PCG Research | Textiles Result Update

Page Industries

PAGE INDUSTRIES INR 450

In line performance BUY

Page Industries’ (PIL) Q3FY08 results were in line with expectations on the revenue as well
as profitability fronts. While revenues grew 7.8% Q-o-Q to INR 518 mn, EBITDA and net January 30, 2008
profit grew 18% and 3.9% to INR 107 mn and INR 65 mn, respectively, in Q3FY08.
Prakash Kapadia
Volumes for the quarter grew 36% Y-o-Y and remained flat Q-o-Q at 7.8 mn pieces. Higher +91-22-4097 9843
prakash.kapadia@edelcap.com
realisations of ~INR 65, compared to INR 60.6 in Q2FY08, led to higher sales for the
Sanjeev Rohra
quarter. We maintain our ‘BUY’ recommendation. +91-22-4097 9844
sanjeev.rohra@edelcap.com
Revenue grew 7.8% Q-o-Q to INR 518 mn
y PIL’s men’s wear segment contributed 68% to revenues and 70% to volumes during
the quarter. Although volume growth declined 9% Q-o-Q to 5.5 mn pieces, higher
realisations (INR 64.1 compared to INR 58 in Q2FY08) resulted in marginal Q-o-Q
growth.

y The women’s wear segment contributed 19% to revenues and grew 65% Q-o-Q to
INR 96 mn due to better realizations (INR 54.8 compared to INR 45.9 in Q2FY08) and
a 38% Q-o-Q growth in volumes (1.75 mn pieces).

y Leisure wear and socks together contributed 13% to revenues and accounted for 7.5%
of total volumes during the quarter. Volumes as well as realizations remained flat Q-o-Q.

Lower advertising expenses enhanced EBITDA margins by 178bps Q-o-Q

PIL had spent a substantial proportion of its advertising budget, ~65% of the amount
earmarked for the current year, during H1FY08. Hence, other expenditure (which includes
Reuters : PAGE.BO
advertising and marketing expenses) reduced 25.2% Q-o-Q to INR 67 mn in Q3FY08,
thereby enhancing EBITDA margins by 178bps Q-o-Q to 20.5%. Bloomberg : PAG IN

Augmenting distribution channel and new product launches for volume growth Market Data

The company has added 25 distributors (total 232 distributors) during the quarter and has 52-week range (INR) : 549 / 241

launched 13 new products in the men’s inner wear segment and five new products in the Share in issue (mn) : 11.2

women’s inner wear segment (includes products in super-premium segment) during M cap (INR bn/USD mn) : 5.1 / 127.5
9MFY08. We expect the company to maintain its current volume growth of 30-35% over the Avg. Daily Vol. BSE (‘000) : 442.3
next three years.

Outlook and valuations: Attractive; maintain ‘BUY’ Share Holding Pattern (%)
Promoters : 72.4
At INR 450, the stock is trading at 19.9x and 15.2x our FY08E and FY09E EPS of INR 22.6
MFs, FIs & Banks : 16.2
and INR 29.5, respectively. Given PIL’s capacity expansions, new product launches,
FIIs : 5.9
possible outsourcing agreement with Jockey International (USA), and attractive valuations,
we maintain our ‘BUY’ recommendation. Others : 5.6

Financials
Year to March Q3FY08 Q2FY08 % change FY07A FY08E
Revenues (INR mn) 518 481 7.8 1,359 1,853
EBITDA (INR mn) 107 90 18.0 271 395
Net profit (INR mn) 65 63 3.9 170 252
EPS (INR) 5.9 5.6 15.3 22.6
P/E (x) 29.5 19.9
1 Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Page Industries

Financials Snapshot (INR mn)

Year to March Q3FY08 Q2FY08 % change FY07A FY08E FY09E
Net revenues 518 481 7.8 1,359 1,853 2,496
Expenditure
Raw material 269 230 16.8 701 945 1,286
Staff costs 77 72 7.0 204 254 316
Other expenses 67 89 (25.2) 183 259 349
Total expenditure 412 391 5.4 1,088 1,459 1,952
EBITDA 107 90 18.0 271 395 543
Interest 9 7 31.3 24 31 31
Depreciation 10 7 61.4 15 27 53
Other income 11 13 (13.5) 27 45 40
Profit before tax 98 89 9.2 260 382 499
Tax 32 27 21.9 89 130 170
Profit after tax 65 63 3.9 171 252 329
Extraordinary items/Prior period (1)
Net profit 65 63 3.9 170 252 329
Equity capital 112 112 112 112 112
No. of shares (mn) 11.2 11.2 11.2 11.2 11.2
EPS (INR) 5.9 5.6 15.3 22.6 29.5
P/E (x) 29.5 19.9 15.2

as a % of revenues
Raw material 51.8 47.8 51.6 51.0 51.5
Staff costs 14.8 14.9 15.0 13.7 12.7
Other expenses 12.9 18.6 13.5 14.0 14.0
EBITDA 20.5 18.8 20.0 21.3 21.8
Net profit 12.6 13.1 12.5 13.6 13.2
Tax rate 33.1 29.6 34.2 34.0 34.0

2
Page Industries

Company Description

PIL was incorporated in 1995 with the objective of getting one of the biggest international innerwear
brands Jockey to India. PIL has an integrated business model right from material sourcing and
inspection to fabric cutting, garmenting, and packaging. Its products are sold in over 15,000 retail
outlets across India. The company is present in the mid-premium to super premium segments of the
men’s and women’s innerwear market. It is also making its mark in the leisure wear category of the
overall apparel industry.

Investment Theme

Increased urbanization, brand awareness, and rapid retail growth are likely to fuel growth in mid-
premium to super premium segments of the Indian innerwear industry. PIL being a leading player in
these categories is likely to be a major beneficiary of this growth. A probable outsourcing agreement
with Jockey International, US, could further boost revenues.

PIL has augmented its manufacturing capacity to ~56 mn pieces during Q3FY08 (which will be
further augmented to 74 mn pieces by FY10E). Operating efficiencies emanating from increased
capacity, favourable product mix, and a 1% reduction in central sales tax (CST) w.e.f. April 1, 2007,
are likely to increase PIL’s EBITDA margins.

Key Risks

Competition from international premium innerwear brands.

Any delay in planned capacity additions may affect revenues and profitability.

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Page Industries

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Distribution of Ratings / Market Cap Rating Interpretation

Edelweiss Research Coverage Universe
Rating Expected to
Buy Accumulate Reduce Sell Total
Buy appreciate more than 20% over a 12-month period
Rating Distribution* 108 44 16 3 188
Accumulate appreciate up to 20% over a 12-month period
* 12 stocks under review / 5 rating withheld
Reduce depreciate up to 10% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn

Market Cap (INR) 103 66 19 Sell depreciate more than 10% over a 12-month period

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Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.