Critical E-commerce Expansion And Smart Technology Will Propel Revenue Growth And Strengthen Margins

Key Takeaways

• Expansion in e-commerce and retail presence, especially in smaller cities, could drive future revenue growth through broader market penetration.
  
• Optimized working capital and cost management strengthen margins, enhancing cash flow and potentially boosting earnings.
  
• Competitive pressures, regional disruptions, and increased inventory days strain revenue, net margins, and cash flow amidst necessary IT and marketing investments.

Catalysts

Manufactures, markets, and distributes textile garments and clothing accessories for men, women, and junior girls and boys in India and internationally.

• Page Industries is expanding its reach through a strategic focus on e-commerce and an impressive growth rate of 41% in the online channel for H1, which could positively impact future revenue growth.
  
• The company has optimized its working capital and inventory management, reducing working capital days from 75 to 61, which could improve net margins by maintaining operating efficiency and optimizing cash flow.
  
• Initiatives to broaden the customer base and improve product quality have led to a successful strategic marketing campaign, supporting revenue growth and potentially enhancing earnings.
  
• Page Industries plans to expand its retail presence, including efforts in metros and Tier 2 and 3 cities, which is expected to drive future revenue growth through increased market penetration.
  
• Continued utilization of smart technology and strong management of operational expenses have strengthened EBITDA margins, indicating potential for sustained margin improvement and increased earnings.

Page Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Page Industries's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.1% today to 14.0% in 3 years time.
• Analysts expect earnings to reach ₹9.6 billion (and earnings per share of ₹858.51) by about January 2028, up from ₹6.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹10.7 billion in earnings, and the most bearish expecting ₹8.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 76.5x on those 2028 earnings, down from 81.2x today. This future PE is greater than the current PE for the IN Luxury industry at 27.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.15%, as per the Simply Wall St company report.

Page Industries Future Earnings Per Share Growth

Risks

• Disruptions such as regional floods and protests have impacted retail activities, potentially affecting revenue and net margins.
  
• Inventory days increased from 93 to 168 days since the end of FY '24, which may strain working capital and potentially affect cash flow and earnings.
  
• Pressure from competition is high, especially during a weak consumer environment; this may impact revenue growth and market share.
  
• Continued investment in IT and marketing, although necessary, may temporarily increase operating expenses and impact net margins.
  
• The athleisure and women's segments face competitive challenges, which might affect their growth trajectories and contribute less to the company's overall revenue.

Valuation

• The analysts have a consensus price target of ₹44768.82 for Page Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹57500.0, and the most bearish reporting a price target of just ₹33129.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹68.6 billion, earnings will come to ₹9.6 billion, and it would be trading on a PE ratio of 76.5x, assuming you use a discount rate of 14.2%.
• Given the current share price of ₹45190.35, the analyst's price target of ₹44768.82 is 0.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.