MOSL: PAGE INDS. (Buy)-Strong earnings traction continues-deserves high valuation

​Page Inds.: Strong earnings traction continues; deserves high valuation

(PAG IN, Mkt Cap USD2.5b, CMP INR22314, TP INR25580, 15% Upside, Buy)

• PAGE's net sales grew at a strong 17.1% YoY to INR6.26b (est. of INR6.45b), with 7.9% YoY volume growth. Mix improvement was well ahead of expectation. Men's innerwear, Women's innerwear and Sportswear segments grew at 14%, 20% and 20% YoY, with volumes increasing 4%, 14% and 15% YoY, respectively. Speedo sales grew 27% YoY, with 7% YoY volume growth.
  
• Gross margin shrunk 200bp YoY to 57.6%. This was offset by lower employee costs (-90bp YoY) and other expenses (-160bp YoY), resulting in EBITDA margin expansion of 40bp YoY to 20.5% in 2QFY18. Thus, EBITDA grew at a healthy 19.5% YoY to INR1.28b (est. of 1.29b). Adj. PAT rose 22.4% YoY to INR841m (est. of INR825m).
  
• Robust cash flow generation: We note that the net working capital increase of 16% YoY has been far lower than the sales increase of over 20% in 1HFY18. Other current and non-current assets have declined both YoY and QoQ. Net cash and cash equivalents have thus gone up from INR813m at end-1HFY17 to INR2.27b at end-2QFY18.
  
• Management interaction takeaways: (1) Management expect sales trajectory to continue. (2) Yarn costs remain soft - have been on a downtrend since August (saw a blip-up in October before coming down).