MOSL: PAGE INDUSTRIES (Neutral)-A 30-quarter-low margin makes earnings recovery unclear
PAGE INDUSTRIES: A 30-quarter-low margin makes earnings recovery unclear
(PAG IN, Mkt Cap USD3.7b, CMP INR23528, TP INR22250, 5% Downside, Neutral)
- PAG reported a disappointing set of numbers on both volumes and earnings, with EBITDA declining 16% YoY in 3QFY20.
- Reported operating margin was the lowest in 30 quarters, and adjusted for the Ind-AS 116 impact, the margin was among the lowest ever.
- While the long-term growth potential is high and the past track record impressive, valuations of 55.7x/47.6x FY21/22E EPS are expensive. Management commentary also did not assuage concerns about the lack of earnings recovery in the near term. Maintain Neutral.
Beat on sales, margin at 30-quarter low
- Sales were up 7.5% YoY at INR7.9b (our estimate: INR7.7b) in 3QFY20. Overall volumes declined 2.8% YoY (our estimate: 0% YoY). EBITDA came in 16% YoY lower at INR1.4b (our estimate: INR1.6b), PBT was down 28.1% YoY at INR1.2b (our estimate: INR1.5b) and adj. PAT declined 14.6% YoY to INR870m (our estimate: INR1.1b).
- Gross margin shrank 390bp YoY to 53.2%. EBITDA margin contracted 490bp YoY to 17.5% due to higher employee costs (+110bp YoY), partly offset by lower other expenses (-20bp YoY).
- For 9MFY20, revenue/EBITDA/PAT growth was at 7.1%/-4.6%/-2.1% YoY.
Highlights from management commentary
- Investments in technology implementation and staff recruitment (mainly on tech and kids businesses) have also impacted the EBITDA margin.
- Inventory days have come down to ~75 from 85 as of Mar’19.
- Kidswear has shown an encouraging demand trend. A 120+ member team is now headed by a separate division head.
Page Industries is a garment manufacturing group based in India. Co. is the exclusive licensee of JOCKEY International for manufacture and distribution of the JOCKEY® brand Innerwear/Leisurewear for Men and Women in India, Sri Lanka, Bangladesh, Nepal and United Arab Emirates. Co. is also the exclusive licensee of Speedo International for the manufacture, marketing and distribution of the Speedo brand in India (products include swimwear, water shorts, apparel, equipment and footwear). Co. maintains manufacturing operations spread over 9 complexes in Bangalore and Hassan in addition to 25,000 plus retail outlets in 1,200 cities and towns across India.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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