Page Industries - Jockey on the J-curve - AXIS DIRECT

India's innerwear market to become 4th largest (currently 6th) in the world by FY17E, led by consumption J-curve

- Rising income levels and higher propensity to spend will lead to accelerated growth in branded premium innerwear category

- India's per capita innerwear spend at USD 2 (1/India s ~4th of the 'emerging' market average) is estimated to rise to ~USD 5 by FY17

- Consequently, the market size will expand 2x to USD 6 bn over next 5 years

Page's distinctive positioning – key market share driver

- Page Industries, the Indian franchisee of Jockey International Inc., is the dominant player (5x the nearest competitor) in the premium innerwear category i.e ~55% of overall market

- Early mover advantage, strong back-end infrastructure, well established distribution network, and significant brand investments has enabled Page to achieve 3 times category growth and improve its market share in premium innerwear segment from 4% to 8% in last 5 years

Strong pricing power, proven business model ensure high sustainable returns

- Despite volatility in commodity cost and sharp excise duty increase, Page has shown exemplary pricing power, resulting in stable operating margin

- Asset light business model (outsources fabric weaving, knitting and processing) with gross fixed asset turns of 4.5x and sustained high net margin of 12% drive RoE of 50%+. Significant free cash flow over next 3 years to aid 40% dividend payout

Initiate coverage with BUY rating

- 27% revenue (20% volume) and 30% earnings CAGR over FY13E-15E will be supported by distribution expansion and growth in women's innerwear and sport/leisure segment

- Deserves valuation premium given its distinctive positioning, scalable business model, and earnings growth higher than peers. Target price of Rs 4,010 (23% upside) is based on 24x FY15E EPS.

Source : Equity Bulls

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