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Page Industries Ltd’s shares have underperformed in 2021. So far this calendar year, the stock has appreciated by 16% vis-à-vis a 29% gain in the broader Nifty 500 index. But this doesn’t mean valuations of the company are reasonable. On the contrary, they are on the higher side. Based on Bloomberg data, the shares trade at 63 times estimated earnings for FY23.

Commenting on the stock’s underperformance this year, Akhil Parekh, analyst, Elara Securities (India) Pvt. Ltd, said, “Page Industries’ stock has underperformed as the second covid wave led to disappointing June-quarter results. While demand has picked up, the company needs to deliver for a quarter or more for sentiments to improve for the stock."

During the June quarter (Q1FY22), Page’s year-on-year (y-o-y) revenue growth was strong, helped by a favourable base. Even so, revenues in the June quarter were still 40% lower compared to Q1FY20, which is hardly exciting.

Recovery path
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Recovery path

In FY21, Page’s revenues fell by almost 4% y-o-y as the pandemic hurt demand. Naturally, the low base would support growth for FY22. Indeed, some analysts are upbeat on the company’s prospects. Here, it helps that Page had bounced back well in the second half of FY21.

“Excluding Q1FY21, Page grew at 12% CAGR versus peers - growing 6-11% in Q2-Q4FY21 versus FY19. In the last five years also, Page grew at 14% CAGR versus top 10 players’ growth of 7%," said analysts from Emkay Global Financial Services Ltd in a report on 6 September. CAGR is short for compound annual growth rate.

The broker added, “We expect normalized mid-teens growth ahead, driven by: 1) structural opportunity and faster growth in athleisure (about 33% of sales); 2) increased focus on the under-penetrated women’s and kids segments with a separate team and scale-up in offerings; and 3) accelerated network expansion (40% addition in the last two years), the benefits of which are yet to kick in."

To be sure, some analysts reckon that momentum needs to pick up in the men’s innerwear segment for the company. Further, while near-term prospects for the athleisure segment appear decent as consumers spend more time indoors, there are risks to the segment beyond the immediate future. Therefore, investors would have to watch how demand pans out.

According to Parekh, “While Page Industries’ valuations are not exactly cheap, there is still some margin of safety given a strong balance sheet and a high pre-tax RoCE business. However, it is possible that the demand for athleisure segment may taper once normalization sets in." RoCE is return on capital employed.

Additionally, investors would also have to follow the trends in input costs. Overall, a potential third covid wave remains a risk for all companies in general, including Page Industries.

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