Sell Page Industries; target of Rs 2849: Emkay

Emkay Global Financial Services is bearish on Page Industries and has recommended sell rating on the stock with a target of Rs 2849 in its September 20, 2012 research report.

“Page Industries has several growth triggers in place, which include improved market dynamics, higher premiumisation, richer product mix (higher share of sportswear and women’s innerwear), capacity ramp up, new product launches, etc that would ensure sustainable gains in market share over the license period. We expect Page’s market share to see sustained and realistic rise during its license period till 2030 at 20% (+230bps). This would be led by 170bps rise in men’s innerwear premium market share to 22.4% and 500bps rise in women’s innerwear market share to 16.6%. This should translate into revenue CAGR of 21% and earnings CAGR of 19% over FY12-30E.”

“Page’s gradual shift in revenue mix from men’s innerwear (56.9% in FY12 to 35.9% in FY30E) to women’s & sports wear (41% in FY12 to 63.8% in FY30E) will deliver sustainable revenue & earnings growth. However, it will also result in increased working capital cycle from 50 days in FY12 to 74 days (48% increase) by FY30E, largely due to higher inventory requirement. We also believe Page might not be able to increase its asset turns beyond its all time high of 7-7.5x. Although we expect Page to deliver healthy cash flows over the license period, we are at crossroads regarding Page maintaining its high dividend payout ratio. If Page is to maintain its usual payout ratio of 55-60%, its free cash flows may not be sufficient to pay the dividends. Thus, Page would either have to continue increasing debt on its books to maintain its payout ratio “OR” it would have to reduce its high payout ratio – both negative triggers”

“We like Page for its robust business model, ample growth drivers and healthy return ratio profile. However, we feel the company’s free cash flows would be insufficient to fund its high dividend payout, which might lead to debt addition or payout reduction. We have valued Page on DCF basis on the assumption that the current payout ratio would continue. We initiate coverage on Page with a sell rating and a DCF price target of Rs 2,849, which is a 14% downside from current levels,” says Emkay Global Financial Services.

Non-Institutions holding more than 90% in Indian cos

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