Hi Rudra,
Eventhough, I agree with everyone here that, by all means Page industries is a great business to own. I tend to disagree with majority of the boarders here that these are typically pricey business and hence one should be ready to pay premiium for such stocks. From whatever I have read/absorbed from all type of great value investors, the key trait of their decision is “margin of safety”. Where is the margin of safety in pricing Page at 38 times TTM P/E?Market is pricing in that Page will grow at 23-24% CAGR for next 15-20 years. It may happen to be true, butit assumes things willgo only incompany’s favourfor a long time.Now when one operates business, there maybe many unforseeneventualities and ofcourse competition does enter when returns are so sweet. So landscape may change. Incase of less than anticipated performance of the company,is no loss of capitalensured at current price or slightly lower price? I too know that there are number of high quality companies such as Nestle/Asian Paints/Titan of the worldthat have traded at premium and have still ensured good retunrns for the investors. But, then one must look at opportunity cost too! If one is looking for steady 15-20% compounder, there are many better opportunities in the market today. Moreover, as a licensee of the brand, one can not and shall not ignore the risk of agreement not gettin rennewed or terminated. What if Jockey decides to venture on its own in India? Even though unlikely at this stage, not unthinkable.
So the point I am trying to stress here is that if one is following value investing principles thaneven for great businesses, one can pay reasonable price which factors in conservatively estimated growth rate (10-15%)and still provides some margin of safety to keep odds in favor of the investor.
It would be interesting know views of the veterans/boarders having market edge here.
Best Regards
Dhwanil Desai
Hi Rudra,
Thanks for the detailed post on this. I tend to agree that probably there is philosophical difference between style of investing here. Only thing that I wanted to bring out was that sometimes “error of commission” may prove to be more harmful than “Error of omission”. But again it is a very personal perspective.
However, I would surely like to draw attention to few facts.
)- Jockey International had total sales of USD 450 million at the end of 2011 spread across 120 countries.
)- It’s nearest competitors, Fruit & Loom is roughly 5 times bigger in sales ( USD 2.1 billion) and Hanesbrands is 10 times bigger (USD 4.6 billion). Both thesecompanies are present in Indian market and are also actively building their distribution network (Wonderbra is the latest and much hyped launch by Hanes)
)- If we believe Mr.Market, It asseses the potential of the company of amassing sale of 26,000 crores( in excess of USD 5 billion i.e.38 times current revenue of 700 crores) and profit of 3420 crores (USD 650 million i.e. 38 times current profit of 90 crores). so to put this in perspective, market is expecting Page’s profitexpection is 1.5times entire parent company’s revenue.AndI have not looked at possibility of margins moderating from current level (13%) and calculating free cash flow (5 year average cashflow from operations is 20% lower than average 5 year NP).
Investing, in the end is a matter of individual conviction level so takeit for whatever it is worth.
Best Regards
Dhwanil Desai