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Page Industries’ Q2 recovery good, but sustaining it is key

The firm’s y-o-y revenue decline was curtailed to 4.5%, better compared to the 66% drop seen in the June quarter

Page Industries Ltd’s sequential improvement for the September quarter is encouraging. However, sustaining the recovery and improving growth rates further will matter more, especially considering the stock’s pricey valuations. The company’s year-on-year (y-o-y) revenue decline was curtailed to 4.5%, strikingly better compared to the 66% drop seen in the June quarter. Higher salience of athleisure and premium products boosted realizations in the September quarter even as volumes declined about 14%.

But rivals outperformed, point out analysts. Edelweiss Securities Ltd’s analysts said in a report on 12 November, “Page’s growth was still lower than peers, akin to Q1FY21, primarily due to its metro city focus, where the lockdown impact was sharper."

Even so, the company did better on the operating front, with earnings before interest, tax, depreciation and amortization (Ebitda) margin expanding by 310 basis points to 22.3%. One basis point is 0.01%. Other operating expenses declined by 24% y-o-y, facilitating margin improvement.

Bouncing back
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Bouncing back

Overall, the company posted a net profit of 111 crore, better than Bloomberg estimates. In the June quarter, Page’s net loss stood at around 40 crore.

The firm said sales are back to near pre-covid levels in all product categories. That is heartening. The festival season should help performance in the second half of FY21. Page expects full business recovery by the March 2021 quarter.

In the coming quarters, investors will watch the sales recovery closely and how consistent growth is. “In the current exceptional time, part of the growth is potentially being driven by channel inventory scarcity and one-off athleisure demand push due to covid," said Edelweiss analysts, adding the key gauge of demand will be once the situation normalizes.

From its pre-covid highs in January, the shares are still about 17% lower. Analysts from Kotak Institutional Equities wrote in a report on 13 November, “A combination of weak base, pent up demand (inner-wear is semi-discretionary, purchases can’t be pushed back beyond a few weeks/months), and investments towards business transformation (including IT infrastructure upgrade for efficient production planning and management of inventory/assortments at distributors/store level), augur well." Even so, valuations are pricey, suggesting investors are capturing the brighter picture adequately. The stock trades at around 53 times estimated earnings for FY22, according to Bloomberg data.

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