I think Page can give a growth of 20-25% in next decade…if this assumption is true the stock can be bought between a range of 18300 to 15100…
These price range should provide adequate safety from simple DCF calculations and a fwd PE of 47…this is also the bottom of 18300 which the stock made in Feb 2018…
But that’s 16% more to fall…and it will be 50% from the peak…
Regards
Good to see 2 of my Favorite4 stocks i.e HDFC Bank and Asian Paints touch their all time high today.
Interestingly, the other two Favorite4 stocks, Gruh and Page, are down exactly 31% below their all time high (Gruh down 28% if I take Bandhan valuations since Gruh will eventually merge into Bandhan).
Bandhan/Gruh should eventually shrug off the negative sentiments as time passes. An overhang is also due to the fact that HDFC Ltd has been allowed to hold only 9.9% in the merged entity (and not 15%) and therefore needs to reduce their stake in the post merger scenario. Frankly, this is a time event and this hurdle will also be crossed with time. Good results from Bandhan and a general softening of interest rates should take care of the rest.
Page should continue its strong sales growth with its mind-boggling ROCE of close to 60%. Most other consumer stocks don’t even come close to this level of ROCE:
Dabur : ROCE of 23% (PE of 51x)
Marico : 31% (PE of 49x)
Nestle : 41% (PE of 64x)
Godrej Consumer : 17% (PE of 35x)
Asian Paints : 33% (PE of 66x)
ITC : 31% (PE of 30x)
Gillette : 48% (PE of 95x)
Emami : 15% (PE of 58x)
The only companies which come close or beat Page on ROCE are HUL (86%) and Colgate (63%). But they are growing much slower than Page. So while they are likely to continue commanding their high P/E’s (62x for HUL and 45x for Colgate), their stock price is likely to grow slower as compared to Page’s (Page PE is 67x)
Page’s PAT growth:
FY18 (30% growth)
FY17 (14%)
FY16 (19%)
FY15 (27%)
FY14 (37%)
Consensus expects PAT growth of 25% in FY19. Though erratic, the PAT growth along with the high ROCE clearly makes Page stand out.
Time to ask one very fundamental question, especially to the junta who’ve been invested for some time and know the story well -
How is it that Page is running at such a low receivable days though they are more or less pursuing the same distribution strategy as others? Page runs at receivable days < 30 (this has been the case for more than 10 years) while all others are running at close to 3.5X that period. Or is there something unique about their distribution mix?
By the looks of it most of the product is being sold on the outright sale model to distributors, how is company able to get such favorable terms from the channel? In terms of inventory holding Page more or less tracks the industry which means the inventory days at the distributor and retailer end for Page products has to be way lower than everyone else. I cannot think of any other reason why channel is willing to pay money upfront. It is like the distributor is saying - “I know the product will fly off the shelf within days for me, hence my inventory carrying cost is minimal. I do not mind paying Page industries up front where as with all other players I will take upwards of 2 months to sell the consignment hence I am not willing to live with the inventory carrying cost”
While the rest of the positives of the business have been discussed here, looks like the ability to manage the inventory well at the channel end is what is makes Page a darling of the channel too and thus able to get better credit terms. Has any research report covered this aspect in detail? Also any questions the junta here has been able to pose to the management on this aspect? My sense is that their technology integration for the channel must be outstanding, else there is no way one player can be so efficient than the rest of the competition.
Another key variable to watch going forward would be this -
As proportion of women’s inner wear increases, logically the inventory levels needs to go up since women’s segment has higher SKU’s - greater variety of styles, colors and sizes. To what extent will this get counterbalanced by the outsourcing model that the company is now focusing on? Even there only labor intensive tasks get outsourced (discrete manufacturing part) while the process manufacturing part where scale can work in your favour gets done in house. This is common across other players like Dollar, Lux & Rupa too.
One thing that stands out is the willingness of Page to take on the women’s inner wear segment in a big way, looks like they are the first player to get to 500 Cr sales from this segment. Rest of competition is focusing on women’s segment too but they are sticking to bottom wear, leggings and camisoles where the number of SKU’s are relatively way lower. Women’s segment has been a huge challenge since that segment is capital efficiency dilutive at the economy and medium segments. At the premium and super premium range a high enough selling price can buffer for the higher working capital needs, hence business makes sense for a premium brand like a Victoria’s secrets. Very fascinating to see if Page can crack the economy and mid range market (which is 2X the size of mens market) without impacting their working capital ratios and balance sheet. Bata is trying to do something similar in the footwear segment and it will offer an interesting parallel. If they get it right both of them may have a free run for the next 8-10 years which might explain why the valuation for both is well beyond normal bounds.
This is why I find equity research fascinating - the moment one is able to link tangible business and trade channel aspects to financial analysis is where one can see the true moat/strength of a business! Else it just becomes an exercise in excel modelling and debate on valuation basis P/E and EV/EBITDA.
Comparative snapshot of the listed players on some basic parameters of the P&L -
| All numbers in INR Cr | 2017 Revenue | 2018 Revenue | Royalty Exp | Advert Exp | Selling & Distribution Exp | Brand Investment as % of Sales | Sub Contract Exp | Sub Contract Exp as % of Sales | Payroll expense | Raw Material expense | Traded Goods | Gross Margin (%) before Inventory adj | Margins after Payroll & Subcon adj | After Royalty adj | After ASP & BTL adj | EBITDA | EBO’s | Touch Points | No of Distributors | Rent | Permanent Workforce | SKU’s |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Page Industries | 2,129 | 2,551 | 124 | 97 | 21 | 4.61% | 123 | 4.82% | 406 | 690 | 333 | 59.90% | 39.16% | 34.30% | 29.69% | 22.10% | 470 | 50,000 | 37 | 19,000 | 6,000 | |
| Rupa & Co | 1,084 | 1,126 | 0.08 | 76 | 55 | 11.63% | 224 | 19.89% | 39 | 507 | 54.97% | 31.62% | 31.61% | 19.98% | 15.00% | 10 | 1,25,000 | 1,000 | 2.89 | 710 | 8,000 | |
| Lux Industries | 958 | 1,138 | 0.05 | 108 | 71 | 15.73% | 221 | 19.42% | 37 | 504 | 33 | 52.81% | 30.14% | 30.14% | 14.41% | 13.79% | 9 | 950 | 1.76 | 1,407 | 5,000 | |
| Dollar Industries | 886 | 983 | 0 | 86 | 87 | 17.60% | 191 | 19.43% | 26 | 432 | 56.05% | 33.98% | 33.98% | 16.38% | 12.90% | 95,000 | 915 | 2.74 | 765 | |||
| VIP Clothing | 231 | 222 | 0 | 8 | 5 | 5.95% | 30 | 13.51% | 18 | 131 | 40.99% | 19.37% | 19.37% | 13.42% | 5.25% | 2 | 1,10,000 | 330 | 1.42 | 367 |
Key insights -
At the Gross Margin level there is actually not much difference once you adjust for the royalty expense of Page which others do not have. Gross Margins are in the range of 50-55% irrespective of the product portfolio, outsourcing proportion etc
Once you adjust for payroll and sub contracting expense (now we are accounting for some important non raw material manufacturing expenses), most players still track the 30-34% range, Dollar actually ranks the best here
However once you adjust for the brand building and distribution expenses Page emerges as the best among peers. The key to this is the much lower spends on BTL and the ability to spread the ASP over a higher number of sales. Lower BTL spends also fall in line with the hypothesis that balance of power is significantly skewed towards Page when it comes to channel economics. All others are spending upwards of 11% of sales on ASP + BTL while Page spends < 5%, number goes up to 9% if you account for the royalty here.
In my mind, this is the biggest USP of Page. Clearly there is no great advantage due to scale or pricing else this would have shown up at the Gross Margin level. Where Page is clearly superior is in it’s positioning where it communicates an aspiration brand at a healthy price (which is clearly being kept low enough on purpose) and it’s ability to manage channel economics in a superlative way. Fact that BTL is low indicates that discounts to the channel are low (hence margins for Page product are actually lower for retailers and distributors) but it is getting compensated by the fact that Page products are pull products and that inventory cost for the channel is way lower than for other products. This is clearly due to better technology integration where Page is managing the inventory for it’s distributors far better and hence making life easier for the channel in exchange for low receivables.
The fact that Page is way ahead on the EBO channel and has much lower touch points that other players indicates that the management does not believe in spreading itself too thin and instead wants to improve the economics of the distributor network. Page also has large market share in the online inner wear segment, clearly first mover here and likely to continue to do well.
Clearly Page is way more efficient at doing brand management, promotion and is able to spread the expenses over a larger number of units and hence getting much favorable unit economics which keeps its debt and balance sheet much healthier. The higher ROCE and ROE levels are all due to their superior brand and channel management and not due to any great advantages in manufacturing or quality. Also their large in house employee base is a problem, them going for outsourcing is logical since other players have been following that model for decades now.
Interesting takeaways -
Across the industry one can see that OPM spikes above 10% only after sales crosses the 500-600 Cr mark. Reason being bare minimum ASP spends (which do not depend on how many units one sells) will eat away most profits when franchise is small. You can see a spike in OPM of Rupa, Dollar and Lux as they built scale and went past the 600 Cr sales mark
ASP spends will not rise linearly with sales volumes in consumer business though the number of products and brands will impact this. BTL moves in line with sales volume since this is the incentive one needs to give to the channel, however with higher volumes trade channel will happily settle for lower margins once they know that volumes will increase.
As the other listed peers grow at healthy rates (10-12%) looks like their EBITDA margins will show a spike and likely to finally settle in the 17-18% range as they cross 1500 Cr sales while Page will continue to do 20-22% due to the channel competitiveness it has been able to build.
If so the question is what is a better buy?
Page industries at 27,000 Cr at market leading growth of 18-20% but trading at 65 PE
Lux Industries at 3,300 Cr at a growth rate of 13-14% (after the merger with subsidiaries) and trading at 30 PE
Dollar Industries at 1,600 Cr at growth rate of 13-14% and trading at PE of 22
Rupa & Co at 2,800 Cr at a growth rate of 7-8% and trading at PE of 27
I will leave this to the judgement of each investor to figure out which one of these bets he would like to take. This is not to trigger another debate here but just to put the numbers, my thought process and the insights I have been to derive out here.
That Page is the best in the business is beyond doubt but we aren’t a jury looking to give a prize to the best business. We are investors in search of the best investment - that calls for considering a whole lot of other aspects than just business quality unless one falls into the “quality at any price” category.
Choose wisely after considering all possibilities and stay consistent with your investment philosophy
Must say your above 2 posts are very well researched and even the conclusions derived are accurate. Most people do excellent research and somehow then reach wrong conclusions.
One final step is left, act on your conclusions, if someone wants to. This is the most important step as knowing is only 10% while taking action is the rest.
As a real long term holder of Page, I have compounded my wealth at 25% plus without any action. The time I acted over smart and did some short term activity, my results were sub par.
Couple of years back I have analysed Page as I wanted to understand what is it that Page does differently that it is so efficient for such a long period of time.
It is then I have realised that the real “business” lies in the distribution, logistics, channel stocking, inventory management, SKU availability, capital allocation all along managing the brand building the tough way and not by simply throwing money at sponsoring IPL.
For example, being prudent and contrarian in brand building is shown by Page industries associating with Bangalore Football Club right from the beginning. Grow with a franchise and mutually benefit as scale is built over time. By doing so it stands away from all me too brands in IPL where everyone fights for attention.
#morningfitnessparty is another initiative where page industries is building the athleisure segment the grounds up way.
I can go on with the virtues and I do not want to get into valuations debate at all as that is individual’s choice and I know which one to buy as I have seen the fruits myself. I prefer to stay with leaders and integrity management.
This right here is the crux of the Page Ind success story, most people get caught up in the “brand” hype without asking what does that translate into on the ground. In the case of Page what the brand translates into is -
Page is a case study in how operating leverage resulting from ASP and channel optimization can move the needle for a consumer business over a period of time. This virtuous cycle also is an example of how moats are built painstakingly by doing small things right that together add up to a significant delta.
The other important point is that quality of advert spends matters much more than the quantum. A lot of promoters who do not understand brand management do a very shoddy job at advert spends and figure out the hard way that ROI is poor. Such promoters/management assume that visibility is good without having a framework in place to evaluate if what they are doing is working. I am increasingly coming to the conclusion that when it comes to evaluating consumer businesses, one might be better off talking to the brand management & distribution teams rather than spending too much time with the promoters.
Opening own stores and managing the process well is also a very important skill where mistakes can be made, Mirza Intl’s pivot to a consumer business is a real time example of the challenges involved in inventory & SKU management for a management that hasn’t done it before.
There is fundamental difference between PAGE and other consumer companies in India like HUL , Nestle etc .
Page is franchisee owner and hence has only licence to use a brand … All investment done by PAGE strengthen the brand it does not own .
The classic India story is Mc Donald - when it cancelled licence of its North India Franchisee owner . It can be very painful for shareholders of Franchisee owner . As then it is left with only physical stores and manpower .
In case of PAGE strangely people don’t account for this risk otherwise PE should have been under 25 or PEG of < 1.
Company is holding investor/analyst call after many years ( if I am not wrong). Does it mean anything?
Maybe because of last quarter report by Kotak that the company has stopped giving adequate disclosure.
disappointing results.
sales are flat yoy
net profit is down more than 20 % yoy. Looks like the company is finding it very tough to grow from here. Will be interesting to hear the mgmt perspective in the concal.
Can someone please share the company presentation for this quarter. Thanks
Don’t think there is any presentation so far. Is there a concall? If so, when? Please let me know
Conference call highlights (from MOIL report)
Macro
Post GST, inventory held by retailers has been lower than the past. But liquidity
issues were more severe in the trade in 4QFY19.
No sign of an uptick in the last two months, but expect situation to improve.
130m customers targeted for Jockey. The company has 19-20% share in their
target market for men’s innerwear, 5-6% in women’s innerwear, and 6-8% in
ath-leisure.
For target market calculations, the company is assuming six pieces for men’s
innerwear annually, seven pieces for women’s innerwear and four pieces for
ath-leisure.
Reasons for weak realization in 4QFY19
In 4QFY19, some schemes were undertaken to boost sales.
Guidance
10% volume growth targeted, which should lead to 20% sales growth. Price
increase, better mix and greater share of higher priced ath-leisure products are
likely to boost realization. Price increase is usually around 4-6%. This is a big
divergence from earlier management guidance.
Looking to maintain EBITDA margin at 21-22%.
Inventory increase of 32% YoY
Regards to the sharp increase in inventory, company stated that it is preparing
for stronger demand in 1QFY20.
Capacity expansion and new categories
Capex- INR470m in FY19, similar number expected in FY20 as well.
Doubling own capacity from current 260m pieces in five years.
New plant commencement dates—Andhra Pradesh 4QFY21, Karnataka 3QFY20.
Have set up 100+ people team in kids wear with focused marketing as well.
Have only 1.9% market share in kid’s innerwear, so growth opportunity is huge.
Have also launched outerwear products for kids recently.
Stores and channel details
The company had 620 EBO stores at end-FY19. Sales from these contribute
around 16% to total turnover.
Reached ~55,000 stores on the MBO front.
Online sales now at ~4%.
Other points
Attrition is in line with industry standards.
No sharp increase in material costs are being witnessed now.
Adding my notes of concall
Volume growth FY19 5.6%
Volume growth Q4 1.1%
Market Penetration (premium innerware)
men 19-20%
women 5-6%
outerware 6-8%
Kids 1-2%
Current capacity 260 million. Planning to double in 4-5 years
Sales mix offline/online = 96/4%
Sales of approx. 17.4 cr pieces in FY19
Product mix
men 50%, athleasure & sports 15%, women 16%, rest other
Would current gross margin trajectory sustain?
answer: Yes
Upcoming manufacturing facilities in Anantpur (Andhra Pradesh) & one other in Karnataka
EBITA of 23% and PAT margin of 14% is sustainable
Internal target of volume growth of 10%
Management mentioned overall slowdown in economy and business environment. Focusing on segments like Jockey Juniors.
They take one price hike a year and that’s usually in Q3 or Q4.
When growth resumes, they want to do 10% volume growth. Along with move towards high value products and inflation, they expect growth to continue at 20%.
To conclude, management agreed on slowdown in business and hopes the things will improve whenever the overall economy and consumption improves (though not sure when that will happen). They emphasized on aggressive push in Kids segment to grow sales. Q4 margins will be maintained as per them.
What to expect for FY20: In my opinion, investors should be ready for low single digit volume growth and 4-6% sales growth for FY20. The PAT growth can be same. Whenever consumption resumes, Page can achieve 20% growth. Till then the stock is priced well and can stay here for few quarters.
Disc - Invested
I am not sure why they are not launching lower premium mens inner wear. ( Not in the range of calvin klein etc) . Recently I tried out van heusen. Very impressed with the quality. Its priced slightly higher than a jockey. IMO page should launch something to take ABFRL on.
What I find interesting -
This was a very high growth story till 2015, sales growing at 25-30% YoY. From 2015 one can see that revenue growth has been < 20%. Volume numbers are pretty much available in public domain. The push to women’s innerwear has picked up pace in the past 3-4 years, gaining incremental share from men’s market is not easy since there are more than 8 brands there which make > 500 Cr every year in revenue. Now the push will come in kid’s wear and other newer segments.
Dividend payout will most likely be way higher going forward as well, for FY19 dividend payout per share is more or less equal to EPS. Capex requirements are never high for this business, so not surprising but the underlying message is that reinvestment of profits to drive incremental growth is not going to happen. This by itself will take a decent chunk of the compounding capability for a business. The ideal business is one which can generate healthy profits and reinvest those profits to generate a higher rate of growth or improve quality of balance sheet.
Now that the men’s category has been tapped into to a great extent (this category hardly grows at 10-11% per year), my take is that 20% sales growth is very unlikely to happen henceforth. What is more likely is growth in the range of 14-16% which by itself is very good over the medium term but the stock has been pricing in much more than that all these days.
What we are seeing now is the market calibrating to the possibility that 20%+ growth may be a thing of the past and that Page will continue to be a high quality business that can realistically grow at 15% over the medium term. The quality of the balance sheet cannot get better than what it is, so positive triggers other than growth reverting to 20% are not visible to me. The management commentary appears to suggest this, inner wear is a low ticket consumption story and will be the last thing to get impacted in a slowdown. So I don’t buy the slowdown hypothesis at all.
From the current situation Page will be consistently forced out of it’s comfort zone and their template that has worked so well in delivering 20% growth over the past will not work as easily. Eventually this will get priced into the stock and looks like it has been priced in
Time to get out of the “discount to 3 year P/E mindset” and actually see what price one should be willing to pay for a business that can grow at 15% as opposed to the original assumption of 20%. Think with a DCF mindset, that enables one to see how sensitive valuation is with respect to growth on a 8-10 year horizon from here
I had started investing in this company from Dec’17. From then the price of the company is either continuously falling or maintaining at a fixed position. At that time my reason for investing in this company was that (I read the book by Peter Lynch - “One up on Wall street”) My family uses the product manufactured. I had always and still admire the quality of the products maintained till now. The quality of the products is still same. Although it is facing stiff competition from other brands but brand loyalty that Jockey has earned for so many years is still there. Recently I also visited one of their brand store in Noida and saw good collection and good customer service. The footfall at that time was low, but will see with time (as I visit that mall frequently) whether it is same or will increase.
I have been a regular customer of Jockey inner wear for over a decade. However, since last year I have been finding that quality has gone down and products don’t last as long as they used to earlier. Recently, it was first time ever, I bought innerwear from Van Hussain. I really liked the quality, even though its a bit more expensive. If I find them good after longer use, may completely shift to them.
For quality I agree - my personal experience says it has detoriated
Few would say that the business (and products) are not good.
But what we must also evaluate is if it is also a good investment.
For you to evaluate if it is - based on your time horizon, return expectation and risk tolerance.
Good luck.
