Page Industries Limited’s December quarter (Q3FY23) results were disappointing on many counts. Disappointing operating performance put pressure on overall earnings.
Ebitda margin, at 15.8%, slipped 230 basis points (bps) year-on-year in Q3. One basis point is 0.01%. The company’s EBITDA margin was expected to remain under pressure, but the pressure is too high. As a result, net profit stood at Rs.123.7 Cr, down 29% YoY and well below the consensus estimate of Rs.168.6 Cr.
Shares of the company fell to a 52-week low of Rs 37,170 on the NSE in early trade on Friday.
In an earnings call, management said margins were adversely impacted by higher-cost inventory and lower absorption of factory overheads. According to the management, most of the high cost inventory is consumed and the benefits of low cost inventory will start flowing from the fourth quarter of FY2023.
Note that the company is not planning to hike the prices as of now. More importantly, management thinks margins could shrink substantially. However, margin volatility will also depend on growth.
Talking about growth, the management said volumes declined 11% YoY and 7% sequentially to 52.8 million in Q3FY23. Demand was tepid in the third quarter as the market didn’t pick up as much as management had expected. The management expects it to recover by Q1FY24. Furthermore, the competitive intensity has increased post the COVID pandemic with many companies entering the athleisure category.
Earnings cut due to poor performance as well as short term outlook.
Analysts at Motilal Oswal Financial Services pointed out that Q3 EBITDA margin was the lowest in a non-Covid-hit quarter for over a decade. Plus, sales remained flat after eight consecutive quarters of double-digit growth. Hence, the brokerage house has reduced the company’s earnings per share (EPS) estimates for FY23 and FY24 by around 13%.
Similarly, analysts at Kotak Institutional Equities believe that the company’s revenue growth could remain subdued in Q4FY23 due to a challenging demand environment and no incremental support from price hikes. Remember, the company had hiked prices significantly in Q4FY22 and H1FY23.
He is not everything. The company’s rich valuation multiple of around 55x FY24 PE is also a source of discomfort.
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