MOSL: PAGE INDUSTRIES (Buy)-Growth opportunity remains attractive; Balance sheet improvement led by lower inventory days

Page Industries: Growth opportunity remains attractive; Balance sheet improvement led by lower inventory days

(PAG IN, Mkt Cap USD4.7b, CMP INR28889, TP INR33460, 16% Upside, Buy)

Some key takeaways from recent management interactions and highlights from PAG’s FY18 annual report are as follows:-

• PAG’s structural story remains attractive with the management targeting 20% revenue growth over the long term.
• Initiatives like outsourcing and EBO expansion are likely to facilitate faster growth and superior asset turns. In fact, as the annual report reveals, inventory days have already declined sharply from 100 days in FY17 to 85 days in FY18.
• Increased focus on technology implementation across the distribution channel should also ensure better efficiencies and decision making, and higher asset turns.
• Extension of the Jockey franchise agreement to the year 2040 (from 2030 earlier) and continuance of royalty at 5% (announced last month) provides comfort.
• From a stock price return perspective, PAG has been the best performing among consumer peers over the past ten years with an immense CAGR return of 51.7%. This has been backed by impressive 30.3% EPS CAGR over this period. We maintain our BUY rating with a target price of INR33,460 (53x Sep 2020E EPS; in line with three-year average one-year forward multiple) implying 16% upside.