Page Industries, the exclusive licensee of Jockey International Inc (USA) and Speedo was the darling of investors for the better part of the last decade and has doubled investors’ money every 18 months since the last 10 years. However, the stock has been declining since the last 2 quarters and has corrected nearly 44% since August 2018. A mismatch in festive seasons had impacted revenue in Q2FY19. However, Q3 benefitted from this mismatch and reported double-digit growth in volumes. Gross margin improved by 153bps YoY to 57.1%, led by stable yarn prices (INR 290/kg) and price increase.
The company has a strong brand recall backed by healthy fundamentals – a good track record ROE and RoCE, debt to equity of 0.1, and maintains a healthy dividend payout of 41.22%. The company has aggressive store expansion plans wherein it expects to take the total store count from 540 stores to 1000 stores over the next two years.
The company has always traded at a valuation premium of 35% compared to its peers. Page industries enjoyed a near monopolistic position in the men’s innerwear segment, but rising competition led to some erosion in the historical P/E that the market was assigning to the company. The P/E which was 100.17x in August has corrected to 57.96x. The recent correction seems to have discounted a lot of these fears. But owing to its healthy volume growth, strong fundamentals and market leadership we believe that it is an ideal time to enter a fundamentally strong company like page industries after the current decline.
The fall in Page Industries has halted at the Fibonacci confluence zone of 20,000 -20,300. Last week the stock made a Doji on the Fibonacci support. The Doji has been circled on the charts.Hence we have a strong support in the form of Fibonacci confluence zone and on the support zone we have a reversal candle in the form of Doji. Hence a reversal from the current levels is very high. A look at the RSI is further giving a positive divergence hence even the momentum indicator is indicating reversal. Since the reversal signals have come on a weekly charts a bounce back of 15 to 20% is definitely on the cards from the current level of 21730.