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Page Industries’ stiff valuations may wear off on weak volumes

  • Flat volume growth, lower-than-expected realizations and a sharp drop in net profit were key disappointments
  • Page Industries said it was a victim of the ongoing slowdown in consumption

Shares of Page Industries Ltd, the maker of Jockey garments, were beaten out of shape, following its dismal March quarter earnings. The stock hit a 52-week intraday low of 19,007.40 on NSE on Monday, ending the day’s session over 10% lower.

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Analysts said this was the weakest earnings quarter the company has perhaps ever reported. Flat volume growth, lower-than-expected realizations and a sharp decline in net profit were some of the key disappointments. The company highlighted some one-offs that made the figures look uglier, but even beyond that, the near-term outlook seems to be grim.

Page Industries said it was a victim of the ongoing slowdown in consumption. Also, on the implementation of the goods and services tax (GST), inventory held by retailers has been lower than in the past, due to compliance requirements, the management said in a post-earnings conference call with analysts. It added that channel destocking due to liquidity issues was more severe in the trade during the quarter.

Still, the company hopes to get back to its internal 10% volume growth sometime soon, and is confident of growing at 20%. It expects Ebitda (earnings before interest, taxes, depreciation and amortization) margins to be 21-22%.

According to analysts, despite such a poor performance, the management seems to be oblivious to rising competition and has dismissed suggestions of company-specific issues that may have impacted its performance. In fact, for now, the Street doesn’t share the management’s optimism. No wonder then, a slew of brokerage firms trimmed its earnings per share (EPS) estimates and reduced the price target on the stock.

“The management put the blame on trade liquidity issues; the slowdown should be temporary in this light even as the short-term prognosis is uncertain. We bake this prognosis into our model and cut FY20-21 EPS forecasts by around 14% each. We find it amusing that even a company like Page Industries would choose to highlight past one-offs (for the first time) to explain a weak current print," analysts at Kotak Institutional Equities said in a report.

Similarly, Motilal Oswal Securities Ltd said: “Uncertainty prevails over near-term numbers due to prevailing trade liquidity crunch, incomplete recovery of off-take after GST, and the credible threat of competition for the first time in the form of Van Heusen."

Although the Page Industries stock has taken a knock—falling more than 40% from its peak—at a one-year forward price-to-earnings multiple of more than 45 times, the valuation still needs a reality check.

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