Page Industries: A subpar year

24 Jul 2023 , 12:17 PM

Recommendation: Reduce; Target price: Rs 35000

 

Page reported a subdued performance in FY23 on most fronts. With volumes declining by 13% in H2FY23, end year working capital increased sharply resulting in negative cash flow at the operating level – only the second time in over two decades. However, Page comfortably outperformed its peers in the innerwear space on both revenue growth and margin fronts. Even though near term performance is likely to remain subdued, analysts of IIFL Capital Services expect working capital to normalise which should result in positive FCF generation and steady improvement in return profile going forward.

Strong outperformance vs. peers: 

Despite suffering a 13% volume decline in H2FY23 which was partly driven by ARS implementation, Page outperformed its peers on most parameters. 4 year revenue Cagr for Pag at 13.8% was comfortably above peers with the next best being Lux at 9%. Outperformance was starker in Ebitda with Page recording a 4 year Ebitda Cagr of 8.7% vs. 4-12% decline for its peers. While Page’s performance suffered in H2, its peers suffered in Q2/Q3 before witnessing some recovery in Q4.

Negative operating cash flow in FY23: 

Lower than expected sales in H2 resulted in high inventory levels for Page. The proportion of finished + traded goods inventory increased to 75% of total inventory vs. ~50% historical average. Analysts of IIFL Capital Services estimate that the current level of finished + traded goods inventory can potentially cover for two quarters of sales. Overall working capital increased sharply by 44 days of sales (to 86 days) resulting in negative operating cash flow for Page – only the second time in over two decades.

Return profile subdued but still strong: 

Contraction in Ebitda margin, higher working capital and slight increase in capex levels resulted in a sharp contraction in post tax ROIC from 87% in FY22 to 49% in FY23. Even as dividend pay-out was curtailed to ~50%, resulting in a YoY decline in absolute DPS (only the second time in many years), Page turned into a net debt company (vs. net cash for the past three years). As inventory levels normalise in FY24, analysts of IIFL Capital Services expect ROIC to improve steadily and Page to again be a net cash company from FY24 onwards.