Shares of Page Industries, the licensee of Jockey International and Speedo in India and Sri Lanka, rallied 10.5 percent intraday on June 24 despite dismal earnings performance in March quarter 2020.
"Page Industries' Q4FY20 results missed estimates significantly on topline, and particularly, on EBITDA/PAT levels. Even with gradual reopening of stores, demand trend for the first 2-3 quarters of FY21 is likely to be weak," said Motilal Oswal which has neutral rating on the stock with a target of Rs 17,905 per share.
There is no evidence yet that the company has turned the corner toward recovering anywhere close to the around 30 percent earnings CAGR witnessed during FY08-18, and the Page Industries is fully valued at 50.5x FY22E EPS, the brokerage feels.
Page Industries has reported a 11 percent decline in Q4 revenue and 18.8 percent fall in volumes compared to same period last year. Motilal Oswal estimated volumes decline at 11.5 percent for the quarter.
While having a hold rating with a target of Rs 17,500 (down from Rs 18,200 earlier), Emkay Global also said Page reported an 11 percent fall in revenues (decline was 5 percent above expectations), dragged by a loss in volumes due to non-fulfilment of orders and store closures. COVID-19 impacted revenues by around Rs 150 crore in Q4FY20.
The company's profit fell 58.6 percent and EBITDA dropped 51.4 percent, while gross margin was contracted 480 basis points to 58.8 percent and EBITDA margin fell 890 bps YoY to 10.7 percent in Q4FY20 YoY.
It expects a freeze on employee hiring, IT investments and other cost optimizations to help margins in FY21.
The stock has rallied 28 percent from its lows hit in April but is still down 20 percent from its January's high. It was up 7.7 percent at Rs 20,650 on the BSE at 14:35 hours IST.
The company's commentary was encouraging, with sales surpassing expectations and pre-COVID-19 levels in some of the open stores, Emkay said, adding Page attributed the strong demand to work from home-led leisure-wear purchases, closer proximity and strong brand recall.
Page expects healthy balance sheet and strong supply chain to help gain the market share.
Company said current situation was better than feared and production facilities were running at 85 percent now. According to management, in 6-9 months, the company would be back to where it was last year unless there is a second wave of COVID-19.
Page received Rs 90 crore worth of orders in Q4FY20 that were not dispatched or billed; however, the same will now be part of Q1FY21 revenues.
In full year FY20, company's profit fell 12.9 percent and EBITDA declined 13.7 percent, but revenue grew by 3.3 percent.
Given the lockdown and delay in reaching full capacity, brokerages cut their earnings estimates for FY21 as well as FY22.
"Factoring in the delayed reopening, we reduce our FY21/22E EPS by around 10 percent. Valuations at 47x FY22EPS are not attractive yet and we await a better entry point," said Emkay Global.
Motilal Oswal said changes to the model have resulted in 26.4/2.9 percent decline in FY21/FY22 EPS estimates owing to the weak near-term topline/earnings outlook and lack of clarity on recovery.
"Page has an immensely impressive earnings growth track record. Its recent efforts on balance sheet improvement are commendable. Also, management's endeavours to improve channel efficiency and revitalize growth are likely to eventually bear fruit. However, the path to earnings recovery is unclear," it added.
Category slowdown, weak channel liquidity and competitive headwinds present other significant near-term challenges in addition to the COVID-19 impact, the brokerage feels.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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