PAGE INDUSTRIES LTD.

‘Brand’ing success...
Q1 FY 2008 update

SUMMARY
COMPANY DETAILS
Auditors ! PAGE Industries Ltd. posted a 40% rise in net sales
Chairman Mr Nari Genomal to Rs 474 mn in Q1FY08.
Regd. office Jockey Campus No 6/2 & 6/4
Hongasandra Begur Hobli ! The mens inner category contributed Rs 341 mn
Bangalore-560068 to net sales followed by leisure wear and womens
Website www.jockeyindia.com innerwear, which contributed Rs 81 mn & Rs 52
mn respectively.

! Increased share of high-margin leisure wear

category products coupled with 100 bps reduction
S C R I P D E TA I L S
in CST from 4% to 3% (effective 1st Apr’07) resulted
Market Capitalisation Rs. 4.6 bn. in an OPM of 21.4% in Q1FY08. Accordingly,
Book Value per share Rs. 61
operating profits stood at Rs 101 mn.
Equity Shares O/S (F.V. Rs 10) 11.2 mn.
Median Volumes (12 mths) 37,951 (BSE+NSE)
! The other income stood at Rs 11 mn mainly on
52 Week High/Low Rs. 489 / 241
account of interest income from the unutilised
BSE Scrip Code 532827
Bloomberg Code PAG.IN
money from the IPO proceeds.
Reuters Code PAGE.BO
! Despite an increase in capital charges to
Rs 16 mn on account of capacity expansions, PBT
stood at Rs 96 mn and a net profit of Rs 66 mn.
SHAREHOLDING PATTERN (%)
Qtr. Ended Dec-06 Mar-07 Jun-07 ! PAGE is in the midst of expanding capacity to
Promoters - 72.4 72.4 74 mn pieces from the existing 33 mn pieces
MFs/Fis/ins. Cos - 10.2 13.2 by FY09.
FIIs/NRIs/OCBs - 5.9 6.7
PCB - 2.9 1.8 ! PAGE’s plans of rolling out its own retail format
Indian Public/ Others - 8.7 6.0 should help ramp up volumes substantially, thus
transforming it into a quasi-retail company. We
KEY FINANCIALS (STANDALONE) believe that with a strong brand and buoyant cash
Rs Mn
Quarter Ended Year Ended (March) flows, PAGE is already a quasi-FMCG company. With
Dec-06 Mar-07 Jun-07 2007 2008E 2009E an EPS growth of 44% CAGR over FY07-09 and high
Net Sales - - 474 1,359 1,952 2,576 ROCE levels of ~45%, valuations are at a discount
YoY Gr (%) - - - 34.3 43.6 32.0 to those enjoyed by FMCG/Retail companies.
Op Profits - - 101 271 412 549
Op Marg (%) - - 21.4 19.9 21.1 21.3 ! We have estimated a fair value of Rs 510 for PAGE,
Net Profit - - 66 169 260 351
Eq Capital - - 112 112 112 112 based on DCF, which represents a 25% upside from
the CMP. This is based on our estimates till FY10, a
KEY RATIOS CAGR growth of 10% in revenues from FY11-17 and
Year Ended EPS ROCE RONW P/E EV/Sales EV/EBIDT
(March) (Rs.) (%) (%) (x) (x) (x)
2% in perpetuity. With a Beta of 0.80 and a market
2007 15.2 46.8 42.2 26.9 3.2 16.2
risk premium of 10%, WACC works
2008E 23.3 41.1 34.0 17.5 2.2 10.5 out to 11%. Thus, we maintain our ‘BUY’
2009E 31.5 44.8 35.8 13.0 1.6 7.7 recommendation.

Aug 08, 2007 Sensex :15307 Nifty : 4596 CMP : Rs 409 Recomm : BUY

Analyst - Ashish Dangi

1
 BACKGROUND PAGE INDUSTRIES LTD.

Background Future Plans

PAGE Industries, incorporated in 1994 in Bangalore, is Distribution network
promoted by the Genomal family. The company JOCKEY has a retail presence in over 14,000 stores across
manufactures and distributes ‘JOCKEY’ products in 1,100 cities and towns. The total distributor strength is
India, Sri Lanka, Maldives, Bangladesh and Nepal. PAGE 270, significantly higher than 144 in FY07. PAGE is
Industries has an exclusive trademark & licensing aggressively expanding this base with focus on Tier-I &
arrangement with JOCKEY International Inc. for use of Tier-II towns.
the trademark. Brand building
It commenced operations with manufacturing & PAGE has positioned its products at the premium end
marketing of ‘JOCKEY’ men's range of innerwear in 1995 and has emerged as a preferred brand in the segment.
followed by launch of its women's collection in 1997. As a part of its brand building exercise, it has earmarked
Later, the company diversified into leisurewear with the Rs 160 mn out of IPO proceeds and will include ad
launch of T-shirts, pyjamas, lounge wear and gym wear. spend on television, display modules upgradation and
PAGE industries came out with an IPO in Mar’07 raising appointment of brand ambassador for women’s
Rs 1 bn through the issue of 2.8 mn shares. innerwear. PAGE has focussed on increasing its brand
awareness through print media campaigns with
Current operations
specific focus on Tier-I & Tier-II towns & cities. It is also
PAGE’s operations are currently focussed on distributing PoP (point of purchase) material and
garmenting and packaging of JOCKEY products. The modules so as to improve visibility in the retail setup.
process of knitting & fabric processing is outsourced by New Launches
the company. Its garmenting capacity stands at 33 mn
With a view to widen its product profile , PAGE intends
pieces p.a. for innerwear, which is being expanded to
to add newer range in the innerwear segment in the
47 mn pieces p.a. by FY08 and to 74 mn pieces by FY09.
super premium category. Future product launches in
The capex for the same is estimated at ~Rs 199 mn to be
innerwear for men include the 3D Innovation and
funded from IPO proceeds.
International collection. These products shall be initially
Backward integration launched in its exclusive brand outlets. In women’s
innerwear, additional range of brassieres and coloured
The company is integrating backward into manufacture
lingerie are proposed to be added.
of elastics at a capex of Rs 5.8 mn financed from IPO
proceeds. It is also setting up a facility for manufacturing Exclusive brand outlets
socks at a capex of Rs 11 mn. These two integration The company plans to set up ‘Exclusive Brand Outlets’
projects will help improve margins as it will enable PAGE (EBO’s) and large format flagship stores. Flagship stores
to have greater control over a significant component of will occupy around 2,000 sq. ft. and display the entire
manufacturing cost. range of ‘JOCKEY’ products.

Scrip performance vis-a-vis BSE Sensex PAGE’s category-wise sales breakup

Vol in '000 (BSE+NSE) PAGE BSE (Rebased)
480 2000 Hosiery Stores
45%
EBO
420 1500 8%

360 1000
Format Stores
300 500 10%

240 0
Small Department
Multi Brand Outlets
Mar-07

Apr-07

Jun-07

Aug-07
May-07

15%
22%

Source: Company, PINC Research

2
 OUR VIEW PAGE INDUSTRIES LTD.

Presently, it has 22 EBO’s spanning all the major Tier- This demonstrates that the organised branded segment
I cities and plans to double this number. Also, it is expanding its share in the leisure wear and overall
proposes to add two flagship stores every year over market. With 14.2% growth, JOCKEY should be able to
the next three years and intends to acquire properties further strengthen its position in this category.
on long-term lease vs. outright purchase. Lifestyle sector revenues are growing at rapid pace,
Industry driven by favourable changes in demographics skewed
towards a younger population, higher diposable
The intimate wear market in India is estimated at ~
incomes and rising aspiration levels. Increased brand
Rs 88 bn of which, innerwear and lingerie is estimated
awareness is also leading to a change in consumer
to be ~Rs 60 bn with nightwear constituting the rest.
behaviour towards higher value products. This has
Intimate wear is largely dominated by women’s wear.
largely been witnessed in the 18-34 year age group,
However, only 10% women’s intimate wear currently
which forms bulk of the working population. JOCKEY
accrues from the branded segment as compared to
has created effective brand differentiation mainly due
65% for men’s innerwear. Thus, there exists
to its premium positioning, which differentiates it from
considerable potential for converting consumers of
its peers. Besides, minimal competition from any pan-
unbranded lingerie to branded ones.
India player in this segment shall enable it to garner a
Men’s Innerwear larger pie of the expanding market.
The men’s innerwear market is estimated at ~Rs 21.8 With the company’s increased focus on Tier-I & Tier-II
bn with ~50% being accounted by mid segment to cities through its medium range products positioned
premium segment. Currently, the men’s innerwear against existing economy range products, the minimal
segment contributes 72% to revenues through its price differential between the two will enable PAGE to
Basic, Elance & Classic range in the mid-premium and penetrate the market and establish a strong foothold.
Zone & Sports Gold collection in the premium segment. PAGE’s plans of rolling out its own retail format should
With the launch of its 3D innovation and International help ramp up volumes substantially, thus transforming it
collection, the company is well poised to cater to the into a quasi-retail company. We believe that with a strong
fast growing (15% CAGR) super-premium segment. brand and buoyant cash flows, PAGE is already a quasi-
Women’s Innerwear FMCG company. With an EPS growth of 44% CAGR over
FY07-09 and high ROCE levels of ~45%, valuations are at
The women’s innerwear market is estimated at ~
a discount to those enjoyed by FMCG/Retail companies.
Rs 38 bn with premium range valued at Rs 4 bn.
Women’s innerwear is largely dominated by the We have estimated a fair value of Rs 510 for PAGE, based
unorganised players. Also, there is not much presence on DCF, which represents a 25% upside from the CMP.
of prominent national players in the segment. This leaves This is based on our estimates till FY10, a CAGR growth
plenty of opportunity for strong brands like JOCKEY to of 10% in revenues from FY11-17 and 2% in perpetuity.
capture the market. The premium range grew by 15% With a Beta of 0.80 and a market risk premium of 10%,
while the super-premium range grew by 18% in FY06, WACC works out to 11%. Thus, we maintain our ‘BUY’
indicating the change in preference towards branded recommendation.
products. This segment currently contributes 11% to net Depicted in the table below is sensitivity of stock price to
sales. However, this scenario is set to change with the change in growth rates.
increased focus on women’s innerwear.
Sensitivity Analysis
Leisure wear
Change in Change in net sales growth rate
Leisure wear currently contributes 14% to net sales. terminal
PAGE has launched sleepwear range for men in its growth 8.0% 9.0% 10.0% 11.0% 12.0%
EBO’s and intends to take its leisure products 1.0% 434.8 456.4 479.1 502.9 527.9
(pyjamas & bermudas) to mass distribution channels. 1.5% 447.4 469.9 493.5 518.3 544.3
The leisure wear category has grown by 49% in
2.0% 461.4 484.8 509.5 535.3 562.5
Q1FY08 and is expected to continue upward
2.5% 477.0 501.5 527.3 554.4 582.9
trend.The untapped leisure wear market has been
3.0% 494.6 520.3 547.4 575.9 605.8
experiencing considerable value addition.

3
R E S U LT S T A B L E PAGE INDUSTRIES LTD.

Financial Results for the quarter ended Jun’30, 2007 (Standalone)

Quarter Ended Year Ended
Particulars (Rs Mn)
30/06/07 31/03/07 31/03/06 % chg.

Net Sales 474 1,359 1,012 34.3

Total Expenditure 373 1,089 824 32.2

(Inc.)/Dec. Stock-in-trade 6 (123) (16)

Manufacturing Expenses 229 824 548 50.3

Staff Cost 66 204 128 59.8

Administrative & Selling Expenditure 71 184 164 12.1

Operating Profit 101 271 188 43.9

Other Income 11 27 10 178.9

PBIDT 112 298 198 50.6

Interest 8 24 16 49.8

Depreciation 7 15 8 83.5

PBT 96 259 174 49.1

Provision for Current Tax 30 90 59

Provision for Deferred Tax - - 1

Fringe benefit tax - - 2

Net Profit 66 169 112 52.1

Equity Capital (F.V. Rs 10) 112 112 112

Reserves (excl. revaluation reserves) - 566 101

EPS for the period (Rs) 5.9 15.3 10.0

Book Value (Rs) - 61.0 51.0

OPM (%) 21.4 19.9 18.6

NPM (%) 14.0 12.5 10.0

Expenditure (% of Net Sales)

Manufacturing Expenses(incl. stock adj.) 63.2 64.4 64.6

Staff Cost 17.8 18.7 15.5

Administrative & Selling Expenditure 19.0 16.9 19.9

4
 F I N A N C I A L S TAT E M E N T S PAGE INDUSTRIES LTD.

Year Ended March (Figures in Rs Mn)

Income Statement 2006 2007 2008E 2009E Cash Flow Statement 2006 2007 2008E 2009E

Revenues 1,012 1,359 1,952 2,576 PBT & Extraord. items 174 259 394 531
Depreciation 8 15 21 29
Growth (%) 35.6 34.3 43.6 32.0
Interest & dividend inc. - - (29) (37)
Total Expenditure 824 1,089 1,540 2,028 Interest paid 16 24 26 26
Tax paid (60) (83) (132) (178)
Operating Profit 188 271 412 549
Other Adjustments (2) - - -
Interest & dividend income 10 27 29 37 (Inc)/Dec in working capital (30) (113) (52) (41)
Cash from operations 106 102 229 330
EBIDT 198 298 441 586
Net capital expenditure (33) (140) (92) (158)
(-) Interest 16 24 26 26 Net investments (4) (130) (158) (99)

(-) Depreciation 8 15 21 29 Interest recd 2 - 29 37

Cash from inv. activities (35) (270) (221) (220)
PBT & extraordinary items 174 259 394 531
Issue of eq. shares - 14 - -
(-) Tax provision 62 90 134 180 Share premium - 494 - -
Change in debt - 121 (12) 20
Net Profits 112 169 260 351
Dividend paid (55) (56) (83) (96)
Fully diluted Eq. sh. O/s (mn no) 11.2 11.2 11.2 11.2 Interest paid (16) (24) (26) (26)
IPO Expenses - (80) - -
Book Value (Rs) 51.4 60.7 76.6 99.4
Cash from finan. activities (71) 470 (122) (102)
Basic EPS (Rs) 10.0 15.2 23.3 31.5 Inc/Dec. in cash - 302 (114) 8

Balance Sheet 2006 2007 2008E 2009E Key Ratios 2006 2007 2008E 2009E

Equity Share Capital 24 112 112 112 EBIDTA (%) 18.6 19.9 21.1 21.3

ROACE (%) 79.0 46.8 41.1 44.8

Reserves & Surplus 101 566 743 997
ROANW (%) 119.1 42.2 34.0 35.8
Net worth 125 677 854 1,109 Sales/Total Assets (x) 3.8 1.4 1.8 1.9

Total Debt 132 253 241 261 Debt:Equity (x) 1.1 0.4 0.3 0.2

Current Ratio (x) 1.8 3.0 2.2 2.2

Deferred Tax liability 12 8 10 12
Debtors (days) 20 15 12 11
Capital Employed 269 939 1,105 1,382
Inventory (days) 77 80 80 76

Fixed Assets 115 188 272 449 Net working capital (days) 73 69 63 60

EV/Sales (x) 1.1 3.2 2.2 1.6

Net current assets 139 553 490 539
EV/EBIDT (x) 6.0 16.2 10.5 7.7
Investments 7 137 295 394
P/E (x) 8.7 26.9 17.5 13.0

Total Assets 269 939 1,105 1,382 P/BV (x) 8.0 6.7 5.3 4.1

5
 Team

Equity Desk
R. Baskar Babu - Head - Equity Broking [email protected] 91-22-66186465
Sachin Kasera - Co-Head - Domestic Equities [email protected] 91-22-66186464

Research
Sameer Ranade - Capital Goods / Utilities [email protected] 91-22-66186381
Ajit Dange - Banking / Financial Services [email protected] 91-22-66186377
Sujit Jain - Real Estate / Construction [email protected] 91-22-66186379
Amol Rao - Hospitality / Pipes / Packaging [email protected] 91-22-66186378
Nirav Shah - Sugar / Textiles [email protected] 91-22-66186383
Nakul Dharmawat - Cement / Building Products [email protected] 91-22-66186382
Rishabh Bagaria - Auto / Auto Ancilliary [email protected] 91-22-66186391
Ruchir Desai - Technology [email protected] 91-22-66186372
Syed Sagheer - Logistics / Light Engineering [email protected] 91-22-66186390
Chandana Jha - Banking / Financial Services [email protected] 91-22-66186398
Rahhul Aggarwal - Metals [email protected] 91-22-66186388
Dipti Solanki - Media [email protected] 91-22-66186392
Faisal Memon - Associate - Metals [email protected] 91-22-66186389
Ashish Dangi - Associate - Lifestyle / Retail Products [email protected] 91-22-66186481
Ashwani Agarwalla - Associate - Agro Products / Fertilizers [email protected] 91-22-66186482

Institutional Dealing & Sales:

Janakiram Karra / Chandrakant / Rajesh Khanna / Raju [email protected] 91-22-66186326
Shivkumar / Manoj Parmar / Pratiksha / Prajapati [email protected] 91-22-66186323

Derivative Desk
Sailav Kaji - Head - Derivative [email protected] 91-22-66186344
Anand Kuchelan - Sr. Analyst [email protected] 91-22-66186344
Shailesh Kadam - Sr. Analyst [email protected] 91-22-66186349

Directors
Gaurang Gandhi [email protected] 91-22-66186400
Hemang Gandhi [email protected] 91-22-66186400
Ketan Gandhi [email protected] 91-22-66186400
Rakesh Bhatia - Head Compliance [email protected] 91-22-66186400

6
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