INSTITUTIONAL EQUITY RESEARCH Page Industries (PAGE IN) Dominance to continue INDIA | RETAIL | INITIATING COVERAGE 15 April 2021 Page Industries (licensee of Jockey innerwear in India) will outperform over the next three BUY years driven by: (1) Strong MBO distribution reach, which has significant scope to grow in tier- CMP RS 29390 2/3 cities, with distributor RoIs remaining high; (2) EBO expansion, which would aid growth for outerwear and premium innerwear; (3) customer preference for leisure wear and active wear, TARGET RS 34250 (+17%) which would drive athleisure’s share, given its affordable price points; (4) maintained market COMPANY DATA leadership in women’s innerwear with regular product launches, standalone EBOs, and focus O/S SHARES (MN) : 11 on comfort rather than fashion; (5) grow marginally ahead of the industry in men’s innerwear, MARKET CAP (RSBN) : 328 with increasing market-share improvement for the mid-premium segment; (6) investment in MARKET CAP (USDBN) : 4.5 digital transformation to strengthen the supply chain, coupled with increasing share from 52 - WK HI/LO (RS) : 32206/16430 online sales. Margin expansion, improving return ratios, debt-free balance sheet, and high LIQUIDITY 3M (USDMN) : 19.6 dividend pay-out is an added positive. Initiate coverage with a target price of Rs 34,250. BUY. PAR VALUE (RS) : 10 Distribution is the backbone of Page’s success: A bulk of Page’s growth in the last decade has SHARE HOLDING PATTERN, % been due to a strong distribution network of 72,000 retail touch points across 2,890 cities/towns, Mar 21 Dec 20 Sep 20 3,900+ LFS point of sales, 900 EBOs across 300 cities, and 3,860 exclusive distributors. We believe PROMOTERS 53.2 53.2 53.2 there is a significant scope to increase its distribution channel in smaller cities, with customer DII 3.2 3.2 3.6 OTHERS 27.3 27.3 27.3 preference moving to organised players from unorganised, and customers migrating to the mid- PROMOTERS 53.2 53.2 53.2 premium segment from mass. ROIs for distributors and EBO franchise owners continue to remain 20%+, which helps Page attract new partners. Online presence across own websites and PRICE VS. SENSEX marketplaces will help the company to grow its share, and compete with ‘direct-to-customer’ 160 brands, which could account for near double-digit in revenues over two years. Outerwear gaining strength after covid-19: Outerwear, which accounts for 30% of revenue, 120 should grow ahead of Page’s overall growth, led by an increasing work-from-home culture, importance of personal hygiene, sports-inspired active-wear, and sleepwear/loungewear. 45-50% of EBO revenues are from outerwear, which would continue to drive growth with store 80 expansions, while product portfolios across affordable price points and focus on comfort and regular new collection launches would help Page differentiate itself from competition. 40 Market leader in women’s and men’s innerwear: Jockey is the market leader in women’s Jan/18 Jan/19 Jan/20 Jan/21 innerwear – with 3x revenues vs. its nearest competitor. With a focus on comfort rather than Page Ind BSE Sensex fashion in a price-sensitive segment, and new collection launches every year, Jockey has Source: PhillipCapital India Research performed better than competition across KPIs in our analysis of 7 unlisted companies. In men’s innerwear, we expect Page to grow marginally ahead of the industry, as Jockey has been able to KEY FINANCIALS raise its market share, with increasing investments in digital transformation, coupled with Rsmn FY21E FY22E FY23E increasing reach and the mid-premium category growing faster than mass/economy segment, Net Sales 27,742 36,648 42,295 where Jockey is not present. EBIDTA 5,568 8,016 9,705 Net Profit 3,544 5,256 6,391 Financials: We expect Page to post revenue CAGR of 15% over FY22-24, to touch Rs 48.8bn; over EPS, Rs 317.7 471.2 573.0 the long run, it can consistently deliver low teens revenue growth on 5-7% growth in pricing and PER, x 92.5 62.4 51.3 volume. EBIDTA would see a CAGR of 19% over FY22-24 to Rs 11.3bn in FY24 compared to Rs EV/EBIDTA, x 58.8 40.9 33.7 5.3bn in FY20, with margins at 23.3%. PAT should see a CAGR of 19.5% over FY22-24 to Rs7.5bn. P/BV, x 36.6 28.7 22.7 Return ratios should improve significantly, with RoIC at historic highs of 50% in FY24, while ROE, % 41.3 51.6 49.4 RoE/RoCE would be at 47%/40% respectively. Debt/Equity (%) 0.2 0.2 0.1 Valuation and View: We initiate coverage on Page with a BUY rating and a target of Rs 34,250 Source: PhillipCapital India Research Est. (55x Sep’23e EPS of Rs 623). We expect it to grow ahead of the industry in women’s innerwear and outerwear, while in men’s innerwear its growth should be marginally ahead of the industry’s. Ankit Kedia, Research Analyst Strong pricing power and investments in digital/business transformation will help the company (+ 9122 6246 4122) [email protected] achieve stable margins. Its industry-leading cash-conversion cycle, debt-free balance sheet, and 50%+ dividend pay-out gives it an edge. Key risks are: aggressive investment by private label retailers in the innerwear category, and reducing RoIs for distributors/EBOs. Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer. PAGE INDUSTRIES INITIATING COVERAGE Distribution: Backbone to the success of Page We believe distribution is the key to Page Industries’ success. This is because of its presence across all channels to tap into customer demand. While its competition relies on the wholesale model, Page is one of the few companies to have an exclusive distributor presence on the ground; c.69% of its revenue comes from multi brand outlet (MBOs) which is led by its distributor channel that offers it a pan-India reach into 2,890+ cities and towns. Page has partnered with 23 large-format stores (LFS) which equals 2,450+ stores and 3,900+ point-of-sale across the country after 9MFY21, which has substantially increased from FY20. Page Industries was the first company to have an exclusive brand outlet (EBO) store for its innerwear brand Jockey in India. Today, the company has over 900 EBO stores pan India in 300+ cities. Revenue contribution across channels Strong presence across channels for Page Industries (FY20) 5% MBO 19% LFS 8% EBO 69% Online Source: Company, Phillip Capital India Research Jockey has a strong presence across all distribution channels MBO LFS EBO Own Website Online Marketplace Innerwear Brands Rupa Y N Y Y Y TT Garments Y N Y Y Y Dollar Y N Y Y Y VIP Y Y Y Y Y Amul Y N N N Y Playboy Y N N N Y Hanes N Y N N Y Dixcy Y N Y N Y Jockey Y Y Y Y Y Lux Y Y Y N Y Fashion brands Levis Y Y Y Y Y UCB Y Y Y N Y M&S N N Y Y Y FCUK Y Y Y N Y CK N Y Y N Y Armani N N Y N Y US Polo Y Y Y N Y Tommy Hilfiger N N Y N Y Pepe Y Y Y N Y Van Heusen Y Y Y Y Y Park Avenue Y N Y N Y Source: Galleria Intima Whitepaper, Phillip Capital Research Page | 2 | PHILLIPCAPITAL INDIA RESEARCH PAGE INDUSTRIES INITIATING COVERAGE Some facts about its retail network reach and depth Jockey’s retail network has touched 72,300+ stores across India, from 50,000+ stores in FY18 and 30,000+ stores in FY15. However, its retail network reach is significantly lower compared to some of the other men’s innerwear brands, predominantly as these brands offer mass products at lower price points. We believe 60% of Jockey’s business comes from metros and A-class cities; the rest from smaller B/C-class cities and towns. Increased depth in metros would help the company gain market share and maintain its dominance while rising penetration in the smaller cities/town would help it to gain market share in these cities hence eventually aid volume growth. Our channel checks suggest that despite the company having lesser retail touch points than competitors, it has more display area in each store, which leads to higher revenue-per-store. Distribution network and methodology Page has 3x the number of distributors compared to competitors, as it divides (1) areas and towns and (2) and also the product/category offering, across multiple distributors. Page has eight categories (3 categories in men’s innerwear; 2 in women’s innerwear; 2 in outerwear; and 1 in Jockey Junior) for which the company appoints distributors. On an average one distributor has less than two categories to market – this strategy has helped the company to sell more from the same retail network, as multiple Jockey distributors approach the same retailer for different categories. Hence, all the products of the company are marketed and pushed to the retailer, which offers them scope to invest more in product development and premiumisation.