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MOSL: PAGE INDUSTRIES (Neutral)-Outperformance on most fronts-Valuations leave little room for upside

Page Industries: Outperformance on most fronts; Valuations leave little room for upside

(PAG IN, Mkt Cap USD3.8b, CMP INR23965, TP INR25755, 7% Upside, Neutral)

 

• PAG's net sales grew 18.9% YoY to INR7.4b (our estimate: INR7.2b), led by volume growth of ~12% YoY. In our view - and like we also mentioned in our 3QFY19 preview report - the company is likely to have benefited from the festive season mismatch. EBITDA grew 28.3% YoY to INR1.65b (our estimate: INR1.53b), while adj. PAT increased 22.2% YoY to INR1b (in-line).
• Gross margin expanded 150bp YoY to 57.1%. Yarn costs remained stable during the quarter. EBITDA margin expanded 160bp YoY to 22.4%, led by lower employee costs (-30bp YoY to 15.8% of sales), partly offset by higher other expenses (+20bp YoY to 18.9%).
• 9MFY19 performance: Sales, EBITDA and adj. PAT grew 15.5%, 26.1% and 26%, respectively. Overall volumes grew ~7% on a YTD basis. Gross margin expanded by 80bp YoY to 56.5% and EBITDA margin by 190bp YoY to 22.2%.
• Valuation and view: There is no material change in our EPS forecasts. Volume growth for the quarter was in double-digits, led by the festive season mismatch, which impacted PAG in 2QFY19, but worked in its favor in 3QFY19. In our view, PAG remains a compelling investment case in the Indian consumer space, with potentially better earnings growth compared to peers and healthy RoCEs.