Page Industries- Case Study

For the purpose of this case study, Page industries Case study has been divided into 3 Time Periods (3 Parts):

1) 2009-2012 – Part 1

2) 2012-2015 – Part 2

3) May,2015 – Nov,2016 – Part 3

2009-2012 – Part 1

Screening: Let us assume that it is around 25th July 2012 and you come to know about a company named Page Industries Ltd which is growing fast, So you think of investigating it.

Business- Internal

The company is in the business of manufacturing inner wear. It has an exclusive license to produce and market inner-wear under the international Jockey brand for India, Sri Lanka, Nepal, Bangladesh and Maldives. 

The IPO of the company came in 2007.

Product Portfolio: In addition to inner wear (both men and women), the company is also slowly entering into sportswear, leisurewear segment.

Sales:The company sells through Exclusive Brand outlets (71 currently) and 19000 retail outlets across 1200 cities and towns in India. (Source: Annual Report 2012) The exclusive brand outlets are franchisees while products otherwise are sold through distributors.

Lets have a look at how the income statement of the company looks like.

P&L (Source

This cost structure model is typical of companies involved in selling to consumers (as seen from their low raw material cost- 40%). The raw material from the company seems to be the cloth it procures for manufacturing inner wear.

Manufacturing firms which having high other cost (>10%) + low raw material cost (<40%) are typically involved in selling to consumers (Or in the front of a value chain example FMCG Companies).

Further main components in other costs of the company are, Advertising was 5%  of revenue in 2010, while it is 2% now, else mainly 5% goes as Royalty.

Lets now have a look at the balance sheet to see how it looks? How much proportion is tied in fixed and working capital ? How it has changed?

Balance Sheet Page Industries (Source:

Proportion: Roughly 60% of the balance sheet assets are tied up in working capital of the company. Within working capital while receivables are almost equal to payables (< 1 month of sales), inventory is around 3-4 months of sales accounting for majority of working capital needs.

In a business involved in selling inner wear to the public, tracking inventory turnover seems to be the key variable to see the progress of business.

Over Time:  The balance sheet mainly fixed assets and working capital seem to have progressed approximately in similar ratio to sales. (There is nothing significant)

Lets look at how the company has generated cash flow over past? 

Since the asset turnover ratios and margins are almost similar there does not seem to be any difference in the cash flow profile of the business. Speaking in very simple terms in 2009, with 1 unit of assets company generated approx Rs 3 of sales with 20% margin. This profile is similar in 2012.

Cash Flow Page Industries (

Over the past 4 years the company has grown Sales more than 2 times profitably, with the help of internal accruals and modest borrowings. 

Since end of 2009 to end of 2012, over 3 years the company has generated approx FCF of 153 crores (Cash flow from Operation), using just 73 crores (Cash flow from investing), which leads to Marginal return of 200% approximately.

These details would only be relevant,  if we believe that future will most probably represent the past.

Having known the internal details of the business, now lets focus more on outside towards external aspects like competition, regulation, etc.

Business- External


The organised inner wear market in India is very small only few players like RUPA & Co (Listed), Lux (Private) and Page (Listed), they are still very small in terms of their overall reach. Majority of the market is unorganised.

Lets compare Page to its only listed competitor  RUPA & Co. From numbers and the annual report it seems the Rupa is competing with Page. Both are of similar sizes (in revenue terms). Both are offering more or less similar products.


Balance Sheet Rupa & Co (

While both are in the similar market, there are some remarkable differences:

Clearly, the selling price (as inferred through Gross margins) of Page industries is higher and so is the Operating profit margin. The difference between the two is also around 7% points. This could mean either Rupa is targeting middle segment consumer and Page is in premium segment or Page has a superior product selling at higher prices.

Another,  Big difference, between the two can be seen from the point of view of distributors- while Page commands payment from debtors within 20-25 days, Rupa gets the same within 60 days. This most probably shows Distributors and hence consumers prefer Page rather than Rupa. 

These are  signs of a moat or a strong competitive advantage within an industry. Even a basic ground level check confirms the same. Most probably page commands some premium in the minds of consumer.

Let us now try to look at the company through the lens of  Michael Porter: (These are our own observations you may differ)

1. Threat of outside entry – Easily can someone enter the industry, this threat remains high. Though very tough to capture minds of consumer. 

2. Bargaining power of suppliers – We think this is limited or not that huge as once a brand is made, it is the brand that determines from whom to get the garments knitted. Though still the Payables turnover is around 1 month for both companies. So lets say its medium.

3. Bargaining power of customers – Customers are very fragmented, hence not that high.

4. Existing Rivalry – Since most of the industry is unorganised, this does not seem to be a case of cut throat competition between the organised players as can be seen from their margins.

5. Rate of Obsolescence – Very low

6. Threat of regulation – Very low

Since it is a very traditional industry. However, these aspects may change over time as the organised market penetrates deep in India.


There are no active signs of fraud or something very unusual in the numbers. Similarly, there is no problem with Directors, Auditors, etc. Hence, probability seems very low.


Some broad level themes, which may create the opportunity for further growth of the market for inner wear:

1) As the GDP per capita of India doubles from 1500$ to $3000, there is likely to be increase in personal disposable income and as a result increase in branded inner wear market. (You may disagree with the same)

This is already happening.

2) Shift of consumers from unorganised to organised inner wear market.

Currently, the sales of only Page industries is around 7.4 crore pieces of garments, considering the population of India and the number of pieces worn by a person in a year, even if we include competitors like RUPA and LUX, the total organised market seems to be very small. (You  may disagree)

Lets look at the growth prospects for the company?

 Past Track Record: As of past 4 years the sales of the company has grown by 29% CAGR and the Fixed assets have also doubled. Despite increasing volumes, the company has been able to raise prices by improving its product mix. This is typical pattern of consumer companies. 

The company has witnessed growth almost every year since inception despite increasing scale and without much volatility, which is exceptionally rare. 

Source: 2012 Annual Report Page

Future Growth:  

A) The company has expanded its manufacturing capacity further and may do so with only marginal incremental capex. 

B)Further, the company recently got distributorship for UAE which further increases its chances for growth.

C) The company even got distributorship for sports and swimwear brand SPEEDO. This may help in improving Product Mix.

D) EBO’s expansion further improves the companies selling capabilities.

Source: 2012 Annual Report Page Industries


Operational Efficiency

 First to know the operational efficiency of the management, lets have a look at common size income statements:

The change in other cost is mainly due to operating leverage  kicking in as the advertisement costs have not risen in proportion to sales. Through common size statement we can only say that the costs which were in control of the management have not risen beyond sales.

Even the after increasing sales, the inventory turnover or working capital requirements are similar.

 However, we can’t see any substantial savings evidence.

Let’s try to have an idea through the past projects executed by the company:

Utilisation of IPO Proceeds

A) Company has shown remarkable implementation skills of the IPO Proceeds. 

B) Company has grown consistently each year since 1990.

However, still the evidence is not enough as there are no bad periods to judge the real operating performance of the management.

Capital Allocation

IPO: The management needed around Rs 62 crores. The weighted average EPS of the issue was around 10 @ price of Rs 360 offered by investment bankers, while raising the debt would have levered the balance sheet of the company taking the D/E to 1.5  costing around 10.5% (As other debt costed). 

Though cost wise both options were similar, management chose IPO. It signals slight conservatism which is good. Though still can’t say much.

Dividend vs Reinvested:  Out of Rs 220 crores of net profit generated in past 4 years, roughly half has been paid back to shareholders while the other half has been invested at very high marginal ROCE rates within the same business. This signals good capital allocation skills.

However, we still need to see the same in bad year. Overall, Management seems probably good in capital allocation.


As of management integrity is concerned, there seems to be no concern regarding auditors, directors, their remuneration or any ill conceived notions with the investors. Still there is no significant evidence to judge the same.

46 years of the relationship of Management (in Phillippines) with Jockey International slightly increases their odds of integrity. Still its not something conclusive.

As of now, we can’t say regarding management being extremely bad or extremely good.


(This is the subjective part you may give your own probable reasons or think differently)

Let us first discuss about assumptions:

We have used the current year sales of around 697 crores as the base year, as there is less cyclicality in sales of inner wear and we do not believe the sales of this year are lofty (Considering consumer facing sector).

1. Over the past 4 years the Volume growth of the company is 17% CAGR (3.5 crore pieces to 7.4 crore pieces) while the price growth has been 8.8% CAGR (Rs 65 to Rs 91/piece) resulting in 29% CAGR.

We expect over the next 10 years the volume to grow by 10% by price to 5% CAGR resulting in 15%CAGR growth in sales.

2. We expect EBIT margins to remain similar (18.5%) and the working capital needs of the company to be similar (around 3.5 months of inventory), due to the competitive ability of the company.

3. Terminal free cash flow growth rate of the company is taken at 4% considering the company will still have growth left.  As after 10 years the Volume is around 19 crore pieces and Price Rs 149 per piece, which does not seem bizarre considering the Market size.

4. Discount rate is taken as 9.25% considering cost of debt around 10% for the company and 8.5% the yield for govt bond.

Value: The value of the company comes to around Rs 2,600 crore market cap (Rs 2350 per share). Current market price is around 3000 crore market cap(Rs 2,750 per share).

Another Approach:Another way to think about it is if we are using Future P/E Multiple approach. We can give around 14 multiple to future 10 years earnings (EBT) (Interest assumed will be similar charge to earnings), At that time even we think it will have some growth left compared to a non-growing perpetuity govt bond trading at around 12 P/E (8.5%). 

This results in future market value of the company to around 6950 crores. Current market cap of the company is around 3000 crores.  This results in expected return of around 8-9% over the next 10 years.

Opportunity Cost: You may compare it to investing in a government bond/ or your own opportunity cost. So if government bond is trading @ 8.5%, you may think investing in the same rather than this company or if you can compound your capital > 10% for next 10 years, then this opportunity should not be taken.

 Now excel is a software for writing fiction so lets invert and check whether these are reasonable.  

1) Current P/Sales multiple is 3.97 and in our sales assumptions we are assuming  significant contraction in the multiple to around 2.25 (Market value in 10 years/Sales in 10 years) in future. It seems we are not overly optimistic. 

As already mentioned, our volume numbers after 10 years don’t result in some bizarre amount.

2) Current P/e Multiple is 34.2 we are giving future earnings after tax multiple of around 20.

You may have your own reasons to believe something different may happen. We think this is the most probable estimate.

As per our analysis the company is not reasonably cheap or overly expensive/ it seems to be more or less fairly priced. Now it seems to be a good company available at fair price.  

This analysis evolves with time as we get to know more probable things about the company.

But lets first think about the risks.


1. Dependency – Page is mainly dependent on Jockey, If due to some circumstance the tie up breaks, though less probable such event will materially impact the earnings of the company and our valuation estimates.

2. Management – There is no strong evidence for management to be extremely honest, though there is no bad evidence too, but still since the IPO just came 5 years before and we do not have many bad years or years with fall in sales, we can’t say much about them.


As on 27th July we may have invested around 3% of the portfolio and increased or decreased the same with time. Why 3%?

As the company has not been there for long.

Key variables to Track:

1) Growth – Volume + Prices

2) Margins

3) Inventory Turnover


The purpose of these case studies is to practice such cases and help all of us develop patterns to take similar decisions in future and avoid mistakes of both omission/comission. Its like practice before the main match. We may have made some mistakes or you may not agree with us. However, we would love to know why you think so or what you may have done differently? So that we may all learn together.  

You  may visit, main annual reports, to see how people were thinking at that time and for prices. These resources are really helpful.

Before Going further it would be better if you Analyse the case or do the valuation or allocation according to your own Method. That way it may help you to do better with the case further and sharpen your mind for future.

Pick Parts of the case study and use it as it may be helpful to you.

May we all learn and progress together. 

What Happened?

Now we would love to see the next phase that what happened after 2009-2012. We assume we hold 3% of our capital in the company.

Part 2………….(2012-2015)

(Please click Page 2 on the bottom of page.)

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