Volume growth, margins lead to earnings upgrade for Page Industries

Page Industries reported sales growth of 11 per cent in Q2FY25 and volume growth of 7 per cent year-on-year (Y-o-Y).

 

Demand improved sequentially and uptick during the festival season helped liquidate trade inventory by three days.

 

The implementation of an auto replenishment system (ARS) has improved inventory management for distributors.

 

Primary growth was lagging secondary growth due to high trade inventory and this will help normalise it.

 

E-commerce and quick commerce growth has accelerated. 

 

In H1FY25, ecommerce growth was 41 per cent.

 

Sales grew 11 per cent Y-o-Y to Rs 1,250 crore and sales volume was up 6.7 per cent Y-o-Y to 55.2 million pieces.

 

Gross margin expanded 80 basis points (bps) Y-o-Y to 56.5 per cent and operating profit margin grew 185 bps to 22.6 per cent, a multi-year high.

 

The margin expansion was due to stable input costs and improved operating efficiency.

 

The company raised prices two years ago due to higher input costs, but there have been no price increases since July 2022.

 

Inventory days decreased to 93 from 168 at the end of FY24.

 

Working capital days have improved to 61 from 75, aligning with FY24-end.

 

Page has around 40 days of inventory at the distributor level, an improvement of three days. Page typically pays out 60 per cent of its net profit as dividend.

 

Operating profit grew 21 per cent Y-o-Y to Rs 280 crore. Profit before tax was up 31 per cent Y-o-Y to Rs 260 crore while adjusted net profit rose 30 per cent Y-o-Y at Rs 190 crore. 

 

In H1FY25, net sales grew 7 per cent, operating profit was up 11 per cent and adjusted net profit grew 17 per cent.

 

Exclusive brand outlets (EBOs) are a key area, with Page targeting 1,550 outlets by FY25.

 

Operating profit margin guidance is 19-21 per cent in the medium term.

 

The recent launches of new stock-keeping units (SKUs) in the women’s and kids' categories could be a growth area.

 

The Odisha facility is expected to start operations from Q4FY25.

 

The stock has underperformed for the last two years due to weak volume growth.

 

Better volume and stable input costs may lead to more margin improvements. Valuations are rich but likely to be sustained given volume revival.

 

The rapid expansion of e-commerce has created new opportunities, and the company is eyeing rural, Tier II and III demand.

 

Improvements in inventory management and working capital are apparent and there's scope for much more in this regard.

 

Segment-wise, the athleisure category, which saw rapid growth during the pandemic, is now normalising and is expected to grow steadily.

 

The product portfolio has expanded to include cotton stretch and synthetic materials, attracting new consumers.

 

The company has invested significantly in product development in the women's segment, creating a complete portfolio that caters to all requirements. And, this is an under-penetrated category with room for high growth.

 

The men's business has stronger consumer penetration compared to women’s.

 

Page has introduced key essential styles at entry-level prices over the last four-six months, making its portfolio competitive across all price points.

 

Page Industries has a distribution network of 107,702 multi-brand outlets, 1,387 EBOs, and 1,153 large format stores or LFS.

 

It plans to expand EBOs by 150-180 stores annually. It is focusing on its distribution network, with an emphasis on metros, Tier II and III cities.

 

Analysts are upgrading earnings projections on the basis of better margins and higher volume growth.