Sunder Genomal
Page Industries is a powerhouse stock on all parameters. It has a dominant brand name (Jockey) with strong brand recall, aggressive management and huge scalable opportunity. According to the ET, the innerwear market in India is estimated at a mammoth Rs 25,000 crore and is expected to grow at 12% to 14% over the next decade. ET also pointed out that Page Industries’ management has expressed confidence of achieving 20% topline and bottomline growth in the next four to five years and that it is also planning to enhance its distribution network from the current 23,000 stores to 40,000 stores over the next four to five years.
The only disconcerting aspect is that the stock is quoting at stratospheric valuations (P/E 44). However, the stock has always been ‘expensive’ and this has not deterred it from giving a fabulous 1771% gain in 5 years and a 360% gain in three years. In fact, there is a nice article in ET on how the so-called “expensive” stocks like MRF, Bosch, Page, Eicher and Shree Cements have given investors fabulous returns because of their sheer dominance over the market place.
Page Industries touched an all-time high of Rs. 6750 on 22.03.2014. At today’s CMP of Rs. 5611, the stock has lost about 16%.
The reason for the weakness could be regular profit-taking. It could also be attributed to a detailed report (pdf) by Jasdeep Walia of Kotak Institutional Equities Research. In the report, Jasdeep Walia has cautioned that the surging prices of cotton mean that Page Industries’ margins could get crunched. He also points out that the FY2015E growth (sales and EBITDA) will be a step-down from FY2014. While FY 2014 is expected to show a growth of 37%, FY 2015 will show sales growth of only 29%, he says, and adds that the step-down in growth momentum does not leave room for further multiple expansions. He also points out that at even if at FY2016 EPS, the stock is fully valued and that there is very little room for error.
In contrast, Rahul Singh of Karvy has issued a report (pdf) dated Feb 2014 arguing that given the size of the inner-wear market and Page’s dominant position therein, investors should buy the stock for a target price of Rs. 6,740. He expects revenue & earnings growth at strong CAGR of 31% over FY13‐FY16E with volume & realization CAGR of 16% & 13% respectively.
One other factor that may be making investors a bit nervous is the fact that the Genomals, promoters of Page Industries, and Prashant Jain’s HDFC Mutual Fund, collectively sold off 5.58 lakh shares at an avergage price of Rs. 5,673. The unasked question is why did the Promoters and a savvy long-term investor sell off their holdings if the prospects of Page Industries are indeed so rosy. Luckily, the fact that the buyer, Cartica Capital, is an equally savvy and long-term investor who would have done due diligence before the investment, soothed the nerves a bit.
The fact is that Page Industries is no stranger to ‘Sell’ & ‘Reduce’ calls from analysts.
In July 2013, Krishna Merchant argued in the Mint that Page’s valuation appeared to “have gone a little too far”. The stock was at Rs. 4,100 then and has given a return of 35% since then.
Emkay Global was also jittery on the stock and recommended a “Sell” in September 2012 for a target price of Rs. 2849 on the basis that the stock was “walking on a tight rope”. Well, that target price never came and instead, the stock has surged 86% since then.
Similarly, Dolat Capital issued a “Reduce” call in May 2012 and also in August 2013 on the ground that the “valuations were rich”. Since then, the stock has given an 80% and 27% return respectively.
The other point is that Page Industries has always been vulnerable to cotton price increases. However, as Basant Maheswari pointed out, Page Industries is able to pass on the price hike to the consumers, and then, when the raw material prices come down, it keeps the benefit to itself.
So, if you ask me, going by history, these periodic dips appear to be a buying opportunity. I am nibbling on the stock, slowly and steadily.
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