Making products with a shorter lifespan could very well be a strategic move by the company.
This gives them a better margin and the customer will come back for a refill sooner. Some may complain, but if their products are at par with the market, then he will find his way.
It noteworthy though, how it has corrected 50% from the top and still has a high valuation.
Notes from Page agm notes:( I may have missed few points…no guidance for growth… they have concall at 4pm …May get some detail)
Business facing headwinds currently…macro and micro level challenges +…even some of FMCG companies are having problems ( we call ourselves FMAG company…A- apparel)… we are doing whatever is possible from our side.
Technology investment: can’t benchmark us against other apparel companies. We are already invested/ doing work to improve our IT management…ARS system to map against demand from distributors, sizes required and time to deliver. Doing pilot study with 40 distributors…extending to 2800 distributors in future…improve efficiency, availability of various sizes/ materials to customers…
Royalty is fixed as %( 5)… no changes
Growth guidence : no specific comments.
Competition : was there earlier also…its good for us…increases brand awareness and penetration…not worried.
Region wise distribution of sales : can’t be shared.
Gross margins : current margins will be maintained
Outsourcing: quality is under our control …our people will be der at manufacturing site to ensure quality .
Own manufacturing unit at Mysore will start by fy20…Andhra plant next year.
Kids wear: we are investing in top management, distribution…expect good growth here…overall margins will be maintained
Women’s wear: no of SKU will be higher due to different sizes…not affect the working capital days.
Interest cost of loan is 2%…(TUF benefit).
Disclosure: tracking position
If I ever get to post a quarterly result, and that too after 60 minutes after its release, then you can understand, how much disinterest has developed in a scrip. Page is in that mould for several months now and this result, may not challenge that mode in a serious manner but nevertheless will give hope (IMHO), esp after comparing with prior quarter.
Here is the Q1 result, that came out at about 16hrs, post market
Discl - have a small position
I was kicking myself for exiting @15k during CY15 and now it is approaching the same level after 4 years if brokerages’ target prices are to be believed. The only thing that has changed is cyclical outlook and competitive intensity. I was of the opinion that page was doing a degree of channel stuffing when it grew its volume by 20% yoy and now it seems that liquidity issues have made dealers/distributors to destock somewhat especially when its total SKUs have gone up a lot. I don’t think sales to the end consumer is contracting. I think Page needs to improve its demand/inventory management to kick start a new growth cycle. The company realises the same and should be out of this bother by the end of the FY20. I guess @15k it would be good buy for 20% compounding.
Disc: No holding as of now but on watchlist
I remember Planet fashion stores (Madura garments) selling Jockey before!!!. Of course now they removed jockey and selling their own van heusen. In my recent visits to planet fashion, I noticed that sales guys never made an attempt to sell the inner wear. Not sure why they were not interested. Considering its a new category, I was expecting they would push it.
I consider van heasen the only credible competitor to jockey. But I am not sure about the profitability of van heasen. In fact this group has some great products ( LP, Allen solley etc) but financials are not great. They have this buy 2 get 2 or 40% discount ( for shirts and trousers) throughout the year.
It’s not just distributors. Mens segment volume growth has been reducing for past 4 quarters. In Q4, overall volume growth came down to 1% and Mens segment de-grew. Points to saturation in Mens ware which is bread-and-butter of the company. Women ware shall do low single digit growth. There is good scope in Kids segment but that’s still small.
A few things have changed from 2015. Segment saturation and penetration is one. Market expectations on growth another. We can’t expect Page to get same valuation it commanded in past. 20% growth in one of the year is doable. 20% compounding is a lot to ask for.
Disc - Was invested. Exited after recent Q1 results. So my opinions are biased.
My comment is not about Page. But a general one. One thing I noticed is that, people get influenced by the price action ( on either side) . At its peak price, it was very obvious that page was overvalued and no sensible person would have bought it. But think about a person holding it. Even he would have held it. Because that time the business was doing well. Then you read theories like, quality comes at a price, addressable market size, PE is misleading etc. Of course other problem is the reinvestment risk. ( Need to find some other company to replace it with).
A similar thing happening now with names such a Asian Paints, Pidilite, Nestle etc because they are making new highs. Everyone uses these names now in their talk when it comes to long term, compounding etc. But if you look at the business performance of these names over the last few years, its nothing to write home about.
To me the above is the crux of any stock, not just Page Industries. Unless one can decipher (to within a reasonable range) what the implied expectations of the market are from the underlying business, buy/sell decisions tend to get more influenced by the current mood/narrative of the investor community.
For a free cash flow, secular business like Page the reverse DCF can be a very useful exercise. If your conclusion is that Page needs to grow business at 20% over the next 10 years to justify the current valuation, you have a probabilistic answer if not anything else. If one had done this exercise when CMP was above 30,000 the answer would have been obvious to most people other than the staunchest believers in the story. Whether you sell there or not is a subjective call but being aware of what is being priced in is very important, that way we take conscious decisions and not make unconscious mistakes.
Else we just get caught up in the frenzy of a quality business that everyone else seems to love and hence no price is high enough. I’ve made this mistake in the past and would be very angry with myself if I made it again.
Disclosure: Not invested but tracking closely
DCF and reverse DCF are less useful.
To my mind, the question that one needs to answer here is weather kids wear, women wear and athleteisure have the same salience as men’s inner wear. If yes then investing at cmp works, else…
Maybe the key learning (we will know in some years) could be that good distribution can only take you so far in a new category(ies). Post that, real hard work starts.
The real hard work for Page has started now.
Happy to get counterpoints and more views here on my the will succeed in new categories.
Simply speaking, buying a 50PE stock is a job of professionals, through professionals.
If the growth falters price will fall hard, and there is plenty of time for that to happen. Meaning, one invests for the yield he gets, around 15%. FDs give 6%, stocks give more to adjust for the risk.
For a 50PE stock, a 15% Yield is 15 years away at 10% consistent growth in EPS. 15 years is plenty of time for a disruption. No room for naivete.
When you make projections/DCF you pretty much factor in all of these points - else how does one arrive at the numbers? You need to consider -
As is the case with any projection, more thorough the scoping out exercise, more reliable the model. Making a DCF is not easy, it is not meant to be easy since you need to have answers and views to a whole lot of questions before you starting building your model. It takes me 10-12 days of structured analysis to firm up my inputs to the DCF/reverse DCF, making the model just takes me half a day. Of course one will need to careful to see if the DCF mindset is appropriate for the business in the first place too…
Do try it once if you haven’t; it is an extremely structured way of thinking about category expansion, balance sheet quality and eventual outcomes - all in an extremely numerate way. Eventually when it comes to decision making one will need to quantify the bet to the extent possible
If you have tried and have concluded that it is a pointless exercise, ignore my message. Most good retail investors I know do no structured work when it comes to valuation and just base decisions off heuristics. May work very well for BUY decisions but SELL is a much more complicated decision, no wonder our outcomes are sub optimal most of the time!
Helpful. Thanks.
Please also do share your thoughts on each category of Page and potential business scalability.
Xyxx brand story, their products are priced reasonably and have better market acceptance than Jockey,( read Amazon reviews). Looks like Zerodha moment for underwear market. Disclosure: Exited page after Mar-19 results.
Repeating what I wrote in my previous post - “Of course one will need to careful to see if the DCF mindset is appropriate for the business in the first place too…”
I would apply DCF to Page but not to Aarti Industries for the simple reason that the structure of the business is different. Similarly I would apply DCF to Abbott India and HDFC AMC but not to a bank. I hope the point I am making is clear. Applying DCF to a business like Amazon - good luck!
For the record I never used DCF or reverse DCF till 4 years ago and I always went by other metrics like PE, OCF yield etc. Even now DCF/reverse DCF is one of the 4-5 different measures I use to evaluate and decipher the expectations baked into stock prices - triangulation works better any day.
That said the article makes some very inane points. Obviously DCF won’t help make amends if the estimates of growth of a business are off by a huge mark. For that matter nothing can help if growth estimates are off - and more often than not we will be off to varying extents. Which is why a reverse DCF mindset works very well, start with the CMP and then figure what the business needs to do to justify the price. Then ask yourself what the probability of a business growing at 20% over a 15 year period is - this is exactly what the Page Ind stock price was implying at 90 PE. All it takes is one average year and the multiple crashes to 55 and you are left sitting on a 50% loss from the peak in a high quality stock where you got the business and management quality analysis right but did not have a method to figure out what was being priced in by the stock.
Forget DCF, if you can get some other construct which allows you to estimate what the implied growth expectations are from the CMP please follow that. I use a triangulation approach and never rely on a single construct.
The real problem most of us have is that we get carried away by the market perception of quality and jump onto a bet where the probability is loaded against you. High growth (20%+ growth) eventually coming off to lower growth rates in the medium term is something the Motilal Oswal study covers in detail. Whether this happens to Page too is what the market is evaluating right now…
As for your other point on categories and growth rates, I’ve pretty much run the numbers for the innerwear category and already posted on this thread but not for others like Speedo etc yet. I will post on the other categories soon
Page has created/got a market cap of 20117 cr. In my opinion, that is quite an achievement considering its primarily an inner wear player. ( Now whether it deserves that market cap is a different question). Just to put things in perspective, the below is the other players m cap. VIP 5469 cr, Lux 2556 cr, Rupa 1422 cr, Lovable Lingerie 105 cr, Ashapura Intimates ( which was supposed to be the next page and now suspended) 7 cr.
Here are couple of big players who are into branded apparels and retail chains, but sells inner wear too.
Aditya Birla Fashion 15161 cr, Arvind Fashions 2993 cr.
Buying a high PE stock, in the name of growth, is something for the thorough professionals who complete understand the stock and it’s industry. Else, it is just a gamble, and as they go, it may or may not work out.
A business ought to have a unique moat to sustain high growth. It is a big task. A success like Infosys’ is rare, and not to be cited as an example.
I think what is more suitable for a retail investor is to invest in established businesses which reach their median PEs, like they were in 2010 to 2014. And pay less for future growth, preferably nothing at all. Let future growth act as MoS. This would make holding a stock in all market conditions possible.
Once the high growth peters out (which I assume can last for a decade more), it will turn out to be a dividend stock. Warren Buffet holds Fruit of the Loom (Hanes, Jockey, Fruit of the Loom are the three preferred brands in US). Brand name, high cash flow, throws out huge dividends as the market is saturated and the high growth phase is over. Page will follow a similar trajectory.
I think what you mentioned just might be the best case scenario. Another possibility comes out of the fact that the stock’s 12 month Trailing EPS is showing no growth at all! This might raise an alarm with the early investors who have remained loyal due to the growth, which quickly turned from good, moderate to dull. Let a few quarters go by, if EPS growth is below 13%, the stock price should see a tumble to much lower levels. A PE of 50 is too much for a stock with lukewarm growth in EPS.
@jamit05. I completely agree with you on the valuation of almost all high quality businesses in India. But we seem to be talking it about way too often. Also, if it were so easy ( ie buy company ABC at X PE), then anyone could automate it. Today everybody has access to data/info. I remember reading somewhere that Buffet buying companies where he is ready to give up returns of 2 years or so. This implies time correction for the companies which he likes to buy but overvalued ( Of course that doesn’t mean we have to follow him. And not everyone is a buffet.)
It would be of great help if you could talk about 1 company that you think is undervalued now or bought in the 2 years. This may sound like a stock recommendation. But trust me thats not the intent. (Personally I never buy based on somebody else’s recommendation). Its purely for educational purpose. It will help other members also in valuing companies.
