MSOL: PAGE INDUSTRIES (Buy)-Massive growth opportunity available to sustain premium valuations

Page Industries: Massive growth opportunity available to sustain premium valuations

(PAG IN, Mkt Cap USD3.8b, CMP INR22759, TP INR27490, 21% Upside, Buy)

We met Page Industries' (PAG) management, post which we have turned even more optimistic about the company's growth prospects.

• Expansion of Exclusive Brand Outlets (EBOs) is happening at a massive pace. The company is adding ~80 outlets in February/March 2018 and likely another 500 in FY19, taking the total EBO count to ~1,000 by end-FY19.
• After forming ~15% of sales in FY17, EBOs are expected to contribute ~40% of sales by FY20 – the year when all the new EBOs will complete at least a year of operations.
• With average cash breakeven in 3-4 months and payback of around 2 years, EBOs are an attractive business proposition to third-party franchisees. Compared to MBOs, the potential for cross-selling is huge in EBOs.
• Apart from INR2b capex over FY17-20, the company plans to increase the proportion of outsourced manufacturing to 35% by end-FY19 from 16-17% in FY17, as the growth prospects are attractive.
• PAG has demonstrated ample discipline on margins, which the company intends to keep in a range to maximize the growth opportunity. Within its target market of aspirers and above, the share of men’s innerwear is only ~17%, and of women’s innerwear and sportswear is even lower at ~6%. 
• We maintain Buy with a target price of INR27,490, based on 50x March FY20E EPS – at a 10% discount to the three-year average P/E.