PAGE INDUSTRIES LTD.

‘JOCKEY’ing for leadership...

Company Visit Note

Background: PAGE Industries, promoted by the

Company Details
Genomal family was incorporated in 1994 in Bangalore
Market Capitalisation Rs. 3.7bn. for manufacture and distribution of ‘JOCKEY’ products
Book Value per share Rs. 51 in India. The company has exclusive trademark &
Equity Shares O/S (F.V. Rs 10) 11.2mn. licensing arrangement with JOCKEY International Inc.
52 Week High/Low Rs 393 /241 for use of trademark in India, Sri Lanka, Maldives,
BSE/NSE Scrip Code 532827/PAGEIND
Bangladesh and Nepal. The company currently
operates in (men’s and women’s) innerwear and
Reuters Code PAGE.BO
leisure wear category.

Investment Highlights: z Along with its dominance in men's innerwear, the

z PAGE Industries commenced operations with
manufacturing & marketing of ‘JOCKEY’ men's
range of innerwear in 1995 followed by launch of
its women's collection in 1997. The company later
diversified into leisurewear with the launch of T-
shirts, pyjamas, lounge wear, gym wear etc.
z Currently, men's innerwear contributes nearly 70%
to revenues with the rest being accounted for
equally by women's inner wear and leisure wear. It
is undertaking aggressive marketing efforts, which
are expected to bear fruit over the next three years.
z The company has established ‘JOCKEY’ brand in
innerwear, positioning it in the premium range. It
receives technical and marketing assistance from
JOCKEY International, which helps the company to
be abreast with the latest trends.
z The company recently came out with an IPO in
Feb’07 (1.41 mn shares at Rs 360/share) and raised
Rs 508 mn. The proceeds are to be utilised for
increasing its innerwear manufacturing capacities,
backward integration into manufacture of elastics,
socks and brand building exercises.
company has also been able to establish a strong
foothold in women's innerwear.
z It plans to increase its market share by expanding
its product portfolio in the premium range.
z PAGE Industries plans to expand its innerwear
garmenting facility to 74 mn pieces by FY09 from
the existing 33 mn pieces p.a. It is also setting up a
socks manufacturing facility and integrating
backward into manufacturing elastics. The total
capex is estimated at Rs 215 mn.
z At the CMP of 339, the stock trades at a P/E of 15x
and 11x discounting its FY08E & FY09E numbers. The
stock trades at an EV/Sales of 1.2x and EV/EBIDT of
6.2x FY09 estimates.
z We believe that PAGE Industries is well poised to
garner a larger market share both in the men’s &
women’s innerwear on the back of its expansion
plans and huge brand building programme.
z Considering PAGE’s ability to scale up operations
and the growth potential of the premium segment,
we initiate coverage with a ‘BUY’ recommendation
with a price target of Rs 410 over a 12 month
investment horizon.

FINANCIAL SUMMARY
Particulars (Rs mn) FY06 FY07E FY08E FY09E
Net Sales 1.012 1529 2217 2845
YoY Gr. (%) 35.6 51.1 45.0 28.3
Operating Profits 188 278 413 561
OPM (%) 18.6 18.2 18.6 19.7
Net Profits 114 176 253 345
Equity Capital (F.V. Rs 10) 2.4 11 11 11
EPS for the period (Rs.) 46.9 15.8 22.7 30.9
PE (x) 7.2 21.4 15.0 11.0
EV/Sales (x) 0.9 2.3 1.6 1.2
EV/EBIDT (x) 5.1 12.4 8.6 6.2

May 03, 2007 Sensex :13934 Nifty : 4117 CMP : 339 Recomm : BUY

Analyst - Ashish Dangi

1
 BACKGROUND PAGE INDUSTRIES LTD.

Current Operations & business model The company is also integrating backward into
PAGE Industries commenced operations in 1995 manufacture of elastics. This would entail a total capex
through a manufacturing unit at Bangalore for of Rs 5.8 mn financed from the IPO proceeds. It is also
manufacturing ‘JOCKEY’, a leading premium men’s setting up a facility for manufacturing socks at a capex
innerwear brand. The company has steadily grown of Rs 11 mn. These two integration projects will help
its presence in the domestic market with marketing improve margins as it will enable PAGE to have greater
assistance from JOCKEY International Inc. control over a significant component of
manufacturing cost.
It’s operations are currently focussed on garmenting
and packaging of JOCKEY products. The process of Future Growth Strategy
knitting and processing is outsourced by the company.
Exclusive brand outlets
It sources yarn, which is the key raw material, and
supplies it to approved fabric manufacturers. The The company intends to set up ‘Exclusive Brand
company works in close association with its vendors Outlets’ (EBO’s) and large format flagship stores.
so as to maintain stringent control over fabric quality. Flagships stores shall occupy around 2,000 sq. ft. and
The manufactured fabric is then converted into shall display the entire range of ‘JOCKEY’ products.
garments at its facility as it endeavours to maintain The company proposes to add two flagship stores
high levels of quality with respect to garmenting, every year over the next three years and intends to
thereby ensuring consistency in the product. acquire properties on long-term lease instead of
Manufacturing capacity outright purchase. Presently, It has 21 EBO’s spanning
Its garmenting capacity stands at 33 mn pieces p.a. all the major Tier-I cities and plans to double this
for innerwear, which is being expanded to 47 mn number. These EBO’s shall be set up by franchisees
pieces p.a. by FY08 and to 74 mn pieces by FY09. The with support in the form of minimum guaranteed sales
capex for the same is estimated at ~Rs 199 mn. from PAGE.
Brand building
JOCKEY’s product portfolio PAGE’s brand strategies are aimed at establishing a
Men Women Leisure Wear lifestyle positioning for all its products. Since its
launch, the company has positioned its products at
Inner Tees Brassieres Bermudas
the premium end and have emerged as a preferred
Vests Panties Boxers
brand in the segment.
Briefs Crop Top Jersey Pants
Trunks Short Top Round neck T-shirts As part of its brand building exercise, it has earmarked
Therwal Wear Camisole Polo shirts Rs 160 mn out of IPO proceeds. This would include
Socks Legging ad spend on television, display modules upgradation
Spaghetti Top
and appointment of brand ambassador for women’s
Thermal Wear
innerwear.

Categorywise sales breakup Geographical sales mix

West
Hosiery Stores
South 25%
55%
Large format stores 30%
8%

MPO’s
15% East
14%
EBO’s MBO’s North
4% 18% 31%

Source: Company, PINC Research Source: Company, PINC Research

2
 INDUSTRY PAGE INDUSTRIES LTD.

Currently, the company enjoys preference from Future product launches in innerwear for men
retailers in the form of allotment of strategic locations include the 3D Innovation and International
within stores. Retaining this advantage for its current collection. In women’s innerwear, additional range
and future retail stores remains a vital ingredient in of brassieres and coloured lingerie are proposed to
ensuring future growth prospects. be added. In leisurewear, the company intends to
add nightwear range for men.
Distribution network
JOCKEY has a retail presence in over 14,000 stores Differentiated packaging
across 1,100 cities and towns with a distributor The company also plans to introduce larger pack sizes
strength of 144. The company is looking at containing three or four pieces per pack to be sold in
aggressively increasing this base through hyper markets. This is part of the overall strategy to
appointment of distributors for Tier-II towns. introduce value packs instead of offering products at
The company intends to concentrate on increasing lower prices for hyper markets.
its EBO sales by expanding its franchisee network. Apparel & innerwear industry
New Launches
The Indian apparel market is pegged at Rs ~880 bn
Continuing its trend of launching innovative products and is expected to grow at ~15% CAGR over the next
to widen its product profile, PAGE plans to add newer 3-4 years. The innerwear & nightwear industry
range in the innerwear and leisure wear segments in accounts for ~10% of the apparel industry.
the super premium category.
The intimate wear market in India is estimated at ~Rs.
~88 bn of which, innerwear and lingerie is estimated
to be ~Rs 60 bn.
Industry Overview
Growth in innerwear market was 13.2% in FY04 as
Apparel Market Rs 880 bn
compared to 12.1% in apparels. The upward trend has
continued with a growth of 14.2% in FY05.
Intimate wear (innerwear+nightwear) is largely
Outerwear Intimate wear dominated by women’s wear. However, only 10%
Rs 792.0 bn Rs 88.2 bn women’s intimate wear currently accrues from the
branded segment as compared to 65% for men’s
innerwear. Thus, there exists considerable potential
for converting consumers of unbranded lingerie to
Innerwear Night wear branded ones.
Rs 60.2 bn Rs 28.0 bn
Men’s Innerwear
The men’s innerwear market is estimated at ~21.8 bn
Mens innerwear Womens inner with mid segment to premium segment accounting
(Rs 21.8 bn) Low wear (Rs 38.4 bn) for ~Rs 11.5 bn (50%). The men’s innerwear segment
currently contributes 70% to revenues through its
Economy Basic, Elance & Classic range in the mid-premium,
Zone & Sports Gold collection in the premium segment.
Rs 11.5 bn Middle
(Jockey Growing market
Universe) Rs 4 bn
Premium (Jockey The medium segment grew at 6% in value terms in
Universe) FY05. With the launch of its 3D innovation and
Super International collection, the company is well poised to
Premium cater to the fast growing super-premium segment,
which grew by 40% in the same period.
Source: Images-business of fashion Oct’06. Vol. VII

3
 OUR VIEW PAGE INDUSTRIES LTD.

Increasing awareness Increased contribution

Increased brand awareness coupled with higher
disposable incomes is leading to a change in
consumer behaviour towards higher value products.
This has largely been witnessed in the 18-34 year age
group, which form bulk of the working population.
This will drive volumes and average realisations as
market awareness increases towards factors like
comfort and style.
Few players with pan-India presence
Jockey and VIP are the only two brands with a pan-
India presence and the rest largely having a regional
stronghold. JOCKEY’s positioning in the premium
segment shall work in its favour vis-a-vis its competitor,
which is perceived more as a mass brand.
Also, JOCKEY emerges as a clear leader in the
premium range, far ahead of Triumph International,
Hanes (Sara Lee Apparel), Van Heusen (Madura
Garments) etc. Thus, it stands to garner a larger share
of the expanding market.
Womens Innerwear-a huge opportunity
The women’s innerwear market is estimated at ~Rs
38.4 bn with premium range valued at Rs 4 bn. Nearly
70% of women’s innerwear market is in the hands of
unorganised players. Also, there is not much presence
of prominent national players in the segment. This
leaves plenty of opportunity for strong brands like
JOCKEY to expand their product range.
Growth in the premium (15% CAGR) as well as super-
premium women’s range (18% CAGR) is an indication
of changing preferences towards branded products.
Currently, the women’s premium segment contributes
~15% to revenues with women’s lowers range
accounting for ~77%. With increased brand
awareness and new launches in the uppers range, we
expect this segment to garner a higher share of
revenues over the next 2-3 years.
Leisure wear
The intimate wear market has been experiencing
considerable value addition. This demonstrates that
the organised branded segment is increasing its
share in the intimate wear and overall market.
PAGE intends to add sleep wear for men to its existing
product portfolio of bermudas, boxer shorts, T-shirts
etc. The sleep wear range shall also be extended for
women by FY08-end. With 14.2% growth in the market,
JOCKEY should be able to further strengthen its
position in the market.
At the current market price of 339, the stock trades at a
P/E of 15x and 11x discounting its FY08E & FY09E
numbers. The stock trades at an EV/Sales of 1.2x and
EV/EBIDT of 6.2x FY09 estimates.
We believe that PAGE industries is well poised to garner
a larger market share in both the men’s & women’s
innerwear aided by its expansion plans and huge brand
building programme.
Considering PAGE’s ability to scale up operations and
the growth potential of the premium segment of
innerwear market, we initiate coverage with a ‘BUY’
recommendation with a price target of Rs 410 over a 12
month investment horizon.

Men’s Innerwear Women’s Innerwear

Volume Grow th Value Grow th Volume Grow th Value Grow th
50 50 46
40
40 40
31.3
27.8
30 30
20.9
18
20 15 15 12.4 20 15 14
7 10 10
10 6 4 4.7 10 6
2 4
0 0
Super Premium Medium Low Very Low Super Premium Medium Low Very Low
Premium Premium
Source:Images-business of fashion Oct’06. Vol. VII Source: Images-business of fashion Oct’06. Vol. VII

4
 F I N A N C I A L S TAT E M E N T S PAGE INDUSTRIES LTD.

Year Ended March (Figures in Rs Mn)

Income Statement 2006 2007E 2008E 2009E Cash Flow Statement 2006 2007E 2008E 2009E

Revenues 1,012 1,529 2,217 2,845 PBT & Extraord. items 174 267 383 523
Depreciation 8 12 23 31
Total Expenditure 824 1,251 1,804 2,284
Interest & dividend inc. - (23) (21) (25)

Operating Profit 188 278 413 561 Interest paid 16 22 28 32

Tax paid (60) (91) (130) (178)
Interest & dividend income 10 23 21 25 Other Adjustments - 17 35 53
Brand Building Expenditure (2) (84) (91) (90)
EBIDT 198 301 434 586
(Inc/Dec in working capital (30) (22) (44) (88)
(-) Interest 16 22 28 32 Cash from operations 106 98 182 258
Net capital expenditure (33) (84) (187) (70)
(-) Depreciation 8 12 23 31
Net investments (4) (408) 20 (103)
PBT & extraordinary items 174 267 383 523 Interest recd 2 23 21 25
Cash from investing activities (35) (469) (146) (148)
(-) Tax provision 59 91 130 178
Issue of eq. shares - 14 - -

Net Profits 114 176 253 345 Share premium - 494 - -

Change in Loans - 88 21 20
Fully diluted Eq. sh. O/s (mn no) 2.4 11.2 11.2 11.2 Eq. Dividend paid (55) (65) (96) (96)
Interest paid (16) (22) (28) (32)
Book Value (Rs) 51.4 66.8 80.8 103.1
Cash from financing activities (71) 510 (103) (108)
Basic EPS (Rs) 46.9 15.8 22.7 30.9 Inc/Dec. in cash - 139 (67) 2

Balance Sheet 2006 2007E 2008E 2009E Key Ratios 2006 2007E 2008E 2009E

Equity Share Capital 24 112 112 112 EBIDTA (%) 18.6 18.2 18.6 19.7

ROACE (%) 79.0 46.4 38.6 43.0

Reserves & Surplus 101 633 790 1,039
ROANW (%) 119.1 40.5 30.7 33.6
Net worth 125 745 902 1,150
Sales/Total Assets (x) 3.8 1.6 1.9 2.0
Total Debt 132 220 241 261
Debt:Equity (x) 1.1 0.3 0.3 0.2
Deferred Tax liability 12 12 12 12 Current Ratio (x) 1.8 2.1 1.7 1.8

Capital Employed 269 977 1,155 1,423 Debtors (days) 20 16 14 13

Inventory (days) 77 62 56 57
Fixed Assets 123 195 359 398
Net working capital (days) 73 56 46 46
Net current assets 139 300 277 367
EV/Sales (x) 0.9 2.3 1.6 1.2
Investments 7 415 395 498
EV/EBIDT (x) 5.1 12.4 8.6 6.2
Miscellaneous Expenditure not w/off 0 67 123 161 P/E (x) 7.2 21.4 15.0 11.0

Total Assets 269 977 1,155 1,423 P/BV (x) 6.6 5.1 4.2 3.3

5
 Team
Equity Desk
R. Baskar Babu - Head - Equity Broking baskarb@pinc.co.in 91-22-66186400
Sachin Kasera - Co-Head - Domestic Equities sachink@pinc.co.in 91-22-66186384

Research
Sameer Ranade - Capital Goods / Utilities sameerr@pinc.co.in 91-22-66186381
Nirjhar Handa - FMCG / Pharma / Paints nirjharh@pinc.co.in 91-22-66186400
Sujit Jain - Real Estate / Construction sujitj@pinc.co.in 91-22-66186379
Amol Rao - Hospitality / Pipes / Packaging amolr@pinc.co.in 91-22-66186378
Nirav Shah - Sugar / Textiles niravs@pinc.co.in 91-22-66186383
Nakul Dharmawat - Cement / Building Products nakuld@pinc.co.in 91-22-66186382
Rishabh Bagaria - Auto / Auto Ancilliary rishabhb@pinc.co.in 91-22-66186391
Ruchir Desai - Technology ruchird@pinc.co.in 91-22-66186372
Syed Sagheer - Logistics / Light Engineering syeds@pinc.co.in 91-22-66186390
Chandana Jha - Banking / Financial Services chandanaj@pinc.co.in 91-22-66186398
Rahhul Aggarwal - Metals-Large Cap rahhula@pinc.co.in 91-22-66186388
Dipti Solanki - Media diptis@pinc.co.in 91-22-66186392
Faisal Memon - Associate - Metals-Small & Mid Caps faisalm@pinc.co.in 91-22-66186389
Ashish Dangi - Associate - Lifestyle / Retails Products ashishd@pinc.co.in 91-22-66186481
Ashwani Agarwalla - Associate - Agro Products / Fertilizers ashwania@pinc.co.in 91-22-66186482
Abhishek Gangwani - Associate - Electronics / Hardware abhishekg@pinc.co.in 91-22-66186385

Institutional Sales:
Jaykrishna Gandhi jaykrishnag@pinc.co.in 91-22-66186327
Rajesh Khanna rajeshk@pinc.co.in 91-22-66186328

Dealing
Bhavik Broker / Chetan Trivedi equity@pinc.co.in 91-22-66186306
Manoj Parmar / Raju Bhavsar equity@pinc.co.in 91-22-66186323

Derivative Desk
Sailav Kaji - Strategy sailavk@pinc.co.in 91-22-66186341
Anand Kuchelan - Analyst anandk@pinc.co.in 91-22-66186349
Nilesh G. Inamdar - Dealer nileshi@pinc.co.in 91-22-66186347

PMS Desk
Vivek Agrawal viveka@pinc.co.in 91-22-66186373
Hormasd Sumariwalla hormasds@pinc.co.in 91-22-66186389

Directors
Gaurang Gandhi gaurangg@pinc.co.in 91-22-66186400
Girish Bakre girishb@pinc.co.in 91-22-66186400
Hemang Gandhi hemangg@pinc.co.in 91-22-66186400
Ketan Gandhi ketang@pinc.co.in 91-22-66186400
Rakesh Bhatia - Head Compliance rakeshb@pinc.co.in 91-22-66186400

6
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