Page posted its weakest-ever quarterly print (significantly below our/street estimates) dragged by slowdown, higher sales incentives (netted off from topline) and destocking by retailers (liquidity issues) compounded by high-margin base (GST credits). Revenue was flat (1% volume growth) and EBITDA/PAT declined 18-20% YoY. Management was surprisingly dismissive of any competitive or channel-led challenges in its maiden earnings call and remained optimistic on FY20 performance, near-term liquidity challenges notwithstanding.
We bake in a shade less optimistic forecast and do see competitive challenges as a real threat especially for core menswear segment. Cut our EPS estimates by 10-11% as we bake in Q4 miss and trim our revenue estimates. We have ‘SELL’ rating with revised DCF-based TP of Rs 19,500 (implied target P/E of 40x Mar-21 EPS).
EBITDA declined by 18% YoY to Rs 1.2 bn (26% YoY below our estimate) dragged by 450 bps YoY dip in EBITDA margin to 19.7% due to weak leverage and 26% YoY jump in staff costs (higher number of employees and increase in actuarial valuation); we note gross margin expanded 100 bps YoY.
Management in its maiden call surprisingly maintained its optimistic outlook for FY20 (internal target of 10% volume growth, 20% revenue growth and 21-22% EBITDA margin) and dismissed all concerns regarding competition (enough room for all) or channel hygiene issues. Higher brand investments, sharper focus on network expansion and ramp-up of Jockey Juniors (kids’ wear range, separate distribution vertical set up) drive its optimism.
Page has given a guidance of 10% volume growth; 3-5% pricing growth and ~5% mix improvement to aid overall 20% revenue growth. It believes sustainable EBITDA margins should be in the range of 21-22%. Capex for the year FY19 stood at `470m and the company is planning for a similar amount in FY20, it intends to double its manufacturing capacity from present 260m pieces in the next 4-5 years, It plans to open two units, one near Mysore in Karnataka to be operational by Q3FY20 and another in Anantapur in Andhra Pradesh expected to be operational by Q4FY21.