Page industries

Stock Opportunities
21

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.

http://www.hoovers.com/company/Jockey_International_Inc/cthhci-1-1njhw5.html Link: http://www.hoovers.com/company/Jockey_International_Inc/cthhci-1-1njhw5.html

)- 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)

http://www.hoovers.com/company/Fruit_of_the_Loom_Inc/rrsjif-1-1njhw5.html Link: http://www.hoovers.com/company/Fruit_of_the_Loom_Inc/rrsjif-1-1njhw5.html

http://www.hoovers.com/company/Hanesbrands_Inc/rfcttxi-1-1njhw5.html Link: http://www.hoovers.com/company/Hanesbrands_Inc/rfcttxi-1-1njhw5.html

)- 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

22

Hi Dhwanil,

I certainly agree that sometimes “error of commission” may prove to be more harmful than “Error of omission”. However, the perspective captured by you may not be appropriate

Jockey being privately held, we do not have data pertaining to sales of Jockey Inc (US) and licensees in 120 countries, so figures aren’t comparable. (Look at the no of employees from both links to understand the inherent mismatch)

Please go through this to get a better perspective:

http://breport.myiris.com/ICICISL/PAGINDUS_20120329.pdf

Any comments/observations from your side are most welcome.

Regards,

Rudra

)-

http://www.hoovers.com/company/Jockey_International_Inc/cthhci-1-1njhw5.html Link: http://www.hoovers.com/company/Jockey_International_Inc/cthhci-1-1njhw5.html

)- thesecompanies

http://www.hoovers.com/company/Fruit_of_the_Loom_Inc/rrsjif-1-1njhw5.html Link: http://www.hoovers.com/company/Fruit_of_the_Loom_Inc/rrsjif-1-1njhw5.html

http://www.hoovers.com/company/Hanesbrands_Inc/rfcttxi-1-1njhw5.html Link: http://www.hoovers.com/company/Hanesbrands_Inc/rfcttxi-1-1njhw5.html

)- crores( i.e.38 crores). profitexpection is 1.5times revenue.AndI takeit

23

Few things from my side;

@Dhwanil,

“- Jockey International had total sales of USD 450 million at the end of 2011 spread across 120 countries.”

1). I guess the quoted sales figure of USD 450 million for Jockey international, is only from royalty and their US operation (am not sure if they themselves manufacture in US) ? I say this because USD 450 is roughly 2250 cr.(at 50rs), whereas Page industired itself has TTM sales of 725 cr. leaving aside other 119 coutnries. So, i think we need to do some more digging on that number.

2). Let’s take the example of Akzo Nobel(Dulux brand), an internationally recognized player in the field of paints and present in india since long time(2007?). Yet has a sales of just 2k cr. and np of 200 cr. and mcap of 4k cr. this compared to Asian Paints sales of 8k cr and np of 1k cr. and mcap of 37k crore. Then is it possible that, having an internationally recognized brand is not an end in itself, brand building,distributor network etc… in a country takes time and there Page surely has an advantage. Comments please.

3). Scuttlebut for others and Personal experience for me :slight_smile: - I was a buyer of VIP frenchie briefs during college and early employment days (2000-04 time frame) which was roughly in price range of 50-70 those days. First buy of Jockey was sometime in 2004-05 (lured by a seconds sale) in the price range 70-80. Have stayed with the brand since then and have been paying consistently higher prices year after year (ring a bell? - Charlie,See’s Candy?). Now in the range of 200? that’s 250+% price hike in space of 8 years (may be a little increase in quality too). And these days it’s really tough to find Jockey seconds sale too :frowning: very rare compared to other fashion brands. So, my understanding is, other brands will also come, but they will take time to establish and occupy mind share and some of them will remain just another brand in Indian context, than being a serious challenger to Jockey, like currently Calvin Klein is…

4). Price - I remember reading, about Mr. Bufftet’s regret at his decision of not buying more of Costco beyond USD 15, during 2001 and then recently saying - it’s irritating how he keeps on doing the same mistake again and again (getting anchored to a price and not paying for quality). Currently Costco trades at USD 100+, at a PE of 28. One visit to Costco, and it didn’t take me long to realize why it’s different than other retailers and why Charlie Munger is all priase for it and why people pay insanely high membership fees every year just for the right to shop there!. Point is, we need to pay up for quality business. Of course if Mr. market obliges with a significantly lower price in his manic mood (and makes such quality business available as a value buy), we too should oblige by loading up.

That’s the approach am trying to follow for all quality businesses like ITC,Page,Titan,AsianPaints etc…and this approach is backed up by the conviction that i will be a net buyer of equities for few more years to come funded from my primary source of income(job).

Disc: Invested since 2600 levels, as part of core portfolio. Looking to add more in any sharp correction.

24

Hi Rudra/Raj,

I think this is the final comment from my side at leastas I do feel that investment rationale is fairly subjective and what might seem interesting to me may not seem equally good to someone else and vice versa. Hence we can agree to disagree.

First thing first, I am also very confident about quality of business/pricing power/ brand equity etc for Page so if given an opportunity to buy at reasonable price, it would be on top of my buy list.

With respect to the size of Jockey International, I do agree with both of you that it only reflects part of its sales potential as in many countries, Jockey has licensees and hence only revenue stream is royalty (may be 5-7% of sales). Probably, i was not able to put my point more clearly. What I wanted drive at was that revenue potential seen by the market is 10 times bigger than US market size of Jockey and even larger than some of the largest players in the one of the most developed markets. Can it get there? may be, but is it aGIVEN like market thinks? in my humble opinion surely not.

as Warren buffet puts it, âAnyone who believes a growth rate in excess of 15% per annum over the long term is attainable should pursue a career in sales, but avoid one in mathematics.â

Secondly, on pricing, I too have read warren buffet’s comment on costco, however the context was slightly different. If I remember correctly,What he was talking about was that he bought shares at USD 15, but then prices moved up to slighly higher level so he stopped buying thinking that he will get it at 15 again, even though he fully knew that Costco was worth more than USD 15. I am not sure in which year Berkshire bought Costco, but if they did buy in 2001, it was trading at P/E of 10-11. So if they bought it in 2001, Costco was not hugely expensive.

I went through ICICI report, the oevrall innerware market is estimated to grow to 44,000 crore. Let us assume that 40% of that market belongs to premium and super premium segment (from current 30%) which makes the market size for the products at 17500 crores. Even if one assumes achieving 50% increase inPage’s market share in premium/super premium segmentfrom current 20% to 30% (which is not an easy tasks with large international players vying for market share), it will translate into revenue of 5000 crores and PAT of 680 crores 8-10 years from now.

So the point here is that, current valuation doesn’t leave any room for error/misfortune from company’s side and in as for any business, there are many factors/aspects of business which may not work out as predicted. Does current valuation leave room for such unpredictability? I think it is a subjective analysis. But my limited understanding and primafacie number crunching suggests me that odds ofinvestors making super returns from these levels are limited.

Hope i havebeen able to put forward my thought process here.

Best Regards

Dhwanil Desai

25

Fair enough Dhwanil.

Price is the most sticky point for Page Industries, by the way, what in your estimate is the fair price for Page ?

I guess, market will keep throwing opportunities to buy even businesses like these from time totime at reasonable valuation. Like we got an opportunity to buy Titan at 150s few month’s back ?

Regards

26

Page is a discovered business and price should follow earnings growth which makes it a business that can return 25-30% CAGR including dividends. Since the predictability of that 25-30% CAGR is high it is trading at that PE, after all who doesn’t chase easy money. Consider that HUL traded at about 30 PE for ten years with zero growth, because of predictable earnings and a high payout. So markets will pay for predictability and payout.

Like Dhwanil pointed out if this 25-30% CAGR doesn’t pan out and the company grows both earnings and dividends at 20% CAGR then after 10 years the dividend would be about 390 and at a yield of say 3% it will trade at 13000 which is about 4 times in 10 years or a 15% CAGR. Also for someone who buys at CMP a 12% yield :slight_smile:

So in the bull case its a 25% CAGR for 10 years and in the bear case its probably a 10-15% CAGR after ten years, earning 12% yield on the money you invested now.

It is with this expectation one should get into page and not dreams of seeing the meteoric/multibagger rise that it saw from 2008 to 2011 until it got discovered.

The advantage with a quality business like Page is that compared to more than 90% of the businesses out there, you can allocatecomparativelylarger sums to it and sleep well.

To give you an idea if you allocate 5% each to twenty stocks and out of these twenty, five stocks go on to become 10 baggers in say 4 years and the remaining go no where, your portfolio will become 3.25 times.

If you put the entire 100% in Page, page will have to grow by just 35% for 4 years for the same result.

Now think about which one is a higher probability event as far as your investing skills are concerned :slight_smile:

Disclosure: I own Page in my 2 stock portfolio :slight_smile:

PS: Hitesh, Ayush , Donald and number of others here who have the ability to pick more than 5 out of 20 tenbaggers and have demonstrated the same are a different breed altogether, but for us lesser mortals a business like Page should be good enough :slight_smile:

1 Like
27

A great lesson from the great legend, seems most apt for this thread

“The risk of paying too high a price for good-quality stocks ,while a real one, is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.”

â Benjamin Graham, The Intelligent Investor

1 Like
28

â

Wonderful Quote.

When I got the courage to start buying it in late 2009 it was at a trailing PE of around 25+ and now it is around 35. It has been a fantastic ride for me and I am still buying whenever there is a valuation comfort(relatively).It is a fantastic company with a great future and will never sell cheap. One need to keep watching and accumulating on every bad news/rumors.

25% growth for next many years looks very much feasible and there aren’t many companies with such visibility.

Raj

29

Wow Prabhakar !! 2 stock portfolio!! It’s almost like being a promoter with 2 companies :wink:

On a more serious note, how do you manage to invest your incremental cash with such a concentrated portfolio ? I mean, because Page is always trading at such high multiples.

I am waiting for your next blog post in the wealth creator series.

Regards

30

I haven’t looked at the financials of page , but make it a point to peep into the Jockey stores whenever I pass by . Most of the times I find the shop empty without customers and the shopkeeper sits idle at the counter . On rare occasions there is a customer or two. Do they sell only through retail outlets or do they export too ?

31

Page results on Feb 14

32

Page Inds stock seems to be correcting and currently around 3250. I think this one is entering the buy zone.

With company likely to post eps of close to 95-100 for fy 13, it trades at around 33-34 times fy 13 numbers.

the dec and march quarters have traditionally been lukewarm. Lets see how the company manages to post results.

Big plus for page has been strong growth visibility for next few years and what is more important, market perception of such growth.

1 Like
33

Hi Hitesh

I think it will touch its 200 DEMA at 3177 and bounce back. Or else can expect a break down.

Here is the chart:

Should one wait for results or buy??

34

Dear Senior members,

I have been reading in the following link that Jockey international has revenue of around $200 milltion dollars in 2007. With this, how big is the parent company now (since this is a private company so no details)?

I am also trying to understand how big can the India story get atleast the market size that it can capture.

Can anybody throw some light?

Thanks!!

35

Jockey International has lower revenues bcz it sells directly into US and Canada only. In rest of the countries it gets a license fee from other companies to whom it sells its license.

So the turnover of Jockey International doesn’t reflect the exact market Jockey brand has captured.

(eg: PAGE has 700 cr revenues and it pays 5% as license fee i.e 35 cr. So only that much gets added to Jockey International’s topline).

Link: http://www.vault.com/wps/portal/usa/companies/company-profile/Jockey-International--Inc.?companyId=54484

36

Q3/Fy-13 Results out…

Total Income up 25.6% to 216.17 Cr from 172.09 Cr.
EBIDTA up 25.2% to 36.73 Cr from 29.32 Cr.
Net Profit up 27.8% to 25.42 Cr from 19.89 Cr.

EBIDTA margin is 17% v/s 20% (SQ-12) and 17% (DQ-11)
NET Profit margin is 11.8% v/s 14% (SQ-12) and 11.6% (DQ-11)

Total Raw material costs as a %ge to Income is 47.9% v/s 47.6% (SQ-12) and 49.5% (DQ-11)
Employee costs to Income is 16.9% v/s 15.6% (SQ-12) and 16% (DQ-11)
Other expenses to Income is 18.2% v/s 16.8% (SQ-12) and 17.6% (DQ-11)

Financial costs to EBIT is 4.9% v/s 3.9% (SQ-12) and 6.7% (DQ-11)
Tax Rate 32.2% v/s 31.1% (SQ-12) and 31.5% (DQ-11)

9M/Fy-13 v/s 9M/Fy-12:
Total Income up 23.7% to 654.4 Cr from 529.12 Cr (Fy/11-12: 683.41 Cr)
EBIDTA up 17.5% to 127.49 Cr from 108.53 Cr (Fy/11-12: 133.03 Cr)
Net Profit up 22% to 88.94 Cr from 72.94 Cr (Fy/11-12: 89.99 Cr)

Reported 9-month EPS 79.74 v/s 65.39 (Fy/11-12: 80.68)
Recorded TTM diluted EPS: Rs. 95.02

At 01:30 pm on 14/02/2013, stock on BSE trading flat at Rs. 3290/-

(Discl: Presented myself with a valentine’s gift of 1 Page!)

37

Decent results.

38

thanks deepak swamy for adding to page’s next quarter sales and profits. keep up the good work.

results wise it seems much on expected lines. I think price pattern pre results suggested some lukewarm results and hence with good results the buying and accumulating seems to have begun again.

39

decent results inspite of the other expenses increasing by 30% YOY. Growing net profit at 27% when the whole consumer sector is struggling is excellent!!!

We need to know what is the contribution of speedo on the revenue part? If it is minimal then i believe in the coming quarters, we can expect some more good news on the profit part.

40

Concur with Krishna. Despite high other expenses, net profit has shown decent growth. Feel Speedo has not contributed much.

Page’s predictable earnings growth makes it an excellent long term pick.