Page Industries Limited (PAGEIND) Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Page Industries Limited Q1 FY '27 Earnings Conference Call hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you and over to you, Ms. Jain.

Thank you. Good evening, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the first quarter of the financial year 2027. Before we begin, a quick cautionary statement. Some of the statements made in today's earnings conference call may be forward-looking in nature. Such forward-looking statements are subject to risk and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decision. The purpose of today's conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings call and hand it over to them for their opening remarks. We have with us Mr. V.S. Ganesh, Managing Director; Mr. Deepanjan Bandyopadhyay, Chief Financial Officer; and Mr. Karthik Yathindra, Chief Executive Officer. Without any delay, I request Mr. V.S. Ganesh to start with his opening remarks. Thank you and over to you, sir.

Thank you. Thank you so much and good afternoon, ladies and gentlemen. Welcome to the earnings call for the first quarter of FY '27. I'm joined by our Chief Financial Officer, Mr. Deepanjan; and our Chief Executive Officer, Mr. Karthik. I will begin with a brief overview of the business and the quarter. Following which, Mr. Deepanjan will take you through the financial performance in detail. We will then be happy to take your questions. Let me begin by saying that we are encouraged by the underlying performance of the business during the quarter, particularly the volume growth. Consumer demand remained healthy with good traction across our key channels, including exclusive brand stores, e-commerce and the wider retail network. Our new product introductions, including JKY Groove, also received encouraging consumer response. While volume performance was strong, reported revenue was moderated by temporary quarter-end logistics and manpower-related constraints. This affected billing during the period. The underlying demand and volume momentum, therefore, remained better than what was reported as revenue growth. The quarter also reflected inflationary pressure across key inputs, particularly cotton and synthetic materials, amid a volatile external environment. As regards pricing, we remained calibrated and chose to absorb part of the input cost increase, balancing margin protection with consumer value and competitiveness. This approach helped us stay competitive while the subsequent moderation in some input costs supported our position. At the same time, we continue to grow strongly. We continue to focus strongly on productivity and operational efficiency. Our strategic sourcing and supply chain initiatives helped us mitigate some of the cost pressures. We're also seeing steady progress in the scale-up of Odisha and KR Pet manufacturing facilities, which will progressively enhance our production capabilities and efficiency. Our digital transformation journey also continues to progress across ERP, distribution management and HR transformation. We are also working on our consumer data platform. These investments are aimed at creating a more agile and data-driven organization and in improving the way we serve our consumers and retail partners. Our distribution network remains a significant strength with 1,15,871 multi-brand outlets, 1,640 exclusive brand stores and 930 large format stores. Our online channel also continued to deliver healthy growth. Financially, revenue grew by 7.9% during the quarter and profit after tax declined by 4% reflecting the combined impact of input cost pressure and the temporary constraints on converting underlining volume into billings. Looking ahead, we remain very confident in the underlying health of the business. We see multiple growth opportunities from volume recovery, new products, premiumization, retail and e-commerce expansion and through improving our supply chain and manufacturing efficiencies. In fact looking at the demand signals, we are working hard in augmenting our in-house capacities and also working on improving our outsourcing garment supplies so as to cater to the demand. Our focus remains unchanged to strengthen the brand, deliver greater value to consumers, improve availability and grow the business sustainably and profitably. I would like to thank all our shareholders for their continued trust and support. With this, may I now request Mr. Deepanjan to take you through the financial performance in greater detail. Thank you, and over to you, Deepanjan.

Thank you, V.S. ji. Good afternoon, everyone. I will now provide an overview of the company's financial performance for quarter 1 FY '27. In quarter 1, revenue was INR 14,204 million, which is a 7.9% growth year-on-year. Sales volume in the quarter was 61.9 million (sic) [ 61.2 million ] pieces growing by 5.7% year-on-year. EBITDA for the period was INR 2,890 million, which has declined by 1.9% year-on-year. EBITDA margin was 20.3%. While EBITDA margin was within our planned range of 19% to 21%, a stronger EBITDA margin of 22.4% in Q1 FY '25 due to the stable input cost then resulted in the decline in EBITDA in the current quarter. Profit after tax for the quarter was INR 1,928 million, declining by around 4% year-on-year. Inventory days was 66 in the end of quarter 1 as against 73 days in the beginning of the quarter. Net working capital days was around 54 days as against 56 days in the beginning of the quarter. With that, we can now take up the queries.

[Operator Instructions] The first question comes from the line of Ashutosh Joytiraditya with ICICI Securities.

So I have 2 questions. First one is on the volume growth trajectory. So I believe like in Q4 what you have highlighted that we are focused to deliver the double-digit kind of a volume growth going ahead, but I don't understand like what was the miss there. And second question is on the pricing thing. So as far as I remember, last quarter the management said that in January the price hike that was taken, it was mainly to improve the product quality and they were anticipating that there will be some calibrated price hikes going forward to mitigate the raw material impact. But again on that front also, what I can understand is that the management seems to have missed the outlook what they have given. Yes, 2 questions.

Thanks, Ashutosh, for the question. On the volume side, I think we still remain committed towards the goal of a double-digit growth in terms of volume for the financial year. This is going to be phased across quarters. And with regards to the quarter 1 deliveries, there were 2 major pieces that has affected the volume delivery. One is a planned one, which is structural in terms of how we are planning our growth across quarters. With the ARS now fully in place, we're also not front-loading our performance like it used to be and hence, schemes and incentives for the trade has been designed in a way that it is better distributed between quarters. So structurally itself, you will see a difference between performance between quarters. However, the annual goal remains unchanged, which is to aim for a double-digit growth in volume. The second bit which has affected the quarter delivery has been essentially our undelivered billing. So unlike the last year Q1, this year we've had extraordinary volume that has not been delivered in spite of being billed. That's because of the disruption we have experienced in the logistics and manpower towards the quarter end. This is what was narrated also in the MD's commentary. These 2 have impacted volume growth reported for quarter 1, both of which we believe one planned, the other is temporary and hence should be absorbed going forward. With regards to price increase, you're right, the January price increase was largely to enhance the product itself and was not linked to input cost. We have undertaken a price increase partially to absorb the input cost in quarter 1. This was done sometime in mid of May. However, the full gains of the price increase has still not been realized and that's something that we'll be realizing in quarter 2 purely because of the FIFO principles that we operate in our billing. So large portion of what was invoiced in quarter 1 was the previous pricing and the gains from the price increase, which was taken in quarter -- in the mid of May would be realized in quarter 2.

Okay. And sir, just on your reply on the volume growth so as per my understanding, like you are saying that for the remaining 3 quarters, we should be seeing like 11%, 12% kind of average volume growth and how confident?

Fairly confident given how the demand atmosphere has been in quarter 1. So we should see recovery for us to make up for lost ground in quarter 1.

Next question comes from the line of Videesha Sheth with AMBIT Capital.

Sir, my first question was on the comment made on the new product lines. So which segments would it be focused towards besides the younger consumers who grow our licensed merchandise, if you could help on that, please?

So we've got product introductions across the category. Some of it has hit the market in quarter 1. Some of them will go through in quarter 2 before the festive season is upon us. Quarter 1, the big ones were Groove 3, which is our street fashion line, was launched in the month of June. This is our third line. If you recall, we had launched this as a proposition starting quarter 1 last year. This year, the collection was taken to close to 500 exclusive brand stores across the country and has been received very, very well and our sell-through numbers look very good. So this is the large one. Other than that, we've had specific products that have come in across the portfolio. Another big piece is the collaboration with Disney and Marvel to bring in character merchandise. But this again while the go-to-market was planned towards the end of June, a large portion of revenues from this will be realized in quarter 2.

Okay. So just 2 follow-ups to this. One is that in this license merchandising piece, it's quite a competitive space with multiple D2C players already present. So what is the differentiated opportunity that Jockey as a brand has? And the second would be fair to assume that new product lines will be dedicated to the athleisure space rather than the innerwear space?

Okay. So specifically on the character merchandise, you're right. I think they're prevalent across many brands, both D2C brands as well as legacy brands. We are looking to differentiate this with the design aesthetic and the signature handwriting that we have the opportunity to put out in the market. Of course this is backed by the trust and the quality that you can expect with Jockey merchandise. These 2 pieces I believe will help differentiate our product offering when compared to the rest of them in the market. And the start is this with Disney and Marvel. This also opens up a window for us to collaborate with other licenses in the character merchandise space going forward. As far as the second question is concerned, there will be upgrades as well as newness across the portfolio. But the large pieces, which will be backed with marketing investments, new propositions, et cetera, is going to be in the athleisure space.

Got it. And the second question was on the inventory level. So further reduction of inventory days from 73 to 66 or 67, could that also lead to loss of sales to some extent? So what's the thought process here in bringing down inventory levels all the more?

Right observation. I don't think our intention is to bring down inventory level any further and we should admit there has been some level of lost sales opportunity in quarter 1 as well because of nonavailability and this was largely attributed to some level of disruptions we've had on the supply side in quarter 1. But I think we've reached optimum level of inventory both in the value chain as well as the inventory at Page level. In fact we are now looking at augmenting capacity, investing above plan in terms of manufacturing to make sure that -- both in-house as well as outsourced to make sure that we are able to do justice with the demand that's coming our way.

Got it. And just last bit, if I may. Would it be possible to give a ballpark range in the difference between primary and secondary growth in this quarter?

We don't give away secondary numbers, but I can say that secondary growth performance has been much better than primary. That's largely because of the undelivered inventory and hence, us not reporting it as primary in quarter 1.

Next question comes from the line of Saurabh Kundan with Goldman Sachs.

Karthik, my question was actually around the logistics disruptions only. If you could just double click on exactly what these were? And some idea on the quantum of the undelivered volume will really help. And related to that question, does this mean that for the year, you said double-digit volume growth is your target? Could it be a little bit higher in 2Q because 2Q will have this undelivered volume and then also whatever the underlying volume is there in Q2? And could you please double click exactly what manpower issues and what logistics issues these were?

Yes. So this was actually disruption because partly to be attributable to the rumors around escalation in fuel prices, availability of fuel itself and hence, and all of our logistics are third party and the third-party labor having a concern given the SIR drive that was undertaken through the month of June, we had disruptions in the last mile delivery with our distributors towards the end of June. That's what has impacted deliveries and without -- I mean I cannot exactly quantify it, but what I can say is rough and ready about 3 days of billing went undelivered when compared to normal. So typically, every quarter ending, we have about 3 to 4 days of billing that does not get delivered and gets pushed to the next quarter. This year, that moved to about 7 days. So a delta of about 3 days of invoiced revenue -- invoiced billing was not reported as revenue this quarter 1. So that's what has impacted. And on your second observation, largely yes. A majority of this should be reported in quarter 2. And anyway, the next 3 quarters given that our goal is to hit a double-digit volume should see above-average volume growth to make up for the shortfalls in quarter 1.

Okay. Just one more question. The difference between value and volume this time is little bit lower than it was in, let's say, the previous quarter, which is basically the price and mix. So pricing ideally should have been slightly higher than previous quarter because you took something in May. So what changed that the difference should shrink a little bit? If you can just let us know and also what's the outlook going forward?

Yes. So 2 pieces there. One is the product mix like you rightly pointed out. We've had some of our lower ASP products like accessories and socks in a way, again this is by design in terms of scheme design, seeing above-average performance in quarter 1 which has in a way contributed to a lower ASP. And the second is the price increase taken in May, like I mentioned earlier, not much of it we've realized in quarter 1 in terms of benefit. That's something that will flow in from quarter 2. So the outlook going forward will definitely be much a bigger difference between volume and value performance than what we've seen in quarter 1 purely attributable to mix as well as the price increase in May, which will start kicking in by quarter 2.

Next question comes from the line of Tejash Shah with Avendus Spark Institutional Equities.

A couple of questions. Given the rise of e-commerce and digital channels in our mix, how are you leveraging real-time data analytics to harmonize, let's say, channel pricing, maintain margin parity and also build some sort of KYC on the customer base as well?

Thanks, Tejash, for this question. On pricing parity, see, because there is no real-time data required because we anyway don't -- unlike most other brands, our pricing we follow a uniform consumer pricing principle irrespective of the channel of purchase. So there is no quick deals or flash sales or any kind of markdowns at any given point in time for the end consumer irrespective of where that consumer is shopping. However, on the larger point of about how we are leveraging data, we are probably in the apparel consumer space, we are best positioned to leverage consumer data given the large set of consumers that we serve. And in terms of B2C, our avenues today is jockey.in as well as EBOs where we have direct first-party information. We are trying to synthesize this data, first-party consumer data, by building a CDP, a consumer data platform, which is largely in place. We should be going live by end of August. We are now ensuring that we're being completely compliant with the DPDP Act and ensuring that all forms of consent in usage of this data is being secure. Once that is done, we would be in a position to leverage it. Now leveraging this data is on 2 fronts. One is a direct impact on revenue in sense of cross-selling and upselling products. The second and more importantly and little bit more strategic is about understanding consumer buying behavior, having cohort level analysis of what is being bought and feeding that back into our category management and product design teams to better make informed decisions on what to launch, how much to launch, et cetera. So that's something that we are building as a foundational capability within the organization.

And just one follow-up there. At what stage do you expect this digital investments to kind of become a source of efficiency tailwind also to, let's say, unlock operating leverage and specifically the DMS improve inventory turns and replacement cycle also across the distribution network?

Yes. So the DMS is underway, but we've not yet completely moved ahead. It's still a very small portion of distributors who are on DMS today. But the goal is by end of this year or latest first quarter of next year, all of the distributors in our network should be on DMS and then give it about a quarter more to stabilize as a tool and thereafter, you will start seeing efficiencies coming into the system.

[Operator Instructions] Next question comes from the line of Avi Mehta with Macquarie Capital.

Just 2 bits I wanted to understand on this growth outlook. The way you're essentially witnessing and just clarifying, there should be -- in the next quarter, there should be a benefit of these lost billing days as well as the underlying secondary sales trend which we saw. I just wanted to clarify that part and that should rationally flow in the next quarter only, right? Is that a fair expectation to have?

That's correct. I think that's a fair expectation to have.

Perfect. And just on the input cost bit. See, I mean if I recollect, there was some low-cost inventory benefit that we had in this quarter despite that gross margins did come under pressure. Wanted to just appreciate how are we placed now? And should we see sequential margins kind of more or less now improving or is there some pressure in the near term that we should kind of build in? And in turn, how do you see the full year EBITDA margin guidance? Would you retain that at 19% to 21%?

Okay. So mid of last quarter, yes, we did see inflationary conditions in the input cost especially in fact fabrics also went up and as well as any synthetic products that we are buying, which is petroleum based, there also there was a significant escalation. So while we did prepositioning of supplies, we couldn't fully absorb the extreme increases that happened. But yes, end of June and even now the situation has to a large extent normalized and going forward, we expect things to be stable. Of course if there's again an escalation in the Middle East situation, it can happen differently. But as of now, we expect things should be stable and with that, our annual outlook on EBITDA margin will still be within this 19% to 21%.

So Deepanjan, just clarifying, you have the price -- basically, what I'm trying to understand is the price hike that has been taken passes on the current input cost and then it kind of gets us back to earlier gross margins. That understanding I want to kind of confirm.