Weekly Tactical Pick: Robust fundamentals make Page Industries a bullish bet

In continuation of our weekly tactical call to guide investors to look at investment opportunities amid a volatile market, we have chosen Page Industries (stock price: Rs 22,700 | market cap: Rs 26,194 crore) as our pick for this week.

Benefits of a strong brand, healthy financials, asset-light model and network augmentation should augur well for Page Industries in terms of earnings visibility. Post-correction, the stock offers decent value, notwithstanding its steep price-to-earnings multiple.

Page Industries has the exclusive right to manufacture, distribute and market innerwear cum leisurewear products under the ‘Jockey’ brand in India, Sri Lanka, Maldives, Bangladesh, Nepal and UAE. It is also a licensed retailer of ‘Speedo’ swimwear products and accessories in India.

To drive top-line growth, the company plans to increase the number of exclusive brand outlets to over 1,000 by FY20-end from 470 as of FY18-end. The product portfolio is being diversified to increase the contribution of womenswear childrenswear, activewear and athleisure. Investments are also being made to develop the online platforms.

Given Jockey’s robust brand recall, the company rarely resorts to discounting and is also able to pass on raw material price hikes. To achieve high asset turns, the share of outsourced manufacturing operations is estimated to increase to 40 percent by FY20, vis-a-vis 20-25 percent in FY18. These measures should boost margins.

Nevertheless, competition from foreign brands and an inability to derive incremental revenues from advertisement spends /investments in product innovation could be the major challenges. Moreover, any earnings miss may trigger volatility considering the superlative valuations at which the stock trades (50.2 times FY20 projected earnings).

To conclude, three factors make us bullish on the company. First, the stock’s price has been on a downward trend since August 2018. Second, it is fundamentally robust. And lastly, blue chip stocks like these re-rate faster when the markets recover from volatility.

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