After a weak quarter, Page may take time to turn over a new leaf

In Q3, revenue growth was slow at 2.8% year-on-year to ₹1,223.3 crore. Sales volumes dipped by 11%. Weak revenue growth, high-cost inventory, lower absorption of factory overheads and elevated advertisement spending weighed on profitability. This meant Ebitda margin fell by 532bps to 15.8%, far below analysts’ estimates of 19.3%. One basis point is 0.01%.

View Full Image

The management’s commentary points to muted consumer sentiment and weakness in retail demand. In an earnings call, company executives said the volume decline was led by lower primary billings on auto replenishment system (ARS) software implementation. Plus, the demand for athleisure and masks was subdued. Given the spill-over effect of ARS implementation impact and the sluggish demand environment, the management expects Q4 to be weak as well. It also highlighted that competitive intensity has increased after the covid with many companies having entered the athleisure category.

In response, several broking firms trimmed their earnings estimates for Page. “With lower demand guidance by the management, we cut our earnings per share estimates for FY23, FY24 and FY25 by 19%, 13% and 5%, respectively,” said Centrum Broking Ltd. With people resuming offices after covid restrictions eased, the demand for the athleisure segment has seen a moderation. According to the management, most of the high-cost inventory is consumed and the benefits of low-cost inventory will flow from Q4 onwards. This offers some respite, but note that in the past the company has seen margins in the 20-21% range; so the revival would be gradual, said analysts.

Meanwhile, the stock closed 2% up on Friday, seeing a marginal rebound from its low. So far in CY23, the stock is down by 9.5%. “We like Page’s aggressive distribution expansion pace, however, the absence of pick-up in volume growth is concerning,” said Varun Singh, assistant vice president at ICICI Securities Ltd. Also, revenue growth was unimpressive and in the recent quarters, there has been volatility in Page’s earnings performance, which makes investors uncomfortable, he added.

Valuations of the Page stock don’t appear cheap. Bloomberg data shows the stock trades at 57x times estimated earnings for FY24. Recovery in demand leading to strong revenue growth is a key trigger for the stock.