Page Industries: Likely earnings downgrades in near term

1 Dec 2023 , 10:42 AM

Recommendation: Reduce; Target price: Rs 37200

 

Page has exhibited a peculiar seasonality on volumes historically, and if this were to play out in H2FY24, it could lead to ~6% downgrade in the FY24 sales estimates. Even with a sub-par performance in FY24, sales Cagr over FY20-24 is likely to be similar to the FY16-20 period at ~13%. With consensus factoring in a sharp acceleration at 19% growth in FY25, analysts of IIFL Securities believe there is a risk of earning downgrades. Further, there have been exits at senior management level in recent times that are adding to the near-term uncertainty. Maintain REDUCE. 

Delay in demand recovery could result in ~6% sales downgrade: 

Historically, Page’s quarterly volumes have exhibited seasonality, with H1 contributing ~54% of the annual volumes. While analysts of IIFL Securities estimates for H2 factor in a pickup in YoY growth propelled by a soft base (in addition to demand recovery), there is a risk of ~6% downgrade in FY24 volumes / sales estimates if the typical seasonality plays out and there is delay in demand recovery. Management of Page and its peers have shared a cautious tone on the demand recovery in this space (during Q2 earning calls held in the first week of Nov). 

FY24 – a year of normalisation: 

Page clocked a volume/sales Cagr of 6%/13% respectively over FY16-20. Even as FY24 is likely to clock a lowsingle-digit growth, volume/sales Cagr over FY20-24 is still likely to be similar to the FY16-20 period. Analysts of IIFL Securities believe that the subpar performance in FY24 is a reflection of normalisation post Covid (pent-up demand, high channel inventory, aggressive MBO expansion, among others); in addition to demand slowdown from H2FY23 onwards. 

Earnings downgrades likely in near term: 

Analysts of IIFL Securities are factoring in a 14% top-line growth in FY25 (vs 13% sales Cagr over FY20-24ii), in addition to recovery in H2 volumes. Consensus estimates factor in an aggressive 19% top-line growth in FY25 that has a risk of downgrade. Further, Page has a relatively new senior management team with a new CEO (since Jun’21) and CFO (since May’23). The resignation of its COO (announced in Nov’23) has also come at an inopportune time. Even though valuation is reasonable at 54x FY25 EPS, the stock lacks near-term triggers, along-with a possibility of further downgrades in earnings estimates. Maintain REDUCE rating with a TP of Rs37,200.