Page Industries IPO Analysis

Good business but tight price

Page Industries (PIL) commenced operations in Bangalore in 1995 with the key objective of bringing the innerwear brand, Jockey to India. Over the last 11 years, the company has grown from three factories to eight, and from 249 employees to over 3,200 employees. From 800 stores in 1996, its products are now sold in over 14,000 outlets in over 1,100 cities and towns spanning across the country.

The promoters (Genomals) had been associated with Jockey International Inc as their sole licensee in Philippines. Jockey International later proposed that PIL take up the India licence and set up operations in the country to cater India, Bangladesh, Nepal and Sri Lanka.

At time when there was no quality international innerwear brand retailing in India, PIL introduced a wide range of quality products for men, women and children as well innovative marketing concepts such as display modules aimed at enhancing the consumer’s involvement with purchase.

Presently, PIL has a capacity of around 33 million pieces per annum. The company generates 70% of its revenue from men’s wear, 15% from women’s wear, and 15% from leisurewear. It currently focuses on the premium segment and plans to enter the super-premium segment in each of these categories.

PIL plans to raise around Rs 100.94 crore - Rs 110.75 crore (depending on the price band). Of this, Rs 50-55 crore will be through offer of sale by the promoters. The balance will be used to fund brand building, expansion and modernisation. The company will spend around Rs 23.35 crore over the next three years on brand building that will include TV advertising, advertising in lifestyle supplements, and opening of exclusive stores. It will also spend Rs 30.10 crore to expand its existing manufacturing facilities of garments, socks, accessories like elastics, setting up new facilities for manufacturing of products at Bommasandra, Bangalore; modernise production process; implement new generation ERP software (SAP),and purchase corporate head office in a central location in Bangalore. The balance will be spent to meet general corporate purposes and expenses of this offer.

Post-expansion, PIL’s capacity will increase to 47 million pieces per annum in FY 2008 and 74 million pieces in FY 2009.

Strengths

* ‘Jockey’ is a well-established brand in the market.

* PIL has a good and growing retail presence. Brisk expansion of organised retail is positive for the branded innerwear segment.

Weakness

* PIL could face severe competition from the existing apparel brands that have now launched innerwear as their brand extension. Moreover, many foreign brands are lined up to enter the Indian market. Overall, the innerwear market will remain highly competitive and the competition in the premium segment will also grow.

* The company is the licencee of the Jockey brand and does not own the brand. It pays royalty to Jockey International, i.e., around 5% of its net sales.

Valuation

The annualised EPS for the six months ended September 2006 stood at Rs 16 resulting in a price to earning (PE) multiple of 22.5 to 24.7 times at the lower and upper band of Rs 360 to Rs 395. While the textile sector is attracting low PEs, the comparable listed company Maxwell Industries (which owns the more popular VIP and Lovable brand) trades at a TTM P/E of around 26 times. Notably, Maxwell is undergoing restructuring through merger of group companies/strategic tie-ups and the current price is factoring the benefits of that restructuring, which is not visible in its EPS currently. Moreover, Maxwell owns the its brands, while PIL is only a licencee of the Jockey brand.