First of all, thanks for putting numbers/assumptions on Page as it helps in putting things in right perspective. I do understand and appreciate that most of active participants in valuepickr and especially in page have conviction that it is a great business (which I whole heartedly share) and is a goodinvestment at this price (by now, most of you know I have a slightly different take on it!). So, I will continue to wear skeptic’s hat and would like to raise few question both from the analysis and assumptions in the exercise. I hope, boarders take this in the right spirit and we continue to have healthy debate which brings out more analysis/data to take an informed view on the same.
Page caters to premium/super premium category, while my sense from the numbers is that you are referring to whole innerware market. I think, premium/super premium segment has less than 15% share (which is likely to grow faster than any other segment for sure)in the over all innerware market. So, 34% market share does look misplaced, unless we assume that Page’s products cater to all product range. In base case, we are arriving at market share of page at 15% of total innerware market which is close to 100% of existing shareof premium/super premiumsegment.
2)Currently, Page’s NPM is around 12%, which we areassumingwill remain so for next 10 yearsinspite of all major foreign brands entering Indian market and vying forfoot hold. I do understand that it will take time for new players to createdistribution reach and hence intial few years,it will not be difficultfor Page, but after 3-4 years of efforts,even newer brands (which are very well recognized in International market) will create scale/reach and eventually may compete on price.
In base case we are assuming CAGR 20% for 10 years without any change in margins going forward. I am sure, most us will agree, thatPage’s businessis neither an oligopoly nor amonopoly. Rather, competitve intensity of the businessis increasing. So, in my opinion, though these assumptions are not unreasonable, it depicts the best case scenario.
My last point is on “unknowables”. We all know, businesses go through ups and downs. Business environment and economics keep on evolving. I am sure, like all businesses, Page also will have its own share of challenges going forward. This is precisely the reason why Margin of Safety is so important. If you have margin of safety based on conservatively done assumptions, chances of loss of capital is minized. Most of the highly acclaimed value investors concur on one point that not losing money is half the battle won. So, my question here is, going by reasonable assumptions of growth and margin, what is the IV for Page and what is the margin of safety? I completely agree that we should not be fixated on any one parameter, but the real driver for decision on whether to buy at given price is margin of safety.
Again, I am very open to all kind of comments and actually look forward to understanding the IV of business and margin of safety. I will be more than happy to be convinced that on reasonbale assumption basis, Page at current price is great compounder while downside is limited.
I am not sure, what rationale others have given for page being expensive. but my limited point is, whether there margin of safety in Page by making some reasonable assumptions about business growth? I am sure, most of us do not want to get fixated to one parameter and would rather want to look at the “value” of the company. Secondly, any stock being a multibagger in last 5 years (as several people have mentioned to justify Page’s valuation) is not a good rationale for buying stock for next 10 years! So, let’s not anchor ourselves onto some outcome that has been achieved based on market/business condition that prevailed in past 5 years.
While arguments will be there on both sides, I suggest what was suggested to me by Seniors - buy small quantities on corrections, and check the RIDE for myself - instead of perenially undecided.I have started doing that from 3600 levels in May and again at 3800-3900 levels in Sep, post good corrections.
I think it’s not so much a valuation argument (Btw, Page numbers impress me the most among all FMCG/Brand plays) as much as an INVESTMENT STYLE that you CAN grow to be COMFORTABLE with.I am guessing you have also never invested in a Nestle or a GSK rich-valuation plays. I have always invested in ITC at ~30x since 2005 and almost always got 25-30% compounding every year for the last 8+ years I have held.
I am trying to get comfortable with PAGE Industries. While the 10 year picture can be debated/argued intensively, no one seems to be in disagreement - that the next 2-3 years are good to great for Page (before many of the IFs you have raised actually have a chance of playing out with any significance)
So, the argument goes like this, why not ride the next 2-3 years with some decent allocation (for me its like 5% types - when my usual high conviction bets are over 15% allocations) and try and get comfortable with this style. Beyond (or within) 2-3 years, who knows there might be a huge CRASH, or there might be a equally huge BULL market - which means we will anyways realign portfolios majorly. In the meantime why not get a different kind of experience - its not a blind bet right - if Page continues to deliver, valuations will more or less sustain - we will get our 20% compounding - and who knows we may get even 30%, or more?
Why are we not seeing possibility of PE contraction here??
Today consumer facing stocks are in demand... when they go out of favor this 40 PE can easily contract...
Assuming the next 5 years are super for PAGE... 25% growth, No margin contraction, same high dividend yield (about 45%)
FY13
FY14
FY15
FY16
FY17
FY18
EPS
100
125
156.25
195.31
244.14
305.18
So, EPS will triple from current EPS.
Now, what if PAGE sells at 25 PE then???
It has sold below 25 PE in most of the past years (as per screener), & at 25 PE... you can't say its dirt cheap (div yield will also be below 2%)
Based on these numbers, we will get 13% CAGR on our investment (assuming dividends are reinvested at 25%).
Is that great number??
PS- I have assumed great future for PAGE's business. Unlike Dhwanil, I haven't assumed bad possibilities like competition coming, margin contraction etc... so if those things happen, we all know what will happen to stock price.
25 PE isn't that cheap that I will go & mortgage my house & buy page stock. Or you guys find 25 PE, dirt cheap for a business like Page??
"You PayA VeryHigh PriceIn The Stock Market For ACheery Consensus"
As I mentioned before, it totally depends on your investment style and risk taking ability. If you are not comfortable paying up, just play with a small sum, but do experiment with a style diff from yours - where you have seen others make consistent money! I have seen people consistently making money in cyclicals too- so I am wiling to be out of my comfort zone and play the sugar cycle with a small amount. Unless I try, I won’t know, I won’t learn!
There is no one style that makes consistent money in markets! I know so many with so many different styles:) that work!
Re: Page rich valuations
As for me, PE contraction or expansion happens - on performance divergence from expectations built into the stock price. In a market where the Index has gone nowhere and majority of stocks have been butchered - Our ValuePickr kind of stocks have held rock steady and greatly appreciated too - only because of 1 factor - consistent performance with strong visibility!!
Others like Raj have given the answer before - the time to walk away from PI will be when performance falters. I agree that as long as the business keeps performing and visibility is strong, it’s a good idea to keep adding Page Industries on declines. The odds are ON for Page to keep delivering returns consistent with performance.
Consistent quality cannot come cheap - unlike what may be we are used to, in our undiscovered small caps.
People who are holding it wont sell it so soon, because of lack of suitable opportunities elsewhere. By this I mean, where will they find a growing business, with good management and nice balance sheet. For people holding it, its a peacefulcompounder. People wont liquidate there Page positions , to go for a new opportunity. Why go intouncertainties, when you have a steady compounder.
See…Page is not a stock you sell unless, management falters big time…that does not seem to happen atleast for the next 6-8 quarters.
Till that time, enjoy the ride. Its a stock you have to own to understand.
I think there is consensus that Page is a “good business”. The disagreement is on valuation and where it is a good “buy” at current price. My personal view is that it is slightly expensive but it may remain so if it continues to deliver.
For building a new position, my suggestion would be to take baby steps. Forexistingposition, I willcontinueto periodically add after results.
My worry is that this kind of business does not earn very high margins in other countries. For Page it is 12% NPM + 5% royalty which is very high. For the Jockey parent in the US, they make a cool 5% for free, whereas there full fledged business earns does not even earn 5% margin.
I do not know what will change this for Page, may be competition. In good times 5% royalty may not worry much, but during bad times this royalty can be troubling. The competitor may have cost advantage due to saving in royalty.
I will ride page things are going good. High margin business (17% in this case) naturally attracts competition. Lets see if Page can retain its turf or how things pan out.
Anyhow, There is hardly any perfect business which does not have any doubt for future.
“You PayA VeryHigh PriceIn The Stock Market For ACheery Consensus” Where is the consensus? This forum itself there is huge disagreement.
From my limited experience with Page, I too noticed it is one stock that gets revalued atleast 3-4 times a year, mostly in connotation with results build-up expectation and those seeking sure-shot trading opportunities:-)
That invariably gives us better opportunities too.
[quote="desaidhwanil, post:102, topic:579763182"]
> Hi Raj,
>
> First of all, thanks for putting numbers/assumptions on Page as it helps in putting things in right perspective. I do understand and appreciate that most of active participants in valuepickr and especially in page have conviction that it is a great
[/quote]
Hi Dhwanil,
Actually i also agree with you that it may not be a great to add at this price :) I have been holding since some time now and look for temporary weakness to add more. While i keep watching the business performance.
1. Which category does Page cater to ? - This is a very interesting topic for me because last time when i was doing scuttlebutt, talking to many shopkeepers in the Eastern India market, one underwear shop keeper who stocked many brands but was displaying the Jockey display board very prominently, told me this. When a customer walks in for a piece of underwear in lower price range from other brands and then she offers a Jockey product which is more or less in the same range then the customer readily grabs the jockey. I was quite taken by that comment. Now on your querying i did a small price survery on the net and this is what i got.
Method of Survery : Google search for product by brand and then pick a reasonable pack size like <5 and with the lowest price available per unit.
While it's good for us as investor's that they maintain their brand image of being a premium/super premium category product, they have offering at even entry range and it's through this route that they often get new customers who later buy more costlier value added products. My personal experience with the brand also matches with this. Is this a strategy followed by any other consumer companies that we know of ?
2. I agree with you, there will be a fight among brands and the same NPM is not guaranteed 10 years later. While doing this survery i realized that there are already at least 10 internationally reputed brands which have entered the market.
Like : Levi's, Fruit of the loom, Hanes, FCUK, Tommy Hilfiger, Calvin Klein, Playboy, French Connection etc..
I didn't do detailed search but almost none of them seem to have product in the entry range , they are all competing in the premium category except probably Hanes.
Another way to think of them is, this competition is helping expand the category itself. May be few years back ppl would be reluctant to pay so much for a innerwear but things are changing and they will change even more, with so many players trying to expand that market. Who will be the eventual few winners. Difficult to tell at this point. But i think high probability, Page will be one of them. India is known to be a difficult market in terms achieving distribution reach. So we need to watch.
This is good work Raj. Yesterday I was trying to check pricing at Jabong and Flipkart for men’s innerwear and came to the same conclusions - that there are entry level 1 pack offerings by Jockey even @ Rs 104, and 2 pack offerings @199…so it does compete very effectively with the Rupas and the Euros, if not a Lux!
It is true that the Hanes and some of the others are also following the same strategy of pricing entry-level offerings at Rs 150-200.
So in the online retailing Page is trying to compete effectively with teh Rupas and the Euros while Hanes is trying to compete effectively with Page!I plan to follow-up with the local shops and follow-through with this very important finding.
While Pricing maybe one aspect, creating the distribution reach to match Page is a different game altogether.
I think that Ayush brings up a very important point regarding inventory in the KKCL case and apparel companies in general. Supply chain management is the most important component of any apparel business and makes or breaks a company.
If you study the case study of Zara, it excels in SCM wherein the clothes don’t last for more than 6- 8 weeks on its shelves. This tight control over their supply chain enables them to replenish the shelves faster and prompt repeat purchases thereby increasing sales per sq foot of retail space and also reduce obsolescence as the tight cycles enables them to tweak supply according to market demand. This is what makes Zara the most profitable apparel company in the world.
However, in KKCL i don’t think that you can attribute the low inventory costs to smart management. It is the nature of the business. Killer jeans in three shades with five waist sizes leads to 15 SKU’s. Not a very difficult number to manage. Compare this to Zodiac which does trousers, shirts, ties,cuff links, etc etc. The complexity is more.
Page also benefits from the same product/ industry characteristic. A brief in white in 90-95 cm is very standard and will not go out of fashion. It hasn’t in the last 50 yrs at least. There is almost negligible risk of obsolescence.If it doesn’t move in one store or is over stocked, it can easily be moved to another with no loss of value.
Therefore a business like Page requires very little skill in supply chain management. It is more a business of managing the costs and the distribution. As Peter Lynch says, it is a very simple business that any idiot can run.
Having said that, the leisure wear segment is exposed to the vagaries of a low level fashion change and also complicates the supply chain a bit. It would be interesting to see how it pans out.
Thanks Donald for nudging me to think about the discussion on Page from a slightly different perspective of “investment style”. I like this thought of getting comfortable with an investment style! Excellent point indeed. So, yes, probably, the difference in perception of “value” is coming from difference in investment style ( and hence difficult to bridge!) that I have grown comfortable with for last few years. As you have correctly guessed, I have not had the “first hand” experience of finding steady compounders/multibaggers from 30/40 PE companies and hence am taking time to develop conviction to invest at this price (and to reiterate, it is just not about PE but rather about difference between price and value, and margin of safety!). But, yes, I have realized that people have made tons of money by investing in extremely strong businesses even at rich valuations. So, good idea to get some first hand feel of such investment style.
Having said this, I feel strongly that in current market scenario, If one looks at the opportunity set available to me at far more attractive valuations, why should one make significant capital allocation to companies where one has to pay rich valuations when one can easily invest in equally strong (and growing businesses) at much better valuations?I am sure, some of the stocks discussedon valuepickrlike Cera, Amara Raja, Mayur, Astral etc can also give 20-25% growth, have large opportunity size and reasonably good pricing power. On the other hand, prima facie,there are number of equally high quality businesses (e.g Asian paints, Titan, Pidilite) with excellent management pedigree and in some cases operating in duopoly/oligopoly (hence much better pricing power) shall also be strong contenders if one is willing to “pay up” for quality. Of course, one need to dig deeper to analyze relative merits/de merits of these businesses (which I am planning to do as such).
So, though I buy into your idea of “experimental allocation” to page (or any such high quality-rich valuation) to get first hand feel of a different investment style, I will continue to challenge myselfon capital allocation merits of page (and such similar high quality-rich valuation businesses).
Interesting Donaldji, you can please elaborate on your personal investment allocation. especially how do you increase/ decrease allocation based on valuations/ visibility etc.
Could not find any thread on your investments ?
So, the argument goes like this, why not ride the next 2-3 years with some decent allocation (for me its like 5% types - when my usual high conviction bets are over 15% allocations) and try and get comfortable with this style.
We have to request Admin to formally issue a code of conduct on dropping the Ji’s:)
I might give away the impression of knowing more than I actually do. My active experience in markets is very minimal - just over 4-5 years. Besides I am a highly aggressive but calculated risk-taker. Till I have a complete experience of another bull-bear cycle I will not start any Portfolio thread;). Besides I just cant answer complicated questions folks ask of the type - Hitesh keeps answering happily, easily;) . if I were to try to answer with his clarity - it will take me whole days.
Re: Capital Allocation style
I am a very earnest student and apply what I learn form my Seniors to the T. So the Capital Allocation thread is exactly how I go about allocating capital between portfolio bets.
Re: Portfolio Bets
Suffice it to say I clone the ValuePickr Portfolio to the T again. I like to stick my neck out, follow what Seniors are in agreement about, and learn from the process. So far it has been a one-way high, since that thread started!
I can perfectly understand. I am almost in the same boat as you:)
The only difference probably is I get to spend a lot of time in the company of astute investors like Ayush, his Dad and Hitesh. The one thing that they have inculcated in me - to be open to all types of investment styles. When I started interacting with Ayush - I was only into large caps with a 20-25% CAGR. But he had a 30-35% CAGR from small caps!
Today I am 80-90% into small caps - and hooked - with great CAGRs - only because of their influence. In the process I have become OPEN and met many more senior investors (managing huge funds)with great competence and equally good CAGR from consistent performers - but richly valued, or say cyclicals or just industry domain competence.
I will always remain a small caps guy perhaps - because I find more of a thrill in uncovering hidden gems as a process, than so much from the performance numbers.
But at the same time - I will try a 5% allocation with cyclicals and I will try a 5% allocation in Page, apart from ITC - ride them and be richer from the experience -and hopefully a more well-rounded balanced investor, eventually.
No one is making a case for investing in Page currently. My suggestion is whenever there is a significant correction - and there will always be corrections - bite a little, to check out if these work for you, and can you be comfortable holding richly valued businesses - with the caveat that you have done all diligence possible on the performance sustainability/strong certainty - the visibility part.
Nice market size estimations by Raj. Would like to point out few things.
850Cr. FY13 sales of Page is not MRP sales. So on MRP that actual buyers pay, the sales will almost be 1300-1400 Cr based on high margins inapparelbusiness. So Page actually has higher market share.
The projected growth of 9%. Does this take inflation into account? Or is it just volume growth. Considering our inflation figures and low penetration of organized innerware, this seems very low number. If this is projected volume growth then the market size equation will change dramatically.
It’s the women’s innerware market that’s key and Page is making good progress in that area. Even with competition, it can manage to get significant market share there and that again will change our numbers in big way.
Speedo is just 16 Cr in FY13 and growing at 40%. It can reach 4-500 Cr in a decade.
I always keep Hanes, USA in mind when considering how big page can grow to. With 1/4th India’s population and similar prices of innerware (only a little higher than what we pay in India), Hanes does 2 billion $ in US sales. And the market has almost 10-15 competing brands. So Page can definitely do a 12,000 Cr sales 8-10 or 12 years from now.
On Jatin’s point on PE contraction, if economy improves in next 5 years and there is bull market, Page will grow at 40% and can retain current PE. If economy continues like this, 99% stocks in market will earn very low returns for their investors as it’s happening currently. This will continue the PE premium that stocks like Asian Paints, Nestle and Page enjoy. I am not justifying high PE though and Page is certainly expensive.
Regarding high margins, Page enjoys very low labor costs. It has 15,000 workers and calculations suggest the average salary of just 8-9,000 a month.
Overall my opinion is Page if bought at this price will certainly not give 30% CAGR for long period. But if we keep 2-3 years view and ride it till growth is good, it can certainly be held for 4-5 years and still give us 25%. We should follow method suggested by Donaldji. Buy it on 8-10% falls from top.
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