Home >Markets >Mark To Market >Flagging growth dulls Page Industries’ valuations post-December quarter results

When Page Industries Ltd, the maker of Jockey garments, reported September quarter (Q2) results, the stock lost 9% in two trading sessions. At the time of the December quarter (Q3) results, there was a replay of the same, with the stock losing as much 7% in a single day.

The fall underscores a moderation in its volume growth. The stock is now down 22% from its Q2 results, compared to a 1% fall in the Nifty 500 index during the same period.

The first signs of trouble emerged last year when the company said its volume growth came to a standstill (down 0.1%) in Q2. The stock has been underperforming since. This slowdown has been attributed to non-recurring events such as the goods and services tax (GST)-related inventory destocking.

Volumes recovered in Q3, registering a 12% growth. This quarter had the benefit of a delayed festive season. However, the volumes did not translate into a higher revenue growth.

According to analysts, adjusted for accounting changes, revenue growth in Q3 stood at 14%. This is less than the 17-22% growth the company had been clocking in Q1 FY18 to Q1 FY19. Revenues in Q2 had increased 10%.

Cumulatively, revenue in the first nine months of FY19 are up 15.5%. This has not been adjusted for the accounting change in Q3. In the previous two fiscal years, revenues increased 19-20% in the first nine months.

Nevertheless, this 15.5% revenue growth is nothing to scoff at. However, tracking its historical growth rates and an expansion in its product portfolio and retail network, investors are expecting better growth rates in the coming quarters.

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However, slowing growth is bringing its lofty valuations to the fore, triggering a reset in expectations. “Factoring in the performance of year to date FY19, we revise our earnings estimate downward for FY19/20," analysts at ICICI Securities Ltd said in a note. “The stock currently trades at 48 times price-to-earnings and seven times market capitalization/sales on FY20E estimates. To justify these plump valuations, a surge toward its past revenue growth rate of 18-20%, with sustained improvement in EBITDA margins remains critical." Ebitda stands for earnings before interest, tax, depreciation and amortization.

Compounding the issue is an information vacuum. Page Industries did not specify how much of an impact the accounting change had on its revenue. Further, as analysts at ICICI Securities point out, it stopped disclosing segment-wise data, making it difficult to track category-wise product growth.

This is fuelling concerns about growth momentum at its mainstay inner wear business, where companies such as Aditya Birla Fashion and Retail Ltd are making headway.

Of course, the shift to the organized sector on the introduction of GST will create enough elbow room for all market participants. But the question for investors is whether Page Industries can retain its market share.

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