Page Industries- Case Study

2012-2015 – Part 2

We will distribute this part over three years  July 2013, July 2014, July 2015.

July 2013

Let us assume that today the date is around 26th July 2013. Now we think of reevaluating Page as  one year has gone since our holding.

The sales of the company has grown by 26%, similar is the growth rate of Net Profit – resulting in similar margins as before. The growth is way better than expectations.

2013 Annual Report

The Return on Capital employed of the business is almost similar as 2012, around 55% levels. It further means that the growth of working capital and fixed assets is in similar proportion to sales (Around 26%).

Inventory Turnover, Debtors Turnover, Creditors Turnover and Fixed Asset Turnover Ratios too are similar.

Source: screener.in

In other words, the marginal capital invested in the company in 2012, has grown @26% far better than what we had expected.

Capex:

The company reinvested further Rs 45 crores out of free cash flow generated of 87 crores.

Source: screener.in

There is some capacity expansion since last year.

During this year around 29 new EBO’s have been opened. SPEEDO generated around 16 crores of sales.  

Source: 2013 Annual Report

Roughly 5% of the growth came from Price increase while the rest 22% was due to volume growth. It seems jockey is commanding some pricing power in inflationary times, while it would be interesting to see what happens in deflationary times.

It seems the growth prospects of Page are still intact.

Financing:

This growth is majorly financed through internal accruals while slight increase in debt, keeping the D/E ratio below 0.5. Approximately 50% of the earnings was paid as dividends.

There seems to be no big issues in financing.

Concern: There has been promoter selling going on, however this is a continuing phenomena since IPO.

Share Price:
Source: in.tradingview.com

The price of the company has grown by approx  50%, which means the P/E has expanded slightly to 40 from 33 levels last year.

This does not seem to be something bizarre overvaluations considering the growth prospects of the business. We may have slightly may be added to 3.5%. However, this is entirely one’s personal choice and you may disagree. We would love to hear what you would have done differently?

While this seems to be easily said in theory, many times during the year one may have doubts arisen in the mind and holding through an year with dips may have been tough in practice. However, cases like these help us strengthen our mind.

July 2014

Let us assume that today the date is around 26th July 2014. Now we think of reevaluating Page as another year has gone since our holding.

This year the growth in sales is way beyond expectations, 36% even the growth in Profit is 41%, increasing the margins slightly. Obviously growth comes in spurts, and we still believe the company to grow at around 15% over the longer term as did in 2012 valuations.

Roughly 27% growth is due to Price Increase and 8% due to volume. It seems the company is having some pricing power – meaning it has been able to increase price by slightly widening product mix.

Source: 2014 Annual Report
Source: screener.in

The Return on Capital employed of the business is almost similar as 2012, around 55% levels. It further means that the growth of working capital and fixed assets is in similar proportion to sales (Around 36%).

Inventory Turnover, Debtors Turnover, Creditors Turnover and Fixed Asset Turnover Ratios too are similar. In fact, the Fixed asset turnover has improved slightly, may be the company is investing more in marketing now.

Source: screener.in

In other words, the marginal capital invested in the company in 2013, has grown @36% far better than what we had expected, further improving the quality of the business or keeping it same. (Quality + Growth)

Source: screener.in

There is capacity expansion since last year.

During this year around 41 new EBO’s (29 last year) have been opened. SPEEDO generated around 20 crores (16 crore last year) of sales.

Source: Annual Report 2014

This year the company sold around 9 crore pieces. Taking the capacity to 16.2 crore and slowly to increase it to 23 crore pieces, we think there won’t be further major growth capex by the company as the company is already well poised for future growth.

Annual Report 2014

Slowly, the product profile of the company is widening too, as sales are now split into parts.

As the industry and company achieves scale, our estimates were around 19 crore pieces in 10 years + 5% annual price growth rate in 10 year. Since some of it has happened we think the high growth rates may slow or normalise slowly now.

As of now, the growth prospects are still good.

Financing:

This growth is majorly financed through internal accruals while slight increase in debt, keeping the D/E ratio below 0.5. Approximately 50% of the earnings was paid as dividends.

There seems to be no big issues in financing.

Share Price

1 Year View Source: in.tradingview.com
3 Year View Source: in.tradingview.com

Over the past 1 year with fluctuations, the price of the company has appreciated by 65%, the EPS of the company has appreciated by 37% taking the P/E’s of the company from 40 to 53 levels.

If we redo valuation using assumptions used in 2012 and revalue the company again (considering the 10 year yield is almost similar to 2012) The markets are assuming very high growth rates. However, selling just due to high price is not a good option as the quality of business seems intact. We don’t think adding at these prices is a good decision in any way.

You may think the other way we would love to know why you may have thought the other way round. Decisions seem easy in hindsight, cases help us strengthen our own mindset and trust/test our framework .

July 2015

Let us assume that today the date is around 26th July 2015. Now we think of reevaluating Page as another year has gone since our holding.

This year the growth in sales in PAGE  is way beyond expectations, 30% even the growth in Profit is 27%, keeping the margins similar. These high growth rates are good, but we ought to be cautious, to not project them till the end.

Annual Report 2015
Source: screener.in

The Return on Capital employed of the business is almost similar as 2014. It further means that the growth of working capital and fixed assets is in similar proportion to sales (Around 30%).

Inventory Turnover, Debtors Turnover, Creditors Turnover and Fixed Asset Turnover Ratios too are similar.

Source: screener.in
Capex:

The company reinvested further Rs 50 crores (Very less for maintenance capex, mainly it seems for growth) out of free cash flow generated of 167 crores.The company opened  59 EBO’s this year. SPEEDO achieved sales of around 2.93 crores.

Source: screener.in

3 Year View

If we remember from our assumptions, in 2012, Despite assuming high growth rates, by the end of around 2022 we were expecting around 19 million pieces, that could have been sold by Page. However, it what was shocking was the price growth PAGE could command.

As the company is already having capacity of 19.4 million pieces, taking data from past 3 years it seems the capex phase of PAGE is over, now only with minor additions to capex growth could be achieved.   The company was doing capex of around 50 crores each year to generate free cash flow, however major capacity has already been added. There will be most likely more free cash flow for shareholders.

Source: 2015 Annual Report

Share Price

1 year view, Source: in.tradingview.com
3 Year view, Source: in.tradingview.com

Over the past 1 year, the EPS of the company has grown by about 27%, while the Price has almost doubled, resulting in the rise of PE from 53 to 84 levels.

These are dangerous price levels, however the growth of the company seems intact, you may sell or trim slightly, however completely exiting may be more risky.  As longevity + Quality of the business seems intact, Exiting may also depend on one’s own opportunity set.You may think otherwise, we would love to know why.

Purpose

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 screener.in, main annual reports, valuepickr.com to see how people were thinking at that time and in.tradingview.com for prices. These resources are really helpful.

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

May we all learn together

What Happened?

Now we would love to see the next phase that what happened after 2012-2015. 

Part 3………….(2015-2016)

(Please click Page 3 on the bottom of page)

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