Page Industries: More multibagger prospects?

Page Industries Ltd came to our attention when we spotted its "Just Jockeying Around" advertisements in April 2010. Quick research showed that Page had been growing at a scorching pace in turnover and profits. At that time, Page Industries was quoting at Rs. 850 per share, about 20+ times its TTM earnings. We just couldn’t muster the courage to buy the stock because it was so "expensive". Our Bad because since then, Page Industries has galloped to the CMP of Rs. 2500, a return of 211.26%, and is looking as strong as ever.

Now, we must decide whether it is worth to buy the Page Industries stock or not. So, lets do an old-fashioned SWOT analysis:

About Page Industries:

Page Industries is the exclusive licensees of JOCKEY International Inc. (USA) for manufacture and distribution of the JOCKEY® brand Innerwear/Leisurewear for Men and Women in India, Sri Lanka, Bangladesh ,Nepal and UAE. Page Industries is promoted by the Genomal family who have been associated with JOCKEY International Inc for 50 years as their sole licensee in the Philippines. Page Industries‘ distribution network encompasses over 18,000 retail outlets in 1,100 cities and towns. There are 65 exclusive JOCKEY® outlets across India as of March 2011.

Jockey International seems to be quite happy with Page Industries given that it has been awarded the “best licensee of the year” and the “International Licensee of the Decade” award for achieving record growth year after year and strengthening the Jockey brand.

Page Industries’ past performance:

This has been scorching by any standards. Between FY 2007 to FY 2011, Page‘s income has grown from 138 crores to 503 crores. The EBIDT has groen from 29.8 crores to 102 crores while the PBT has grown from 25 crores to 87 crores. The PAT has grown from 17 crores to 58 crores.

Page Industries‘ stock price has kept pace with the financial performance. From a price of Rs. 300 on 1.4.2007, the price has spurted to the CMP of Rs. 2500, giving lucky investors a fabulous return of 737%.

Page Industries’ current performance:

Page Industries‘ performance in the 2nd quarter ended September 30 2011 was also excellent with sales soaring 43% QOQ to reach Rs.180.60 crores. The sales for the six months ended September 30 grew by 45% to Rs.357.01 crores and PAT amounted to Rs.53.02 crores for the six months, registering a growth of 76%.

Page Industries’ future prospects:

The future looks quite bright if one considers the following:

(i) The innerwear market in the mid-premium segment in India is estimated at Rs 2,100 crore. Page/Jockey claims a 20 per cent market share.

(ii) Page Industries has signed an agreement to become the exclusive license of Speedo International Ltd for the manufacturing, marketing and distribution of the Speedo brand in India. Under this agreement, Page Industries will introduce a range of Speedo products including swimwear, watershorts, apparel, equipment and footwear. While the agreement came in to effect from July1, 2011, all the product categories will be available on the shelves starting January 2012. Speedo is the number one brand and product choice for swimmers around the world though the prospects for swimwear in India is still at a nascent stage.

(iii) Page has an aggressive ‘Just Jockeying’ advertising campaign which should increase market share and help the Jockey brand stay top-of-mind and maintain extremely high brand equity.

(iv) Page Industries, already the exclusive licensee for manufacturing and distribution of US-based innerwear brand Jockey in India, Sri Lanka, Bangladesh and Nepal, is looking to expand into West Asia as well. This is expected to be finalized in the near future.

(v) The Jockey brand is priced in the mid-premium segment, at an average price point of Rs 125. It also retails some products in the super-premium range. The demand in this range is likely to spurt amongst the upper middle class folk. While women’s innerwear accounts for 15 per cent of the company’s revenues, 17 per cent comes from leisure wear. The rest is from men’s innerwear.

(vi) Page Industries plans to ramp up production to 100 million next year at its four manufacturing units in Bangalore catering to four countries from the present production capacity of 74 million pieces per annum.

Promoters hold a big chunk of shares:

It is always comforting that the promoters hold a large stake in the company because their interests and the company’s interests are alinged and there is not much incentive to "siphon" off profits from the company to their private ventures.

The Genomals, led by Sunder “Ashok” Genomal, the Managing Director of Page Industries, hold upto 60% of the equity. This is definitely a positive sign.

Opportunities and Threats:

Opportunities: The premium innerwear industry is expected to grow at high rate due to the following factors.
1. Rising urbanization as well as penetration of organized retailing.
2. Increasing brand aspiration among consumers
3. Higher disposable income
4. Change in consumer behavior
5. Shift from unorganized to organized sector
6. Larger marketing spend by companies creating general awareness of the product
7. Rapid expansion of modern retail format
The high growth of premium innerwear industry will enable the Company to maintain high growth rates as JOCKEY is positioned as a premium brand in India.

Threats:

There are two threats. First, all the major international innerwear Brands like Hanes, Triumph, Victoria’s Secret have commenced operations in India realizing that the Indian Market is likely to emerge as one of the largest market in the World in the next few decades. There are also local brands like Lovable Lingerie and Rupa which have ramped up their operations.

The second is that Page Industries‘ survival depends on the Jockey brand. However, there is no point in being unduly paranoid about this aspect because in 2010, the license with Jockey International was renewed for 20 years till 2030.

Page Industries’ valuations:

At the CMP of Rs. 2500, Page Industries is quoting at 47 times its FY 2010-11 earnings per share of Rs. 52.49. The half-year EPS for FY 2011-12 was Rs. 47.54. Assuming the full year EPS to be close to Rs. 95, the PE works out to 26.

While this is "very expensive" in absolute terms, one must consider it in the context of Page Industries‘ performance. In FY 2010-11, the company had a ROCE of 40% and a RONW of 47%. Even if the growth rate does moderate a bit in the future, it is unlikely to plummet given the strong brand recall and the increasing demand for the product. As one has seen for other high-growth companies like Titan Industries and Nestle, the premium that one pays for the stock really pays itself off if one holds the shares for a sufficiently long period of time.

So, all in all, we are mustering the courage to invest our hard-earned money into Page Industries! So, help us God!