One interesting fact I read from Axis securities report was that their inventory days is whopping 130 days and ROCE is 55% and in comparison ROCE of HUL is 133. FCF yield of Page is just 1%. If they reduce the inventory days from 130 to say 60 their ROCE would double. If people who are tracking it closely like @richdreamz can tell me why the inventory days are so high I might be able to make a decision to buy Page.
page is a licensee of Jockey india. If i recall correctly page will always maintain atleast a month of production in its inventory because if there is a lockout in their factory for a month their license may be cancelled. so page always keeps months of inventory.
Even then 130 days is 4 months and 10 days. So if they have a production shut down for 1 month and you keep 1 more month as a margin of safety even then 130 days are too high. I am not sure but I think they must be having their production at multiple places. So even if one plant shuts down other will still keep working.
I’m not going about dissecting balance sheet of Page now as it is now highly probable that Page is slowing down and would get back to its past glory once the real economy starts picking up but with a ‘lag’.
Also, I have no question on Page management’s ability to utilise working capital requirements to the optimal level so I feel the current level of inventories could be the best they could do, plus or minus. They would be compelled to work on this only during the times of extreme distress. For now, why to fix it if it ain’t broken?
My explanation for your question would be, Page is NOT FMCG business as others are saying, Page is TEXTILES business with FMCG characteristics as close as possible because of the indomitable brand that it built over 2 decades. So the products that Page produce would not move as fast as say a Lux soap, right? So expecting Page to manage its inventory with the likes of HUL would be a bit high expectations.
For other textile businesses like, let’s say, Ambika, raw material (input) is a ‘commodity’ while the output is a ‘value add’ commodity. BUT for Page, raw material (input) is a ‘commodity’ while the output is a ‘BRAND’.
We need to differentiate a BRAND very clearly in terms of what distinction it provides to the business. BRANDS are useful ONLY if they can provide high sustainable ROCE and pricing ability without compromising volumes else BRAND is just for VANITY purposes. Even ‘kingfisher’ is also a great brand! (I know this is extreme example).
I do not get excited about ‘brand’ unless the business shows the above point characteristics.
Don’t get excited with this versus buying the stock! They are entirely different and involves subjective analysis as per my broad above post in this thread.
The character of their balance sheet has been same from past 3 years according to the report. That is what the numbers say if axis securities have calculated them correctly.
Secondly, what I am trying to do is a thought experiment. Just imagine what would happen if they change the inventory days. The only reason for such large inventory days I could think of was that if they give stores some credit for the products but with 20 receivable days, it is unlikely that they are giving any credit to store owners. Would love to hear what management will answer if this question pops up to them.
Thirdly, management is keeping them deliberately around 130 days from last many years so they might be having some logic behind it which we don’t know yet.
Actually it would make slight difference, but not a lot. It would have mattered a lot more if this additional cashflow would have enabled them to grow faster, but this is not what is constraining the growth. For example, HUL’s ROCE is actually 1000%, but it still trades at lower valuation that Page because it doesn’t have many avenues to reinvest its cashflows and grow fast.
Your 10k prediction/hunch has become true. Now, everyday, Page is flirting with 4 figures. So, the real question, when is it right to bottom fish with sufficient margin of safety? At 205 EPS, may be 40PE, 8200?
IMO, buying at 30x forward EPS has been a good strategy in the past. I doubt this will hold as market is sensing that it is a 25% grower now…
Just read about Genomal’s stake going below 50%. Does this mean Jockey will cancel contract?
page inds mgmt has clarified that jocket contact has extended till 2030.
disc.: no holdings
When was this clarified? I can find some links but they are from 2011
Some clarification in this interview…
Pius Thomas: The clause you are mentioning has been amended. The threshold limit is much lower. So it does not affect our relationship with Jockey.
Jockey hand towels is the latest new product launched. Its on the shelves since around 1 month in a jockey store i visited and product seems to be moving quite well according to shopkeeper.
I am slightly surprised. Why do they need to spend mgmt bandwidth on an absolute commodity like towels? Why should anyone flock to their exclusive brand outlet to buy towels. I had expected them to grow product lines like Titan but it has come little too early.
Disc: Sold off recently
Mr. Pius Thomas, Executive Director – Finance
See 20-25% revenue growth in FY17
• There was a clause in our agreement with Jockey which says that if promoters’ stake comes down below 51 percent. Jockey can have a look at the relationship but that clause has been amended and the percentage has been brought down to much lower level
• Jockey is comfortable with promoters. They don’t mind promoters liquidating a small part of the stake for their personal need.
• Our agreement with Jockey is valid till 2030.
• They may reduce the stake by a small percentage in the next few years. They are fully involved in the business, they are committed to the business.
• We expect the economy to pick up and our growth rate to go up. Our present capacity is 225 million pieces, we are expanding that to 400 million pieces by December 2019. That shows our confidence in the market.
• We expect 20 – 25% revenue growth in FY17
I don’t understand why the promoters will sell portion of their 25% compounding machine and will keep doing that in future. Maybe they think that the valuations are too steep!
More from the interview:
Margins will come back to 23% in 2017
Mens wear - 12%
Sports wear - 16%
Womens- 42% & 18.5%
Socks - 10%
Speedo - 3%
Dividend will be maintained at around 50% of profits. No change in policy.
RoE of 58% will be maintained.
Speedo has lots of EBOs in TN. Its performance next year would be better.
I heard some good feedback on the kids segment too. Cracking that segment would be a big plus.
With a ton of swimming pools in every new major apartment, community and the scorching summer, I am expecting this particular segment to take off well in the next couple of quarters.
A honeymoon couple also picked up Speedo stuff on their travel.
Disc: Invested from lower values.
Well, latest quarterly suggests swimwear volumes de-grew. It will grow but where is water in swimming pool these days?