGR). Volumes in men's wear, women's wear and leisurewear segment grew 19%, 27% and 41% CAGR respectively. Going forward, we expect Page Industries to grow at ~23% CAGR over FY12-14E supported by volume growth of 16.8% and 5.3% blended realization improvement.

Outlook & Valuation

Page Industries, at CMP trades at 28.2X and 22.3X to its FY13 & FY14 earnings respectively. Though the valuation appears high on a P/E basis, it is supported by high EPS growth. We assign a target multiple of 25X FY14E (PEG of 0.83) and rate Page Industries as an "OUTPERFORMER" with a target price of INR 3,420. We believe the valuation is justified given the immense potential of India's consumption story, fast growing market, strong brand recall and healthy financial position. Key Risks to our recommendation include company not being able to pass on the cost increase on a timely basis, leading to crunch in margin and consumers down trading due to uncertainty in the economy and job environment.

Source : Equity Bulls

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