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

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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