Page Industries - High on quality; high on growth - Upgrade to BUY - Karvy

Page Industries (PI) high earnings growth is supported by leisure wear segments FY13-15E EPS CAGR of 29.3%. With ~200bps better profitability over other products the segment would add incrementally to already superior ROE & ROCE vs mid-tier consumer discretionary. We upgrade our recommendation to "BUY" and revise our target price to Rs. 5,097, valuing at 30x FY15E earnings with PEG of 1x.

Result outshines expectations: Page Industries' sales grew 35.5% YoY to Rs. 2,091 mn (our expectations Rs. 1,902 mn) during Q4FY13. Whilst volume growth for the quarter was 15%, realization growth of approx. 15% at Rs.108. EBITDA grew 32.5% YoY to Rs. 367 mn (our expectations Rs. 287mn) during Q4FY13 on higher realizations. EBITDA margin for the quarter expanded 189bps to 17.6%. Net income for Q4FY13 grew 38.4% YoY to Rs. 236 mn (our expectations Rs. 193 mn) with Net margin improvement of 24 bps YoY.

Strong Balance sheet: PI has a strong balance sheet with low gearing ratio of 0.5x, low working capital requirement provides comfort on consistent high dividend payout of ~50%. Strong demand traction, superior return ratios & free cash flows generation position PI as a quality investment amongst peers.

Well Positioned in High Growth Segments: PI caters to premium & semipremium innerwears with an approx. market share of over 21% & 12% in men & women category respectively. These segments of the market are expected to grow at ~25-30% over FY13-15E. We expect PI to lead this growth with its strong brand recognition, innovative product placement and wide distribution reach of over 23,000 retail outlets & 100 EBOs.

Outlook & Valuation: Over past 3M PI has outperformed BSE500 by 24% on back of expectations of above average FY13-FY15E EPS CAGR of 30%, superior RoE & RoCE, strong balance sheet and robust segmental demand. In this high growth phase we expect PI to trade at premium valuation multiple in line with other consumer discretionary and capture this on PEG of 1x. At CMP of Rs. 4,218, the stock trades at 24.8x FY15E EPS. We upgrade our recommendation to "BUY" with revised target price of Rs. 5,097 per share valuing PI at 30x FY15E EPS (PEG of 1x), with an upside potential of 21%.

Source : Equity Bulls

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