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Business News/ Markets / Mark To Market/  Page Industries’ results show why high valuations are not justified

Page Industries’ results show why high valuations are not justified

Net profit fell by 14.6% to ₹87 cr in Q3. This pales in comparison to ₹119 cr estimate by a Bloomberg poll of analysts
  • The company said its volumes declined by 2.8% year-on-year
  • Sentiments for the Page Industries’ stock would be low from a near-term perspective.Premium
    Sentiments for the Page Industries’ stock would be low from a near-term perspective.

    Shares of inner wear maker Page Industries Ltd trade at about 49 times estimated earnings for FY21. Obviously, these valuations are not particularly economical. This is despite the fact that the shares have shed 12.5% from their 52-week trading high seen on 24 January.

    The December quarter results announced on Thursday after market hours could well bring a reality check for investors. For perspective, net profit for nine months ended 31 December has declined by 2% year-on-year. Q3 net profit dropped by 14.6% to 87 crore. This pales in comparison to the net profit of 119 crore that a Bloomberg poll of analysts had estimated.

    In this backdrop, sentiments for the Page Industries’ stock would be low from a near-term perspective.

    However, the stock market seems to be in a generous mood. A case in point is Ashok Leyland Ltd, shares of which hardly budged even after the automaker’s December quarter results—announced after market hours on Wednesday—were highly discouraging.

    Graphic by Santosh Sharma/Mint
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    Graphic by Santosh Sharma/Mint

    Coming back to Page Industries, what went wrong? From revenue to operating profit, performance wasn’t inspiring. The company said its volumes declined by 2.8% year-on-year. The demand slowdown is biting hard and offtake from the shelves is low. Revenue increased by 7.5% to about 794 crore.

    Higher costs eroded Ebitda (earnings before interest, tax, depreciation and amortization) margin, which declined by a whopping 490 basis points to 17.5%. Ebitda has declined by a striking 16% year-on-year to 139 crore.

    According to an analyst, requesting anonymity, “If the company had maintained margins, it would have offered some solace to investors. But here, volume growth and margin performance is collectively spoiling the show."

    Commenting on Q3’s profitability, the company said in a statement, “A temporary dip in profit after tax is entirely due to enhanced investments in sales and marketing, people and technology, which will drive sustainable growth in the years to come."

    Analysts are likely to slash earnings estimates post December quarter earnings. Some say, next year’s numbers should start to look better thanks to a favourable base. However, stiff competition remains a threat.

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    Pallavi Pengonda
    Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Check all the latest action on Budget 2024 here. Download The Mint News App to get Daily Market Updates.
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    Published: 13 Feb 2020, 11:43 PM IST
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