THE CENTURION: PAGE INDUSTRIES BECOMES A 100 BAGGER

THE CENTURION: PAGE INDUSTRIES BECOMES A 100 BAGGER

JOCKEY’S 100X JOURNEY

PAGE IND IPO IN 2007

Issue Price: 360

CMP:   36000

The adage for horse racing, “Don’t bet the horse, bet the jockey!” couldn’t be more literally applied to this wealth creator on Dalal-Street. As the stock price of Page Ind hit `36000 mark on the bourses on Aug 28, 2018 it was a moment of reckoning as it marked the stock’s 100X journey or 9900% returns to shareholders from the IPO Issue price at `360/share.

JOCKEY’S 100X JOURNEY

Issue Price X Minimum Lot: 360 X 15 = Rs. 5400

Today Those 15 Shares = Rs. 540000

Jockey in 2007 = Saville Row Suit in 2018

While recent followers of the stock wouldn’t be surprised with these galloping moves on the stock, it’s interesting to know that the company’s IPO in Feb 2007 saw a tepid response. Applicants offered to buy the stock at the lower end of range `360-395/Sh. If that surprises you in hindsight, fathom this, Page Industries Listed on March 16, 2007 at 341.9 (5% below issue price of 360) and witnessed continuous selling to close at 282.1 that day. It took Page Industries one whole month to get past the Issue Price of 360.

JOCKEY’S 100X JOURNEY

Stock                     +100X

Revenue                 +17X

EBITDA                 +20X

Net Profit               +21X

#Since-2007

JOCKEY’S 100X JOURNEY

Revenue

FY07                 148 Cr

FY18                 2551Cr

11 Yr CAGR      30%

EBITDA

FY07                 27 Cr

FY18                 541 Cr

11 Yr CAGR      31%

Net Profit

FY07                 17 Cr

FY18                 347Cr

10 Yr CAGR      32%

However, moving beyond the stock price gains the story and growth of Page Industries has been a remarkable one. Established in 1995, Page Ind gets its name from first two letters of the name & surname of Parpati Genomal; the founders' mother. Page Industries Limited is exclusive Licensee of Jockey International Inc. (USA) for India, Sri-Lanka, Nepal, Bangladesh and Maldives. The founders, Genomal group have been associated with Jockey International Inc for over 50 Years. They have been their sole licensee in Philippines for over a decade before entering other geographies. Recently, Jockey renewed its license with Page Industries for India until 2040.

Since listing, the company’s revenue has multiplied by a factor of 17 & their profitability has increased by 21 times. This, without compromising on financial discipline, Page Industries’ Return on Equity has been maintained over 50% for the last 10 yrs and the management sees no reason for it to go below that.

Strengths

Brand’s Market leadership

Jockey Renewed License for India till 2040

Strong Distribution

Opportunity to gain share after GST

                               10Yr Avg RoE = 50%                          

Co Tapping Into

 Women’s Wear

Leisure Wear

 Expanding Speedo’s Biz

Mgmnt Guidance

Revenue Growth of 20% over next 20 years

Margins Seen B/w 21-22%

ROE to Remain Above 50%

While many argue that Page Industries is expensive at 68X FY20e Earnings, many would say that the company’s brand strength, distribution leadership, historic financial growth, and strong future growth plans justify these valuations. What happens to the stock price is anyone’s guess, but as far as Page Industries business mantra is concerned, I’ll quote Mr. Ashok Genomal, who said to me in an interview not too long ago “Our biggest competition is ourselves”

THE VALUATION PICTURE: PAGE INDUSTRIES

Trades at 68X FY20e

Hey FMCG, Thank You for your Ads!

Hey FMCG, Thank You for your Ads!

Around the same time last year, I was wondering where all the FMCG Ads have gone. As a student of Advertising and a follower of Consumer companies, it was painful to see boring and ordinary advertisements from some of the best advertisers from the consumer space.

Here’s the link to that public rant – Hey FMCG, Where’s My Ad?

http://theconsumptionrepository.blogspot.com/2017/08/hey-fmcg-wheres-my-ad.html

 Reposting an excerpt from my plea to further drive home the point –

As an FMCG analyst, it's a joy to witness a great campaign from an industry leader & it can actually do wonders for brand sales. While, it's difficult to pinpoint the exact correlation between a successful campaign & rising sales, it's anecdotal evidence that suggests the best years for Pepsodent were during the Dishoom Dishoom campaign, for Jubilant Food during the Paresh Rawal 30 mins Nahi to free ads and for HUL during the various Surf, Lux & Dove ads.

So here's a plea to all the moguls of FMCG and Sultans of Advertising - The Ogilvies, the Mathers, the Prasoons, The Piyushes, The Lowes & the Lintases!!!!  Bring out a great campaign! 

The FMCG Companies we speak to talk about great tailwinds for the sector, especially post the current DeMo & GST disruption. They say - Rural Recovery, Monsoons, GST and Increased premiumisation are going to sail us through. I say, get a great campaign going and blow some wind beneath those sails! 

The last time a great campaign took away the nation's breath, resulted in Mr Modi garnering the biggest electoral mandate in recent times. So for the next leg of great campaigns I'd say, "Abki Baar, Good FMCG Ads, yaar!" 

A Year Later, there’s optimism in the air.

-          Most FMCG Stocks are at record highs

-          Managements have made positive observations about the demand scenario

-          Brokerages have written about increasing innovation in the sector that usually precedes a demand surge.

-          Retailers have made public statements about the explosion of interest and demand from Indian consumers.

In an environment as favorable as this, how could good advertising be far behind? It’s very heartening to see FMCG Ads in the last one year. Be it Asian Paints, Nestle, Horlicks, Hindustan Unliever or even Jubilant Food, they all came to the party. Oh, even ITC’s Bingo made a grand comeback along with usual the excellence from Pidilite. It was also interesting to see, longer ads, as they adapted to the reality that most of them will now be consumed on a phone or a computer rather than a TV screen at home.

I asked the question a year ago, and I’ll say with a lot of pride today…. Hey FMCG, Thank You for your Ads!

I Asked Hey FMCG, Where’s My Ad Last Year; And this is how they responded –

FEVICOL - Bonding the Nation

Red Label – Chai with Company

Fevicol  - Lakdi, not Ladki

Asian Paints – Homes Not Showrooms

ITC Bingo – Pout

Nestle – Recreated School Chale Hum

Dominos - Ma Nahi Bhulti

Horlicks – Fearless Kota

Surf Excel – Haar Ko Harao

Thank You, 

M 

PS: Please Share all the interesting ads you've spotted 

THE RISE & RISE OF RELIANCE RETAIL

Reliance Industries reported its Q1FY19 Results on Jul 27, 2018. As the street braced itself for strong performances in Petchem and Reliance Jio, one can’t help but marvel at the giant leaps that RIL’s retail division has been taking. Reliance Industries’ retail vertical houses the grocery stores - Reliance Fresh, Reliance Smart, Reliance Market, etc. It also comprises of Fashion & Lifestyle stores like Trends, Footprint, Jewels, AJIO and stores such as Reliance Digital & Jio Digital Life that specialize in selling Consumer Electronics. That’s not all. The organized retail vertical of Reliance also has the Fuel Retail (Petrol Pump) division, Connectivity (Jio Selling Points) and many exclusive brand partners such as Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc which marks the Reliance Presence across all value chains and product verticals.

The Businesses

Grocery: Reliance Fresh, Reliance Smart, Reliance Market, Smart.In

Fashion & Lifestyle: Trends, Footprint, Jewels, AJIO

Consumer Electronics: Reliance Digital, Jio Digital Life, Reliance ResQ

Brand Partners: Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc

Source: Company

Reliance Industries has a reputation for achieving rapid growth, disruption & scale in all its new business ventures. After an unsuccessful foray in the retail business in the earlier part of the millennium, Reliance’s famed growth finally seems to have come. Between FY14 and FY18, Reliance Retail’s revenue has compounded at 37%

Reliance Retail

Annual Revenue Trend

FY13     10845 Cr

FY14      14556 Cr

FY15       17640 Cr

FY16       21612 Cr

FY17       33765 Cr

FY18       69108 Cr

Source: Company

Over the last 3 years, the introduction of Reliance Jio and inclusion of Jio Sim sales under organized retail have further boosted Reliance Retail’s Revenue & Operating Profit. Between FY16 and FY18, Reliance Retail’s Revenue has trebled and the operating profit has quadrupled.

Reliance Retail

Annual EBIT Trend

FY15       417 Cr

FY16       506 Cr

FY17       784 Cr

FY18       2064 Cr

Source: Company

Organized Retail Revenue Mix

47% = Fuel Retail & Connectivity (Other Retail)

53% = Grocery, Fashion & Consumer Electronics (Core Retail)

Source: Company, Brokerage Reports

Reliance Retail accelerated its retail revenue and EBIT in Q1FY19 as well. In the first quarter of the current fiscal, Reliance Retail revenue grew 124% and operating profit grew 266%. The company also expanded its retail space by 0.9 mn sq ft to an aggregate of 18.6 mn sq.ft. Total Stores as of Jun 30, 2018 Stand at 8533 which includes 4530 Jio points.

Number of Stores

FY14       1691

FY15        2621

FY16        3245

FY17        3616

FY18        7573

Q1FY19   8533

Source: Company

Quarterly Revenue Trend

Q1FY17                 6666 Cr

Q2FY17                 8079 Cr

Q3FY17                 8688 Cr

Q4FY17                 10332 Cr

Q1FY18                 11571 Cr

Q2FY18                 14646 Cr

Q3FY18                 18798 Cr

Q4FY18                 24183 Cr

Q1FY19                 25890 Cr

Source: Company

Quarterly EBIT Trend

Q1FY17                 148 Cr

Q2FY17                 162 Cr

Q3FY17                 231 Cr

Q4FY17                 243 Cr

Q1FY18                 292 Cr

Q2FY18                 334 Cr

Q3FY18                 487 Cr

Q4FY18                 951 Cr

Q1FY19                 1069 Cr

Source: Company

When compared to its peers, Reliance Retail’s turnover and retail reach stands head and shoulders above industry. For perspective, Reliance Retail reported Q1 Revenue of 25890 Cr which is roughly equivalent to the combined annual revenue of Future Retail, Future Lifestyle and Shoppers’ Stop. Even if one adjusts for half of Reliance Retail’s reported revenue as Fuel Retail & Jio Sales, Reliance Retail’s core revenue of ~13000 Cr in Q1FY19 almost as much as Aditya Birla Fashion, Trent and Shoppers’ Stop annual revenues put together. In fact, even from a number of stores standpoint, Reliance Retail’s ~4000 outlets are as much as all outlets of Future Retail, Aditya Birla Fashion, Future Retail, Shoppers’ Stop, VMART and D-Mart stores combined.

RELIANCE RETAIL v/s PEERS

		(` Cr)	Margins
Reliance Retail (Core)		36,627	6.0%
Future Retail		18,478	4.5%
D Mart		15,033	9.0%
ABFRL		7,172	6.5%
Future Lifestyle		4,498	9.1%
Shoppers' Stop		3,697	5.7%
Trent		2,157	9.3%
VMART		1,222	10.9%

Source: Company, Brokerage Reports

RELIANCE RETAIL v/s PEERS	No of Stores (000)
Reliance Retail (Core)	4
ABFRL	2.5
Future Retail	1.1
Future Lifestyle	0.35
Shoppers' Stop	0.25
VMART	0.18
D Mart	0.16

Source: Company, Brokerage Reports

The most important question however, is what value does one ascribe to Reliance Retail? A range of estimates by analysts on the basis of FY20 estimates suggest, Reliance Retail could be worth anywhere b/w $15-20Bn depending on the multiple one assigns to it.

Reliance Retail FY20 Revenue Estimates

Jefferies                               111500 Cr

Morgan Stanley                   115000 Cr

CLSA                                  116900 Cr

Source: Brokerage Reports

Valuing Reliance Retail

EV/Sales        Value

0.8                    88000 Cr

0.9                    99000 Cr

1.0                  110000 Cr

1.1                  121000 Cr

1.2                  132000 Cr

1.3                  143000 Cr

FY20 EV/Sales

Source: Brokerage Reports

Much Love.

M

Disclosure: Reliance Ind is the owner of Independent Media Trust, the owner Tv18 Broadcast, the company I work for.

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.

HINDUSTAN UNILEVER - Q1FY19 HIGHLIGHTS

HINDUSTAN UNILEVER

Q1FY19 HIGHLIGHTS:

FMCG behemoth Hindustan Unilever, opened the Consumer Sector’s Q1FY19 innings with an “in-line” performance. The fact that 12% Volume Growth, 200 Bps Margin Expansion & 24% Growth in Profits is considered “In-Line with estimates” is eerily similar to saying Virat Kohli scoring a century while chasing a gargantuan score is “par for course.” Expectations and valuations are pinned on those who deliver and if stock price is a barometer of the street’s expectations from Hindustan Unilever, the company has added Rupees Two Lakh Crore to its market capitalization in the last 20 months to climb to record levels ahead of results.

HINDUSTAN UNILEVER Q1FY19

-                      Revenue +11.2% at 9487 Cr vs 8529 Cr

-                      EBITDA +20.6% at 2251 Cr vs 1866 Cr

-                      Margins At 23.7% vs 21.8%

-                      PAT +19.2% at 1529 Cr vs 1283 Cr

-                      PAT Before Exceptional Items at 1567 Cr

HUL Q1FY19 v/s CNBC-TV18 Poll

- Volume Growth at 12% vs Expectations of 11-12%

- Revenue at 9487 Cr vs Poll of 9680 Cr

- EBITDA at 2251 Cr vs Poll of 2208 Cr

- Net profit at 1529 Cr vs 1539 Cr

HERE’S WHAT SURPRISED POSITIVELY:

The company’s operational growth was led by improved gross margins, the money it directly makes per product before all the other expenses the company incurs.  HUL’s Gross Margins improved 200 Bps to 54% led by product mix, judicious pricing and cost savings program. Also, the expansion in Gross Margins trickled down to improvement in operational performance as HUL’s EBITDA Margins expanded 190 Bps to 23.7% as well.  This came by despite the company spending higher money on advertisements to support innovations.

HINDUSTAN UNILEVER Q1FY19

-                      Gross Margins at 54% vs 52.1% YoY

-                      GM Led by product mix, judicious pricing and savings program

-                      Ad Spends up 27% YoY at 1153 Cr vs 905 Cr

-                      Advertising and Promotions were stepped up to support innovations

 

NOW WHAT?

Post 24% growth in co’s Q1 EPS, the investors & analysts alike ask themselves and company, the most important question – Now What? The Management sounded off some “pink flags” (red, I thought, is too strong a word) for the near future. While they expect gradual recovery in demand to continue, they’re concerned about the way input costs & currency is behaving. In addition to increased input cost, they expect competitive intensity to spike too. Higher Input Cost Inflation coupled with Increased Competition usually means reduced pricing power. So the question that begets asking is, does Unilever have more levers for further margin expansion?

THE MASSIVE BASE

Q1FY19 Marks the third consecutive quarter in which the consumer giant has delivered double digit volume growth. While the demand environment has seen some improvement improved one can’t ignore the role a favorable base has played towards the reported growth in underlying volumes. Come H2FY19, and these double digit volumes turn into an albatross around HUL’s neck. So to extrapolate these growth trends beyond Q2FY19 may be an overstatement.

HUL VOLUME GROWTH TREND

Q1FY17:  4%

Q2FY17: -1%

Q3FY17: -4%

Q4FY17:   4%

Q1FY18:   0%

Q2FY18:   4% 

Q3FY18:   11%

Q4FY18:   11%

Q1FY19:   12%

THE BIG D: DEMAND!

All said and done, one can’t ignore the optimism in commentary from consumer companies on how they foresee demand. Be it Unilever, Nestle, Marico, Dabur, Emami, Godrej Consumer, Britannia or even Jyothy Laboratories, all companies have stated and re-iterated that there is strong underlying demand, despite disruptions like DeMo and GST. A hat-trick of normal monsoons, state elections, higher minimum support prices, lead up to the 2019 General Elections and the Government’s thrust on improving farm incomes are just the right ingredients to spice this heady cocktail of consumer sentiment up. The expected spurt in innovations, more launches in the Naturals segment, normalizing existing trade channels, higher spends on advertisement and promotions, and visibly increasing presence of modern trade in our daily lives will only make it more difficult to not buy more FMCG products.

BROKERAGES DOWNGRADE HUL

Brokerage     Action              Rating

Citi             Downgrade      Sell

Nomura           Downgrade       Reduce

DB                Downgrade      Hold

Jefferies        Downgrade      Hold

PC                 Downgrade     Hold

ISEC              Downgrade     Hold

Axis Cap         Downgrade     Hold

THE VALUATION PICTURE

Strong sector tailwinds and companies delivering on expectations have kept the prices of all nearly FMCG companies close to record levels. Given Hindustan Unilever trades at 52X FY20e earnings, analysts believe most positives are priced in and warrant a look at other companies that trade at a discount to Hindustan Unilever. It’s not that analysts are finding fault with HUL’s Q1 results or questioning the pedigree of the HUL. The only question, I presume, they’re asking is inspired by an old Ad by HUL’s competitor Nirma,  – “ Jab Wahi Safedi, Wahi Jhaag, Kam Daamon mein Mile, toh Koi Yeh Kyun Le? Woh Na Le?”

HUL VALUATIONS VS COMPETITION

HUL         52X

GCPL       42X  

Emami     38X

Dabur      35X

ITC           27X

#FY20e

Much Love.

M

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.