I forgot to make disclosure - Holding Page for 2.5 years and its 3 bagger for me so far.
Any idea what is long term margin of Hanes in the US?
Nikhil,
Thanks a lot for your inputs. Greatly appreciated as they are value-additive and takes forward Raj’s and others earlier work.
Good points on PE contaction/expansion/sustainability for Page. I broadly think on your lines.Hope to see you participate more often at ValuePickr.
And please drop the -Ji part. Didn’t expect that from You. Since all senior valuepickrs do not like the appendage, request goes to admin for a formal dictum on being on first-name terms with everyone.
I think you guys are over researching Page. It is a damn simple business. Only thing to research is potential threat from the competitors. I don’t understand what individual perspective about the valuations assigned to Page matters. After all it is the market which determines the value of the stock and historically it has given high valuations to Page.
This is well timed:
The summary:
A great company is one that generates high return on capital, has got free cash-flow and over a period of time distributes that free cash flow as dividends for the shareholders
Manish,
I am a late entrant into the Page story.
I agree with you broadly that not much research is needed for perennial favourites like Page, HDFC Bank, ITC kind of perennial market-favoured stocks and most have enjoyed easy rides. Its easy for that person enjoying the ride from say 2009-10-11. But for others who have watched form sidelines, wanting-not-wanting to get on the bandwagon - does it make sense at these or even slightly lower valuations is always a question - mostly left un-answered:).
Decision methodology differs from person to person. Unless I know the business pretty well and have a good visibility on competitive edges/sustainability/looming competition - I will not have the CONVICTION to HOLD/on or ADD significantly more at sharp declines.
But once I have that kind of CONVICTION for next 2-3 years, if there is say a 30% correction along with a crash in markets - I will be very happy to lap up what I can. Will we be able to say as much for those who have had an easy Free-ride in Page, and not needed to bother to know more on the business?
I hope you appreciate the different viewpoint from some stubborn value-investors like us - who insist on graduallyknowing the full story, along with experiencing the good ride (which you guys have had:) and we are trying to),better than the average investorin Page.
That has been the ValuePickr EDGE in every business we have recommended, and we intend to go the full distance in Page too.
I know many old-timers in Page are bored at our attempts to re-invent the wheel, but please bear with us with an indulgent smile, as we complete our diligence.
We may as well come up with a few surprising insights (even for old-timers in Page). I think we must encourage the work being done by Raj, Raj Panda, Dhwanil, and others like Nikhil who care to add-value in an attempt to bring everyone on the same PAGE (pun intended:-)) on PAGE.
On the same site in Basant Maheshwari stock picks, some numbers have been twisted just to glorify the man. It says the Hawkins has given 42% return on a Y0Y basis and a 68% return on 2 year basis.Hawkins has actually hardly given any returns in two years. I am quoting from somewhere (please don’t ask) from last month (so its not my original).
“Again, a good company with a good track and decent future. Whatinvestors in Hawkins fail to understand is that the company remains a 20% grower. In noyear over the past 7-8 yearshas Hawkins grown more than 20% (in sales). If a longterm investor bought Hawkinstwo years back (traded at Rs.1617.55 on 19th September,2011), he/she would have a return of 6.99% (closed at Rs.1730.65 on 20th September,2013) in two years. If one includes the dividends (Rs.40 in FY 12 and Rs.50 in FY 13),the return comes to 12.55% in two years. This is at par with a fixed deposit. Whytake the risk of equity?”
In any case even from last year (1 year), the returns on Hawkins are actually negative 2.36%.
The summary:
A _
shareholders
Donald,
My comments were no way intended to discourage research on Page. I simply love the way you guys are debating. Earlier, I had never been a research oriented investor, till valuepickr’s(& Hitesh’s) esteemed company. The valuation assigned to Page by the market will remain high. Adding on the dips is the only way to invest in Page without looking at PE. I feel, the only thing to monitor is competition. At present it does not look threatening but in future if it props up, probably that is the first sign to exit Page. But still I know you will not leave anything unturned/un-answered. It would be good for all of us if you come up with some surprising insights. I appreciate the efforts put up by Raj, Raj Panda, Dhwanil, Nikihil, you and all. Keep it up, I am reading it with pleasant smile(unless you dig out some skeletons).
Hi Nikhil,
Thank you & everyone for your appreciation.
You have put up very good point & am loving the discussion 
1). Agree, i had not thought of this point. Numbers will have to be re-worked keeping this in mind. In your experience, what would be the distributor+retail margins for a page kind of product ? 30%-40% would be right number ?
2). I think BCG report should be taking inflation into account while saying 9% growth. but yes, it looks a little on the lower side.
7). I quite agree with your point on labor cost. Co-incidentally in Bangalore my home is very close to their one of their factories and i see droves of villagers going to work in garment factories daily. Looks like the labor cost advantage is there to stay for some more time compared to developed countries.
This report “The Tiger Roars” from BCG which is quoted in the survey could be a good read to find the broad trends:http://www.bcg.com/documents/file97584.pdf
One more data point which makes me hopeful on Page as a long term story is the India lagging behind most nations in per capita expenditure on innerwear (90% below China/Thailand). But this is also related to our fashion tastes Let’s see how it evolves over time.
Lalit,
I have not looked at long term data but Hanes net margins for past few years are 5-6%. Hanes is mass market brand in US and does not have premium feel thats attached with Jockey in India. Also the distribution model in US is much more different than in India. Giant retailers like Wallmart/Target/JC Pennydictatethe rules for pricing and Hanes will not have same pricing and negotiating power that Jockey India enjoys. I feel Jockey’s margins in India are supported by lower labor costs, lower admin and distribution costs etc. And margin is sustainable.
Raj,
Good point on Indians expenditure on innerwear. I think distributor+retail margins should be around 50%. I remember reading this in a Page investors scuttlebutt few years back.
Overall we can reasonably conclude that Opportunity size for Page is big enough for a decade atleast. And investors need to keep monitoring the story for any negative signs.
Amazing article by Prof-
http://fundooprofessor.wordpress.com/2013/10/11/october_quest_2013/
I tried to apply the Asian Paints DCF valuation method that Prod used to Page & here is what I get-
| PAT | PV Factor | PV | |||
| Growth | 25% | 2013 | 112.53 | ||
| 2014 | 140.66 | 0.87 | 122.32 | ||
| 2015 | 175.83 | 0.76 | 132.95 | ||
| 2016 | 219.79 | 0.66 | 144.51 | ||
| 2017 | 274.73 | 0.57 | 157.08 | ||
| 2018 | 343.41 | 0.50 | 170.74 | ||
| Discount | 15% | 2019 | 429.27 | 0.43 | 185.58 |
| Terminal Rate | 5% | 2020 | 536.58 | 0.38 | 201.72 |
| Future | 5634.14 | 0.38 | 2118.08 | ||
| 3232.98 |
I assumed 25% growth rate till 2020, 5% terminal growth rate & 15% discount rate.
Based on this, I get 3233 crs value, much less than Page's current mcap of 5000 crs.
So, either Page is overvalued or my assumptions are conservative.
IF I assume 35% growth till 2020 (instead of 25%), then I arrive at current Mcap.
Hi Jatin,
If you do a similar calculation for all steady compounders(page, nestle, asian paints, pidilite etc,),probably all of them will fall in overvalued zone. Market is paying for certainty of earnings. Companies with lumpy earning(there are huge number of them) will appear cheap with DCF. To me DCF is more of an academic exercise.
Now you have to take a call which route you wish to follow in the name of margin of safety.For me the so called high overvalued companies are working well since last 4-5 years, hence my faith in them is continuing.
I would rather keep an eye of sales growth and when they start stagnating/declining, then will take a call what to do next.
I too agree that DCF is an academic exercise. Yes it can be used in some cases as one of the parameters. But it’s not everything. Market does not think only in terms of PE or PB or DCF. The valuations also consider quality of business, moat, promoters, enthusiasm, pessimism etc. All these things cannot be valued accurately. 1 rupee earned by Satyam is considered worth much less than same rupee earned by Infy.
For example, Yes Bank shows 5-6% more PAT growth than HDFC Bank. Does it get better PE/PB? Similar cases are Canfin vs Gruh, LICHF vs HDFC, Lovable vs Page and many more. With DCF, nobody would dare buy Nestle or asian paints or ITC. But people still made money in these stocks for last 4-5 years.
It boils down to what an individual is comfortable with. If I were to see a list of great valued companies based on DCF,I will not touch some of them with a long stick. But some investors will. And thats the difference. Afterall different opinions make market.
The latest initiate Coverage report on Page Industries from Kotak is the best I have read so far on Page. A dedicated analyst with in-depth coverage throws some great insights, a must read for all Page enthusiasts.
Great set of results!!! Consistency is the trump card for page definitely
Sales increases by 30% from 223 to 290 crs (YoY)
Net profit increases by 33% from 30 cr to 40.7 (YoY)
EPS at 36 vs 27.
Interim Div of 15/- per share
Half yearly eps of 75.3. They can easily do an EPs of 135 for this year if this trend continues.
Page today crossed 5200. Thought of why the market is liking it more and more and did some quick analysis. There is always some thoughts or doubts about page - can this growth sustain? Will not competition eat its market? Will not inventory be a problem? Will not be there more competition in this space?
MNC Competition
First of all, competition from Global MNC’s are still far far away. Fruit of loom has closed the shop in india. Link provided -http://www.business-standard.com/article/markets/page-industries-hits-record-high-113112700342_1.html
Next is Hanes. Arvind ltd recently acquired indian operations of hanes inc.With the deal, Arvind Lifestyle Brands, a subsidiary of Arvind Ltd, will market and sell branded apparel essentials under the Hanes and Wonderbra brands in India.They are targetting 3% share in the next 4 years. The company is targeting revenue of Rs 500 crore for Hanes brands, aiming three per cent market share, in the next four years. This would not even be 25% of page’s total revenue at that time once speedo starts contributing.
The link provided -http://www.indianexpress.com/news/arvind-acquires-india-ops-of-hanes-brands/1072764/
Strange that Levi’s is not making money in India. This link is a year old though and concentrates on denims.
“The not-so-good part is that the Indian operation is losing money, with accumulated losses of some Rs 127 crore.”
Indian competition
Indian competitors could not match page’s growth for this quarter:
10% decline for Maxwell Industries Ltd and a tepid 5.1% increase for Lovable Lingerie Ltd. Rupa&co sales were flat for Q2.
Clothing Style
Page is no more a inner wear company and is on the path to becoming a clothing style company. This could be substantiated with the following:
The leisure wear segment continues to witness strongest growth rate at 57.7% yoy to `85cr for Q2. This is the next big thing for page.
Page has aggressive expansion plans of manufacturing 196mn pieces pa by FY2017E and 210 new product launches in pipeline to hit the market in the next 2-3 years.
In the AGM, they had mentioned that kids wear segment is still in nascent stage and they are just scratching the surface. There lies a huge opportunity for page there too.
Company aims to target 70% of the swimwear market from the current 200 crores in the next five years which is growing 20-25% annually.
Price increase in November.
Tier-3 cities focus
Interestingly company’s 45% revenue of sales comes from tier - 3 cites -
Link -http://www.businessworld.in/news/business/corporate/thunder-down-under/1148281/page-1.html
finally these words instill confidence on the page’s employee relationship:
“My goal as a leader is to ensure an environment and a culture founded on mutual respect, where everyoneas contribution is important, regardless of the rank or type of job,a he adds. The MD says such an environment instills a sense of bonding and belonging, not just as employees but as members of a family.”
Investors holding it should enjoy the ride.
**
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Pls note i am not saying it is a buy/sell at this price and it is just to get views on why page is always trading at premium.
Disc: Invested in this stock.
1 Like
If you compare Page to any business currently, it is way way ahead. But the valuations are making me uncomfortable. Would one get a 25-30%+ return from current prices is a moot question? If the answer is no, why should one be invested in Page and not shift his/her money to other high growth businesses?
Speedo…!! Sports wear will prove to be a great growth engine for them.
Men’s segment’s growth will be lower…For Ladies segment, they will grow decent…But look at Sports Segment. Speedo today is what Jockey was 10 years back.
Page is investing in Speedo and soon they shall have a phenomenal brand in Speedo itself.
As per 2013 AR, swim & related equipments market is just 200 cr. And PAGE derived 16cr from Speedo in 2013. So for next 3-4 years atleast Speedo won’t help PAGE much in driving revenue. Whats is driving sales is leisurewear. Its growing as a % of revenue and growing at brisk speed.
PFA data from 2013 AR.
PAGE_Qty-sold.xlsx (10.6 KB)
Hi Sunil,
A large majortiy of stock market also seems to asking the same question for a very very long time now !!
I recently sold off a major portion of Page Inds at close Rs 4400 since it was not making any moves ( it was almost 20% of my portfolio), got an opportunity to buy at Rs 4000/- but reasoned that it is still very costly and left that opportunity.
And now the stock has zoomed to dizzying heights.
What seems to work in Page’s favour is this :-
- The company has no competition threat in the near future.
- Growing at steady 25% plus rate.
- Regular dividends
- Is in very strong hands who are very reluctant to sell the stock. So even if the market crashes, Page may be one of the last few stocks which someone would sell part with. ( I committed that mistake).
This stability in the stock may be one of the reasons that the market is paying a high premium to Page in this uncertain market. If you compare this to any other stock, the first question you should ask yourself, what %age of your portfolio are you going to allocate to other stocks.
If you are comfortable allocating a large portion of your portfolio to other attractive growth stocks then one should go definitely go ahead.Small portfolio allocations to high growth business will not make a meaningful difference to the bottomline, especially if you consider capital preservation alongwith growth.
This is my personal view, please correct if I am wrong.
Rgds
Vijay