Stock Review: Page Industries

 

Current Valuations Reflective Of Co's Future Growth; More Upside Seen Limited

 

THE stock of Page Industries is among a few textile scrips that have earned handsome returns over one year. The company has continued to report robust financial performance in the June 2010 quarter. The momentum is expected to continue, given its strong presence in the domestic business and its increasing focus on overseas markets.

   The stock price of the innerwear maker has nearly doubled while the benchmark Sensex has gained just over 17% during the period. The Page's stock has also outperformed the 29% return earned by the ET Textile index.

   Page Industries is a sole licence user of the US-based luxury innerwear brand Jockey in countries, including India, Sri Lanka, Nepal and the newly-added United Arab Emirates (UAE). Under the arrangement, Page manufactures men's and women's innerwear and leisurewear and markets it under the Jockey brand. It enjoys one-fifth of the total market share for mid-tier and premium segment of innerwear in India. Its presence in other markets is relatively new and hence, their contribution to the total revenue is marginal.

   The company has reported a double-digit revenue growth during each of the nine quarters ended June 2010 quarter. Growth in operating profit has remained equally strong during most of these quarters.

   The company's sales growth had fallen to 20% in the June 2009 quarter from the 39% in the previous year. However, it has resumed back on the high growth track since then. During the June 2010 quarter, Page's revenue rose by as much as 50% to Rs 119.7 crore. This is nearly one-third of its total annual revenue of Rs 339 crore. It reflects the strong momentum in its business driven by the recent branding exercise undertaken by the company to target multi-brand retail outlets.

   However, the rising operating cost is a major concern that Page needs to address, going ahead. This is because the robust sales growth is not fully reflected in operating profit growth due to fast increasing proportion of raw material and staff costs in sales. For instance, input cost relative to topline rose by 150 basis points (bps) during the June quarter from the year-ago level. Furthermore, staff costs now account for 17.5% of sales, a rise of 250 bps.

   At the Monday's closing price of Rs 1,208, the stock traded at 31 times its trailing 12-month earnings. It attracts a premium over its smaller peer, Maxwell Industries, which trades at a P/E of 21.4. Given this, Page's valuations appear to fully reflect its future growth and further uptick in its stock price looks limited.