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We retain our СaddТ rating on Page Industries with a revised target price of Rs 6,000 (valuing the stock at 30x one-year forward EPS). We have increased our earning estimates by 4% at the Ebitda level for FY14-16e, led by higher estimates of sales.
Given that the company is in a nascent category (premium innerwear), which can grow at high rates (15-20% in volume terms) in the next couple of years, and that it has consistently delivered on growth expectations (ROCEs at upwards of 40%), higher multiples are justified. Successful entry into the kids-wear segment could present additional growth drivers.
The company continues to deliver better results. Page reported Q3FY14 sales at Rs 300 crore (up 39% y-o-y; up 5.2% q-o-q), ~9% higher than our estimates. Sales growth (y-o-y) was driven by 18.8% growth in volumes, 6% excise benefits retained by the company (excise duty on apparel was dropped by the government in FY14) and +14% impact of price/mix. Leisurewear and brasserie categories outperformed with sales growing 58% and 91% y-o-y, respectively. The company reported Q3FY14 Ebitda at R58 crore (up 44% y-o-y; down 11% q-o-q) with Ebitda margins at 19% (up 60 bps y-o-y).
In the nine months of FY14, gross margins have remained flat at ~47.9% despite a 5-6% excise benefit retained by the company, implying that most of these benefits have been offset by higher input costs. Hence, nine-month Ebitda margins at 21.1% are up just 30 bps y-o-y. The company reported Q3FY14 PAT at R34.6 crore (up 36% y-o-y; down 15% q-o-q).
Kotak Institutional Equities