Tax rate cut to bring comforting times for investors of Page Industries

A likely volume recovery in the second half of FY20 and relatively reasonable valuation should support further upside in the stock

Page Industries is among one of the bigger beneficiaries of the recent corporate tax rate cuts, given that its tax rate was about 34 per cent in FY19.  The potential earnings boost following the tax cut announcement on September 20 has seen the the stock surge 13 per cent versus an eight per cent rise in the Nifty FMCG index. 

A likely revival in sales volume in second half of FY20 and relatively reasonable valuations could support further upsides in the share price of Page Industries, the Indian maker of international innerwear brand Jockey.

Sachin Bobade, VP-research, Dolat Capital, believes that volume growth moderation, which is likely to have continued in the September quarter, should peak out and the company should see much better volumes in the October 2019-March 2020 period.

Challenging demand conditions had weighed on the footfalls and volumes during the past two quarters. From 12 per cent in the December 2018 quarter, Page’s volume growth drifted down to just one per cent in the March 2019 quarter. The June quarter was worse, with Page's volumes  declining by  around 2 per cent.

However, the festive season and a likely improvement in overall consumption sentiment should augur well for Page and many other consumer players from the December 2019 quarter onwards, say analysts. Moreover, the gains would also come from the company’s distribution expansion plan.

Page’s management had, during June 2019 quarter earnings, indicated a sharp rise in its footprint through exclusive brand outlets (EBOs) and multi-brand outlets (MBOs) in FY20. While the latter stood at around 55,000-60,000, the EBO count was around 630, as per June quarter earnings updates.

This apart, enhanced focus on kidswear is expected to be another medium- to long-term growth lever, given the company’s low penetration and dominance of unorganised players in this segment. While GST implementation and Jockey's brand popularity should help in this regard, rising competition from players like Van Heusen needs to be watched going ahead.

On the valuation front, Bobade believes the stock looks reasonable as compared to its historical average valuation. At 46 times FY21 estimated earnings, Page’s stock is currently trading at a 7-8 per cent discount to its medium-term historical one-year forward valuation. Investors with some risk appetite may want to consider it on dips.