Q4FY23 Review: Page Industries: Uncertainty in near term

Page reported a very weak Q4FY23 performance (significantly below analysts’ of IIFL Capital Services estimates) with a sales decline of 13% and sharp decline in Ebitda/PAT on a high base. Sluggish demand and implementation of ARS continued to impact the volumes during the quarter. Analysts of IIFL Capital Services downgrade their EPS estimates by 15%/10% in FY24/25 to factor in the Q4 miss. They forecast a sales growth of 10%/15% in FY24/25. Maintain REDUCE rating with a target price of Rs35,000.

Significant miss: 

Page’s Q4FY23 results were significantly below analysts of IIFL Capital Services estimates. Sales declined by 13% vs. 3% growth witnessed in the previous quarter, impacted by worsening of demand situation, anniversary of price hikes and ARS implementation. Overall volumes declined by 14.6% YoY vs. 11% YoY in Q3FY23. Weakness in gross margin and operating de-leverage resulted in 50% decline in Ebitda and 59% decline in PAT.

Near term uncertain: 

While the demand situation has improved in Q1FY24, management expects the implementation of ARS to be completed in the next two quarters, which may cause some impact to primary sales, albeit at a lower intensity vs. Q4. Benefits of lower cotton prices have started to accrue since March and should aid gross margin expansion. As the demand recovers, Page would get back to its targeted Ebitda margin band of 18-20%.

EPS downgrade of 10-15%: 

Analysts of IIFL Capital Services factor in a gradual but steady recovery in volumes and do not build in any material impact from ARS implementation in FY24. Analysts of IIFL Capital Services downgrade their EPS estimates by 15%/10% in FY24/25 to factor in the Q4 miss. Delay in demand recovery or any more volume impact from ARS implementation could result in further EPS downgrades. Valuation at 55x FY25 EPS is expensive and does not factor in the near term challenges in their view. They maintain their REDUCE rating with a target price of Rs35,000.