In investing, there’s a saying that often proves right: it’s better to grab opportunities today instead of waiting for tomorrow, as long as you do your research before making a move. This case study looks into a big choice we made about ten years ago — investing in Page Industries.
The Context
- Investment Cost: ₹4,341.00 each
- Currently Priced at ₹34,449.85 (March 2024)
- Net Returns Soared to ~693.48%! (Reversed to the mean since last update)
- Status: We Are Holding The Line!
In this particular case, we will explore our investment principles, drawing inspiration from Benjamin Graham, the pioneer of value investing. We’ll also examine the effectiveness of deep value investing and draw insights from Peter Lynch’s philosophy of “buy what you know” and the power of common knowledge, which he used to shape his investment strategy.
Lynch believed in investing in companies that one understands, rather than attempting to predict the stock market’s future direction. And in this case, who isn’t familiar with the comfort of their undergarments?
Scouting Page Industries
You may or may not be familiar with Page Industries, but the brand name Jockey is sure to ring a bell. Page Industries is an Indian company closely associated with the globally renowned Jockey brand, known for its innerwear and leisurewear. Page Industries holds the exclusive license from Jockey International Inc. (USA) to manufacture, distribute, and market Jockey products in India, Sri Lanka, Bangladesh, Nepal, and the UAE.
You can check out their website by clicking here.
Page Industries’ product strategy revolves around delivering high-quality innerwear, athleisure, and leisurewear products prioritizing comfort, durability, and style. Key factors contributing to its success include geographic expansion, effective leadership and management, and a loyal customer base.
As of September 2023, Page Industries is a large-cap company with a market capitalization of approximately ₹43,959 crores. The company boasts a diverse product line, with impressive sales growth rates over the past 10, 5, and 3 years, fluctuating between 19%, 13%, and 18%. Additionally, the year-on-year return on equity (ROE) has been consistently high, with rates of 48%, 48%, and 47% over the past 10, 5, and 3 years, respectively.
Backtracking Page Industries
Page Industries made its debut in the Indian markets with an IPO in 2007, just before the 2008 financial crisis. The stock was officially listed on March 16th, 2007, at an initial price of ₹360. This was also the year when we first noticed the aggressive marketing campaigns run by Jockey, setting it apart in a market dominated by local players relying on standard cotton quality.
Jockey offered a comfortable and innovative product at a premium price point, garnering praise from users. It wasn’t until 2013, six years after its listing, that we stumbled upon Page Industries as an underdog making significant strides in product and branding strategies.
Our Page Industries Journey
As we were refining and backtesting our investment models, we also heavily relied on the power of common knowledge. Amid numerous investment options, Page Industries initially didn’t stand out in our analysis. The company’s rising debt levels in 2013 raised concerns.
However, it was a visit to a Jockey store that opened our eyes to its long-term potential. The product quality was impressive, and the branding exuded luxury subtly. It was akin to the “Le’ggs moment” described by Peter Lynch in his book “One Up On Wall Street,” where he highlighted how everyday observations and consumer knowledge can lead to profitable investment decisions.
The Story Unfolds
By the end of 2013, Jockey had become a household name, especially among the middle and upper-middle class. In the same year, Page Industries outperformed both peers and the S&P BSE 500 index, with its shares rising by 21%, compared to a 4% decline in the broader market index. However, the company’s high valuations, at 33 times the one-year forward earnings (PE), and concerns about stretched working capital and increased debt levels were worrisome. Many news outlets reported these issues as detrimental to the company’s dividend payout ability.
As we closely monitored the stock, we observed that Page Industries also outperformed its peers in the March 2013 quarter, with strong growth in net sales and profit after tax. The stock’s rally seemed justified if earnings growth could be sustained at these levels. Despite our limited capital allocation to the market for relatively cheaper but promising stocks, we began buying Page Industries stock from April 2013 through November 2013, resulting in an average purchase price of ₹4,331 per share.
The Present Day
Over the years, the firm’s strong financial performance propelled the stock to remarkable heights. This journey yielded an absolute return of 811% and an eightfold increase in value. It consistently delivered an average annual return (XIRR) of approximately 38.52% over the past decade, translating into an impressive absolute return, plus the dividends.
It’s worth noting that stocks in the innerwear industry are influenced by the overall state of the economy. During economic downturns, consumer spending on clothing, including undergarments, may decrease, affecting textile companies’ performance. Conversely, during economic upturns, consumer spending on apparel tends to rise, benefiting textile companies.
The accumulation of underwear inventories (as happening right now) can even serve as an economic indicator, known as the “Men’s Underwear Index,” which relates undergarment sales to the economic condition. Despite occasional turbulence causing concerns shared by news and media experts, this stock has proven to be a consistent compounder for its investors. We intend to hold onto it, and on a lighter note, the stock’s volatility serves as an alarm for us to gauge the broader economy.
Conclusion
Page Industries has been a remarkable success story in our investment journey. Our decision to invest, guided by common knowledge and careful analysis, has resulted in significant returns. This case study emphasizes the importance of understanding the companies you invest in and the power of consumer insights in making profitable investment choices. In the ever-evolving world of finance, Page Industries stands as a testament to the principles of value investing and the potential for long-term growth in well-managed companies.
Notice: We do not offer investment advice, and our case studies are examples, not recommendations. Our focus is on education, not personal advice. Please respect our privacy and avoid asking about our investments.
1 Comment
Beautifully and meticulously articulated with backed up details and in-depth analysis. Couldn’t ask for more! Keep writing and keep us engrossed in your beautiful works.