Page Industries (PAGIND) 14520

Transcription

1 Result Update Rating matrix Rating : Hold Target : Target Period : 12 months Potential Upside : 2% What s changed? Target Changed from to EPS FY16E Changed from to EPS FY17E Changed from to Rating Unchanged Quarterly performance Q1FY16 YoY (%) QoQ (%) Revenue EBITDA EBITDA (%) bps bps PAT Key financials Crore FY14 FY15 FY16E FY17E Net Sales 1,173 1,514 1,978 2,542 EBITDA Net Profit EPS ( ) Valuation summary FY14 FY15P FY16E FY17E P/E Target P/E EV to EBITDA Price to book RONW (%) ROCE (%) Stock data Particular Amount Market Capitalisation ( Crore) 16,195.4 Debt (FY15) ( Crore) Cash (FY15) ( Crore) 4.4 EV ( Crore) 16, week H/L / 5901 Equity Capital ( Crore) 11.2 Face Value ( ) 10.0 Price performance 1M 3M 6M 12M Page Industries Lovable Lingerie Rupa & Company Research Analysts Bharat Chhoda bharat.chhoda@icicisecurities.com Dhvani Modi dhvani.bavishi@icicisecurities.com Nirav Savai Nirav.savai@icicisecurities.com August 14, 2015 Page Industries (PAGIND) Valuations adjusting to higher base effect Revenues for Q1FY16 sequentially grew 18% (16% YoY) to 438 crore (Idirect estimate: 484 crore). Volume growth for the quarter was at 10.6%. However, realisation grew 4% to 130 a piece. The YoY growth rate was lowest since FY10, which was impacted by a delay in rollout of new product range in its sports (leisure) segment. The number of pieces sold stood at 34 million (mn) pieces compared to 29 mn in and 30 mn pieces in EBITDA for the quarter grew 35% QoQ (12.3% YoY) to 93.2 crore (Idirect estimate: 105 crore). On the margin front, the EBITDA margin degrew 60 bps YoY to 21.3%. The impact of an increase in royalty expenses, which increased 70 bps YoY to 5.7% of sales, would continue to keep margins pressurised PAT was up 16.4% YoY (34% QoQ) to 63.2 crore (Idirect estimate: 69 crore). Higher other income were tailwind for the growth rate Proficient distribution model leading to widespread reach Jockey distribution model is aptly spread across various exclusive brand outlets (EBO), large format stores (LFS), multi brand outlets (MBO) and traditional hosiery/multipurpose stores. Currently, the company has a panindia reach through approximately 30,000 retail outlets, 193 EBOs and has tieups with several ecommerce companies. During FY1015, revenues grew at a CAGR of 35% YoY, supported by volume growth of 19.5% over the same period. With frontend expansion, the company is also ramping up its manufacturing capacity, which increased from 2.2 crore pieces in FY07 to 19.4 crore pieces in FY15. We believe the company will continue its growth trajectory and expect sales volume to grow at a CAGR of 18.4% YoY to 28 crore units over FY1520E. EBOs, new products from house of Jockey In FY15, the company opened 59 EBOs under Jockey brand and two EBOs under Speedo brand. The company has an annual run rate of opens 2025 new EBOs, which would bring in incremental revenues. Furthermore, during the same period, it has opened three EBOs in UAE and one in Sri Lanka. Every year, Page launches 2025 new SKUs in each of the categories, which provides a refresh to its customers. The company is also planning a new international retail format for its incremental stores in which the ground floor would display only women s product range and the first floor will showcase the men s and kids products. With the introduction of premium products Page has managed to successively increase the average realisation price at a CAGR of 13% YoY in FY1015. This has cushioned the company from rising input costs, on the back of which, it has maintained it operating margins at ~20%. Tapering revenue growth; modifying valuations We believe that as the larger base effect catches up, the incremental growth rate for the company would taper on the back of which we revise our volume and realisation estimations and expect volumes to grow at a CAGR of 18% YoY to 27 crore units and realisation to grow at a CAGR of 9% over the same period. We retain our belief in the company s growth story. However, we are a bit cautious given its current valuations. We validate a DCF based valuation to arrive at a target price of and have a HOLD recommendation on the stock. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q1FY16 Q1FY16E YoY (%) QoQ (%) Comments Revenue Revenue growth comprises of 10.6% volume growth and ~4% realization growth Other Income Employee Expense Raw Material Expense SG&A Expenses The increase in expenses is due to higher royalty paid during the quarter EBITDA EBITDA Margin (%) bps bps Margins were impacted by increase in royalty cost Depreciation Interest PBT Tax Outgo PAT PAT grew strongly on account of revenue growth and lower tax expenses Key Metrics Menswear Volume (Mn pcs) Contributed 59% to the total volume sales in Q1FY16 Womenwear Volume (Mn pcs) Brasserie Volume (Mn pcs) Leisurewear Volume (Mn pcs) Speedo Volume (Mn pcs) Average Realisation ( ) The average realisation improved 5% YoY and was lower than our expectation Change in estimates FY15 FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 1, , , , , EBITDA We marginally lower our estimates for FY16E and FY17E to adjust for the lower base effect EBITDA mgn (%) bps bps On the back of successful price rise absorbtion we maintain our EBITDA margin estimates for FY16 and FY17 PAT EPS ( ) Consequently, we have revised our earnings estimates Assumptions Volume (In Lakh Pieces) Current Earlier FY13 FY14 FY15P FY16E FY17E FY16E FY17E Comments Men's Menswear segment growth traction is expected to remain strong Women's Brassieres Brassiers segment growth well on track and expected to gain traction Leisure Speedo Blended realisation ( per piece) Average RM cost per piece ( ) ICICI Securities Ltd Retail Equity Research Page 2

3 Exhibit 1: Volumes to grow at CAGR of ~20% during FY1517E Pcs in crore Topline growth trajectory 8 4 crore Company Analysis Healthy revenue growth to continue Page s revenues have grown at a CAGR of 35% in FY1015. We expect the growth rate to slow down to 29% during FY1520E owing to a larger base effect. We expect both volumes as well as realisation to aid this growth. Considering that the penetration of branded innerwear is significantly low in India and that Indians spend significantly lower on innerwear compared to their Asian peers, we do not anticipate any roadblocks in the company s growth plans. Continuous capacity addition and entry into newer markets is likely to further aid growth FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Men Bra Women Sports 9.9 Exhibit 2: with realisation likely to grow 11% per piece FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Men Bra Women Sports 219 Exhibit 3: Men s segment witnesses volume growth of 8% YoY Exhibit 4: while women s segment grew at 16% YoY Q1FY16 Q1FY16 Volumes (in Mn pcs) Realisation ( ) (RHS) Volumes (in Mn pcs) Realisation ( ) (RHS) Exhibit 5: Brassiere segment grows at 36% YoY, albeit on small base Exhibit 6: Leisure wear (adjusted socks) grows at 4% YoY Q1FY16 Q1FY16 Q1FY16 Source: Company, ICICIdirect.com, Research Volumes (in Mn pcs) Realisation ( ) (RHS) Volumes (in Mn pcs) Realisation ( ) (RHS) ; (impact of exclusion of socks in Q1FY16) ICICI Securities Ltd Retail Equity Research Page 3

4 Capacity addition to continue Page has continuously expanded capacities in line with the growing demand for its products. Page s capacity has increased from 2.2 crore pieces in FY07 to 19.4 crore pieces in FY15. We expect the same to go up to 27 crore pieces by FY17E. As the company is absent in a highly capital intensive segment, Page has been comfortably able to fund the same through internal accruals. We expect the same to continue, going forward. With the current rate of capacity addition, the company is only able to cater to the Indian markets despite holding licenses for Sri Lanka, Bangladesh, Nepal and UAE as well. In a scenario when Indian demand starts to flatten out, the company can access these markets for growth opportunities. Exhibit 7: Continuous capacity addition aids healthy topline growth Pcs in crore FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E Operating margin to be maintained at ~21% over FY1517E The management aims to maintain the operating margin around 2021% approximately. The company does not take aggressive price hikes despite strong demand and believes in taking price hikes to the tune necessary to maintain its operating margins. Though the operating margin has touched 21.1% (in FY15) owing to benefits of removal of excise duty, we expect Page to maintain margins at current levels i.e. ~21% over next two years. Exhibit 8: EBITDA margin trend % Q1FY13 Q2FY13 Q3FY13 Q4FY13 FY14 FY15 FY16E FY17E EBITDA Margin ICICI Securities Ltd Retail Equity Research Page 4

5 Wide range of product categories PAT to grow on the back of healthy topline growth Owing to a healthy topline growth and fairly stable margins, the company has been able to grow PAT consistently. We expect the same to continue, going forward. Page s PAT has increased at a CAGR of 38% in FY1015. We expect it to report growth of 33% in FY1517E. Exhibit 9: Net profit trend crore Q1FY13 Q2FY13 Q3FY13 Q4FY13 FY14 FY15 FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 5

6 Dividend payouts to be maintained Over the years, Page has maintained a dividend payout in excess of 40%. Despite the continuous capacity addition, the company has been able to maintain this owing to the strong cash generated in the business. We expect this to continue and also expect the payout to increase to ~50% during FY1517E. Exhibit 10: Dividend payout trend 70% 60% 50% 47% 60% 59% 50% 46% 50% 44% 46% 50% 50% 40% 30% 29% 20% 10% 0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 6

7 Valuation We believe changing demographics will continue to work in favour of consumption oriented companies like Page Industries. The company will be a beneficiary of the shift from unbranded to branded products. Apart from local demand, Page has licenses to cater to countries like Nepal, Sri Lanka, Bangladesh and UAE. Currently, Page s exports are negligible and the company will be able to explore export opportunities as and when domestic demand begins to dry up. The stock has also faced some concerns that the company will need to resort to debt in order to be able to maintain its current dividend payout and capex requirements. The company incurs a capex of 3040 crore each year and pays out 5060 crore in the form of dividends. With cash from operations of ~ 100 crore, the company should be able to maintain the payout as well as the capacity addition without needing to raise substantial debt. Most of the debt that the company raises is typically towards working capital requirements. Given the unorganised nature of the Indian hosiery market, Page Industries with its strong brand recall of Jockey is expected to lead the market shift towards organised and premium innerwear segment. We anticipate the growth will be multipronged (growth in brassier and leisure segment together with women s wear besides the men s innerwear segment) and long drawn as the industry moves towards more organised segment. To capture this growth, we shift towards three phase discounted cash flow based valuation. We expect Page Industries to maintain its high growth trajectory with revenue CAGR of ~28% over FY1520E buoyed by volume growth of ~18% over the same period. Volume growth is expected to be driven by women s segment with brassier and women innerwear categories growing at a CAGR of 37% and 21%, respectively, over the same period followed by men s innerwear segment registering growth of 24%. In the subsequent phases of transition and stable growth (FY2125 and FY2630, respectively) we expect revenue to grow at CAGR of ~19% and 13%, respectively supported by volume growth of 11% and 9%, respectively. We expect average realisation during the respective periods to grow at 9%, 6% and 4%. Consequently, based on our DCF valuation, we arrive at a target price of and have a HOLD recommendation on the stock. Exhibit 11: DCF valuation Terminal growth (%) PV of high growth period ( )Cr PV of transitional growth period ( Cr) PV of stable growth period ( Cr) PV of terminal growth ( Cr) Total ( Cr) Per share Value ( ) Exhibit 12: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 7

8 Company snapshot 18, , Target Price , , , , , , , Jan10 Apr10 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13 Apr13 Jul13 Oct13 Jan14 Apr14 Jul14 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Mar08 Continued the capacity expansion from 2.2 crore pieces in FY07 to 3.1 crore pieces in FY08; witnessed topline growth of 42% and PAT growth of 40% YoY Mar09 Further expanded capacity from 3.1 crore pieces (FY08) to 4.5 crore pieces translating to topline growth of 32% and PAT growth of 33% YoY Jul10 Capacity increased 60% YoY from 5.1 crore pieces (FY10) to 8.3 crore pieces (FY11), leading to 45% & 48% topline and PAT growth, respectively Aug11 The company continued the topline and bottomline growth at 30%+ and also increased the dividend payout from ~30% in FY07 to ~50% Mar13 Revenue growth relatively slowed down to 26.3% in FY13, mainly due to lower price hikes taken during the year Jul13 Reported strong ~40% topline and 32% bottomline growth in Mar15 Reported 29% topline and 28% bottomline growth in FY15 Aug15 Reported slowest growth since FY10. Topline grew by 16% (run rate ~25%) and PAT grew by 16% (run rate ~30%) in Q1FY16 Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m)n Change (m) 1 Genomal (Nari) 31Mar Genomal (Ramesh) 31Mar Genomal (Sunder) 31Mar Nalanda Capital Pte Ltd 31Mar Cartica Capital, Ltd. 31Mar IIFL Inc 31Mar IDFC Asset Management Company Private Limited 31Mar SBI Funds Management Pvt. Ltd. 30Jun ABG Capital, Ltd. 31Mar Matthews International Capital Management, L.L.C. 31Mar Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun14 Sep14 Dec14 Mar15 Jun15 Promoter FII DII Others Recent Activity Investor name Investor name Investor name Value Shares Investor name Value Shares Matthews International Capital Management, L.L.C m 0.05m HDFC Asset Management Co., Ltd m 0.44m ASK Investment Managers Pvt. Ltd. 2.20m 0.02m Genomal (Ramesh) 6.71m 0.03m BNP Paribas Investment Partners Asia Ltd. 1.86m 0.01m Genomal (Sunder) 6.67m 0.03m Wellington Management Company, LLP 1.82m 0.01m Genomal (Nari) 6.66m 0.03m Cartica Capital, Ltd. 1.00m 0.01m ABG Capital, Ltd. 4.82m 0.02m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8

9 Financial summary Profit and loss statement Crore (Yearend March) FY14 FY15 FY16E FY17E Total operating Income 1, , , ,580.6 Growth (%) Raw Material Expenses ,236.3 Employee Expenses Other Expenses Total Operating Expenditure , , ,027.6 EBITDA Growth (%) Depreciation EBIT Growth (%) Interest Other Income PBT Growth (%) Total Tax PAT Growth (%) EPS ( ) Cash flow statement Crore (Yearend March) FY14 FY15 FY16E FY17E Profit before Tax Add: Depreciation (Inc)/dec in Current Assets (166.7) (106.3) (44.6) (212.0) Inc/(dec) in CL and Provisions Taxes Paid (75.0) (97.3) (129.5) (175.4) Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets (47.3) (58.6) (41.3) (49.0) Others 1.3 CF from investing activities (44.1) (58.4) (40.9) (48.3) Issue/(Buy back) of Equity Inc/(dec) in loan funds 4.3 (28.8) (4.1) 27.6 Dividend paid & dividend tax (75.6) (104.4) (151.0) (204.5) Others 40.3 (1.0) (102.1) (19.3) CF from financing activities (31.0) (134.3) (257.2) (196.2) Net Cash flow (1.1) Opening Cash Closing Cash Balance sheet Crore (Yearend March) FY14 FY15 FY16E FY17E Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Other long term liabilities Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Intangible Assets Total Fixed Assets Investments Inventory Debtors Loans and Advances Cash Total Current Assets Sundry Creditors Current Liabilities Provisions Total Current Liabilities Net Current Assets Other Noncurrent Assets Application of Funds Key ratios (Yearend March) FY14 FY15 FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios EBITDA Margin (%) PBT Margin (%) PAT Margin (%) Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Apparel) CMP M Cap RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E FY15P FY16E FY17E Kewal Kiran Clothing (KEWKIR) 2,180 2,119 Hold 2, Page Industries (PAGIND) 14,520 14,250 Hold 16, Rupa & Company (RUPACO) 351 Unrated 2, Vardhman Textiles (MAHSPI) Hold 5, * Numbers are FY15P, FY16E & FY17E, respectively EPS ( ) P/E (x) EV/EBITDA (x) ICICI Securities Ltd Retail Equity Research Page 10

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/10%; Sell: 10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11

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