Page Industries rating: Hold — Covid cast a shadow on performance in Q1

Page reported 66% y-o-y contraction in revenue (volumes down 69% y-o-y), primarily due to its metro city focus, where the lockdown impact was sharper.

Page Industries (Page) clocked weak Q1FY21 performance as lockdown impact led to revenue contracting 66% y-o-y, higher than peers. Also, under absorption of costs and provisioning (due to lower revenue base) led to gross margin contracting with the company reporting Ebitda loss—a first in many quarters. That said, business has revived to pre-Covid level in August—EBO/LFS channels nearly fully open and MBOs 80% open.

Our thesis that Page will be unable to keep gaining market share remains intact with growth lagging the previous decade (FY20–28e: 10% CAGR, FY09-19: 27%). Retain Hold with DCF-based TP of Rs 19,195. At CMP, the stock is trading at 50x FY22e EPS (Target FY22e PE: 50x).

Ebitda loss given Covid impact

Page reported 66% y-o-y contraction in revenue (volumes down 69% y-o-y), primarily due to its metro city focus, where the lockdown impact was sharper. Gross margin plunged to 48% (Q4FY20: 59%, Q1FY20: 55%) due to under-absorption of costs, inventory provisioning (on lower revenue base) and full payment of salaries for the entire quarter. As a result, there was limited reduction in employee expenses and curtailment in other expenses was in sync with the revenue fall. Hence, Page reported Ebitda loss.

Ramp-up on pace; online channel gaining highest traction

Operations partially resumed from May. As of now, more than 80% of MBOs (54,000+), 96% of EBOs (742) and 90% of LFS (1,928) are fully functional. Overall business too is back at last year’s level in August. Page is witnessing rising sales on e-commerce channel and of the athleisure category. Liquidity is strong with cash and cash equivalents up 56% q-o-q and 18% y-o-y to Rs 1.7 bn.

Outlook: All hinges on growth

On balance, we expect Page to clock revenue growth in line with the industry (breaking away from past) despite the initial athleisure kicker and build in 10% CAGR over FY20–28 (FY09-19: 27%). We value the company using a three-stage DCF, which yields TP of Rs 19,195. Valuations have primarily been a function of its growth. At CMP, the stock is trading at 50x FY22e EPS.