Page Industries: volume slowdown tempers earnings expectations

Volumes in the sportswear and menswear segments saw a noticeable slowdown from Q1, sparking concerns about competition and the demand environment


At Page Industries, compared with the 21% growth in the June quarter, volumes grew 10.7% in the September quarter. Graphic by Naveen Kumar Saini/Mint
At Page Industries, compared with the 21% growth in the June quarter, volumes grew 10.7% in the September quarter. Graphic by Naveen Kumar Saini/Mint

For a stock trading at 56 times the current fiscal year’s earnings and 45 times next year’s earnings estimates, expectations are naturally set high. Especially so after it began the fiscal year (Q1) with strong volume growth and raised expectations of a robust performance for the rest of the year, sparking earnings upgrades and a rally in the share price. But the euphoria lasted only for three months.

After the company’s September quarter (Q2) results, analysts are paring their earnings estimates, putting downward pressure on the stock. This is what played out at Page Industries Ltd, manufacturer and seller of Jockey products in India and other parts of the world. The stock has plummeted after the company surprised the Street with a sharp slowdown in volume growth in Q2.

Compared to 21% growth in the June quarter, volumes grew 10.7% in the September quarter. Volumes in the sportswear and menswear segments saw a noticeable slowdown from Q1, sparking concerns about competition and the demand environment. Last quarter, Aditya Birla Fashion and Retail Ltd entered the men’s innerwear products business through extension of one of its brands.

According to Motilal Oswal Securities Ltd, there was some front- ending of demand at Page Industries in April-June, which led to strong volume growth in Q1. Even then the reported volume growth is far lower than Street estimates. Further, according to Motilal Oswal, the management revised the full-year volume growth expectations from 15-17% earlier to 13-15%. The brokerage firm says the management fears there may be some impact on demand in the current month due to the currency demonetization-related liquidity crunch.

The slowdown in volume growth in the September quarter and the comments tempered expectations, leading to earnings cuts. At least three domestic broking firms pared their earnings estimates for the current and next fiscal years. “While women’s wear is expected to deliver strong volume growth, challenges in sportswear will hamper overall growth. We have cut our FY17/18E EPS by 6.1%/5.7%,” Emkay Global Financial Services Ltd said in a note. EPS is short for earnings per share.

That said, the bets are not completely off. The stock is still preferred for its strong brand franchise and double-digit growth. Even after the earnings cuts, Motilal Oswal estimates the company’s revenue and profit to grow by around 20% in the current fiscal year. The expectations may help the stock stabilize.

But for it to generate strong returns from hereon, Page Industries has to prove that it is withstanding the competition in the menswear business, and its extensions into bath linen and kids wear segments are successful. That will give investors the confidence about the company’s earnings trajectory and stock valuation, which is by no means cheap.

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