Let us divide the world into two parts — pre-Covid and post-Covid. Now that the lockdown has been lifted, to what extent has demand gone back to normal for you? Where is your current demand compared with the pre-Covid period?
Everyone is safe at Jockey and Page Industries is doing well and has resumed business. It is still early to compare as it has been only a month since we resumed sales operation. The sales trend has been quite encouraging and at the same time, it is too early to take a call on the demand. We have close to 66,000 multi-brand retail outlets which have already resumed operation barring those in the containment or the red zones.
Almost 90% of the exclusive business outlets and 65-70% of the large stores have opened. We are on a good trajectory. I would say that post lifting of the lockdown, we have exceeded our own expectations as to how things will pan out because April and half of May was a complete shutdown.
But if I specifically focus on your Q4 numbers, both margins and sales have dipped. In Q4, the lockdown only got at play in March end, which means for January and for February and for the better part of March, the pre-COVID business was also rather slow.
First half of the quarter has been captured but what has happened is that even prior to the lockdown, some of the geographies were disrupted. The official lockdown came on March 23. If you look at YTD December 2019 numbers, we had grown revenues by about 7.5% and in Q4 we were hopeful of reaching closer to double digit growth for the year. Eventually, we ended up with about 3% growth. So, Q4 has had an impact due to two reasons: one, we had a lot of orders on hand which we could not bill and dispatch because of the closure of the warehouses.
Secondly, we have invoiced and not dispatched and invoiced and not delivered because as per the IndAS 115 Accounting Standards, only what is delivered, accounts as sales. So, about Rs 90 crore of business has not been delivered and are not in Q4 numbers. But the impact of the revenue loss would be more than that.
Fair point, but your 10 year CAGR is about 28%. In the last three years, it has come down to 16% which clearly means that either the base effect has kicked in or the category which you represent is slowing down?
Over the past two years and about six quarters, the growth has not been in the 20% range but we had been growing somewhere in the early teens. Double digit growth was always happening as far as the revenues are concerned. The way we approach the business is we are in it for the long term. The Covid situation is extraordinary and we have sort of accepted that and we are bouncing back. Eventually, the market is much larger than what Page alone or any of the premium players supply. While the innerwear and the knitwear market is estimated to grow at about 10% CAGR, the premium market is growing at the rate of about 15%, barring this kind of lull which we have now. But eventually we should see very strong growth numbers.
In the long term we have top line aspirations of $1 billion in about five years. We are heading towards that. In fact, we are doubling the manufacturing capacity from 260 million in the next four-five years. Some of the capex has been put on the backburner in FY21 because we want to preserve cash flow. As we observe the sales trends in Q2 and Q3, I think the investment will return.
Can I safely assume that if not in this quarter, by the end of next quarter or by the first quarter next calendar year, 15% to 18% growth for Page Industries should be back?
Definitely that is the way we prepare and invest. We have invested a lot in sales management team. We have created a separated kids vertical with about 140 people on board the only focus on the Jockey Junior vertical and we see tremendous opportunity both in offline and in online sales even in the current situation.
Some of the competitors have had their distribution channels disrupted but we were among the first to get back into the market and about 85% of labour has reported back to our manufacturing units. A large part of the distribution and retail channels have opened and we are surprised with the kind of demand that is there post the lifting of the lockdown.
The pitch on which shareholders have invested or the pitch for which investors have invested in your company is that you represent the premium innerwear category which is highly underpenetrated. The organised market is not even 10%. What trends do you see because of the crisis? That is one category where some would expect a late recovery. How much of the unorganised versus organised market picture do you think will now change post the crisis?
Q4 is an exception. In some of the earlier conversations I had highlighted that in FY20, we were really investing in the future and that is why we expanded the sales team, created separate verticals and invested a lot in technology. We are implementing JDA and we were about to go in for S4 HANA. Those kinds of investments are not going to pay you in the same year but we are well aware that we have balance sheet strength and optimism on the future of the industry and Page itself in particular. That is the reason we invested because the idea was to double or move into one billion revenue as soon as possible.
The EBITDA margins used to be around 20-21%. Eventually, when the top line grows, all these costs will get absorbed. Nevertheless, FY21 is not going to be like any other years so we have pretty robust control and handle on the operating cost and we are keeping the fixed cost down and we would plan to have opex not more than what we spent in FY20.
Page Industries of Jockey has dominated the market and you had a first mover advantage there but that is one space where a lot of organised and established apparel companies have also moved in — be it Van Heusen or Arvind. Do you think that with the entry of three or four large big store retailers, there could be competition and premium and pricing both would be under pressure?
Consumers need to have choice and in the premium space as well. The Indian market is so large that overall our penetration in the premium segment is only about 11 or 12%. There is definitely room for more and in terms of the nearest competition, we are 10 times the volumes we are doing pan India.
We have been around 25 years now. So, o there has always been competition and players in the market and we remain an affordable premium to all our consumers and that is the reason we have been growing much faster than many of the others. Also at the same time, we need to have a viable business model which is profitable. We are debt free, we have a return on capital employed of close to 55% even this year and we have a lot of strength.
Walk us through the cash flow picture, you have run a business which has distributors and franchisees though cash flow has been a problem. How exactly is your equation on the cash flow working? Are you facing a crunch there or are you going out of your way to help your dealers and franchisees?
We have done very well and I would say we have exceeded expectations because the cash flow position with zero collection in April and almost negligible in May, it had created concern, but then since the lockdown has been lifted we have bounced back significantly and we have collected more than Rs 230 crore. In fact, the demand has surprised us and we are gearing actually to improve our backend also.
So we do not offer any additional schemes or incentives; we do not offer extra credit to the distributors. We operate on a fairly secure model with the distributors but then we did give them a sort of extended moratorium between the 23rd March lockdown and for about a month or so. And subsequently, with the undelivered sales reaching them, the distributors have started paying and we are in a fairly comfortable position as far as cash flow is concerned. We have not borrowed any funds during this period itself.
The concern for Page is that whereas you have been a success story in the men innerwear garments, you have not managed to replicate that in other categories; women innerwear, lounge wear, and even kids category?
It is an evolution of the brand as we see it. We started as a men’s innerwear brand and which we still continue to dominate. In women’s innerwear also, we are the largest player in the country in terms of volume. We are the largest seller of socks in India; athleisure is growing rapidly. Athleisure has been the new engine for growth of Page in the last five to six years. So there is a stage in the evolution of every category and we also have come out pretty strongly as far as the kids market is concerned. There are plenty of products on offer in the Jockey Junior category.
I would say, the last two years have been challenging for consumer categories including Page. Now that business has decisively slowed down and the recovery is going to be a long road ahead, would you be looking at cutting your capital expenditure and conserving your cash? Where are you looking for cutting the rough edges?
We are very bullish in the medium and long term just because of the potential of the underpenetrated market in India where branded players and premium players will have to reach out. Though we are present in so many cities in India, we are only present to the extent of about 20% of where we can be. So there are tier-3, tier-4 cities and even within the same catchment area of a metro, we are opening new EBOs and new distributors are joining us. We have a continuous expansion of the channel.
As a market leader we continue to invest both in terms of the manufacturing capacity as well as in the technology that we have and also in the marketplace. We have plans to double the manufacturing capacity in the next five years. So that plan remains stable.
Apart from the short term challenge, which is for a quarter or two, what are the other red flags, which could have an impact on your guidance or on your proposed recovery?
There are no red flags because some of our products fall into the essential space. For premium products, definitely there is demand in Q1. There are no red flags as far as Page is concerned because of the balance sheet strength and for being debt free. Also, our cash flow being positive, we are in a position to invest. Some of these investments may have to be deferred to protect the cash flow.
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