Remains financially strong and net debt free–Page Industries

Update on the Indian Equity Market:

On Monday, Nifty closed with0.35% gains at 11,374. Within NIFTY50, INFRATEL (+5.7%), HDFCLIFE (+3.2%), and DRREDDY (+2.3%) were the top gainers, while M&M (-3.6%), UPL (-2.8%), and BAJFINANCE (-2.5%) were the top losers. Among the sectoral indices, FMCG (+0.6%), IT (+0.6%), and MEDIA (+0.3%) gained the most. REALTY (-0.9%), AUTO (-0.5%), and PVT BANK (-0.3%) ended with losses.

Remains financially strong and net debt free–Page Industries

Excerpts of an interview with Mr. Chandrasekar, CFO, Page Industries, aired on ETNow dated 7th September 2020:
• Page Industries has seen significant improvement in demand. From 0 sales in April, -80% YoY in May, -40% YoY in June, -30% YoY in July to a YoY growth in August, there is a good month-on-month uptick. Outlook remains optimistic for rest of the year.
• The buildup in demand has been gradual so Mr. Chandrasekar doesn’t think it was just pent up demand. Secondary sales are more than factory sales. All indications suggest that things are getting back to normalcy.
• August sales are a pretty good indication that demand is back. But predicting full year growth rate is still difficult.
• Sales via e-commerce inJuly and August were better than the past trend. E-commerce has seen YoY growth of about 200%. Purchasing modes have changed across sectors. In terms of margins and investments for Page, e-commerceis more or less similar to other distribution channels.
• Procurement control works between a range of +/-1% so raw material cost has remained more or less the same. Page is trying to work on procurement optimization, but in the near future,raw material cost will be rangebound.
• Page has done significant optimization on the other operating expense including wages, factory overheads, selling overheads, advertising,and corporate overheads. They have managed significant reductions over 4QFY20 as well as 1QFY20.
• Page’s cash position of Rs 1,700 mn as of 1QFY21 is better than any time during the past year. They have done a lot of work across working capital. Page has not borrowed any funds and continues to remain net debt free.
• Page is also paying vendors earlier than they are asking. MSMEs need support to remain afloat at this point. It is also in the interest of Page to help the small businesses as they are trusted vendor partners. Despite that, Page has improved its cash position.
• Page hasretained all employees during this difficult time.
• A specific European fund has raised concerns that Page Industries is not following best manufacturing practices. Mr. Chandrasekar assured that Page’s manufacturing practices are based on fundamental and ethical policies. Page has published sustainability report for the past 2 years in the public domain which can be referred to address concerns. Page has been in the business long enough to know that it’s a people intensive business and the company hasto take care of its employees.
• Men Innerwear market is growing at about 11% YoY and is expected to grow to Rs 900 bn by 2028 from 350 bn currently. Women innerwear market is expected to grow at about 12.5% YoY to Rs 680 bn by 2028 from Rs 210 bn currently. Page is very small in the overall market size. Premiumization will continue to happen in the market so maintaining market share is not an issue. The issue is about increasing geographical reach and introducing new offerings in the women and kids segments.
• Page will resume capex and other business investments once the business gets back to normal levels from the covid-19 disruption.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of PAGEIND was ₹ 18,296/- as of 7-September-2020. It traded at 91.5x/ 47.0x/ 38.7x the consensus EPS estimate of ₹ 200/ 389/ 473 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 17,617/- implies a PE multiple of 37.2x on FY23E EPS of ₹ 473/-.

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