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These two stocks have been the market favorites for the last few years, and have generated returns far in excess of the market. We decided to analyze why Eicher Motors may have outperformed Page Industries, when many similarities exist between the two companies.
We are not commenting on the future financial performance or target price of the two companies.
Background
Eicher Motors Ltd. and Page Industries Ltd. operate in totally diverse industries. Eicher Motors Ltd. operates in the automobile sector and is a leading manufacturer of commercial vehicles (trucks and buses), motorcycles and personal utility vehicles. Page Industries Ltd. is an apparel manufacturer and the India master franchisee of Jockey International of the U.S.
In other words, while Eicher Motors Ltd. is primarily into B2B, Page Industries Ltd. is only into B2C.
We review how the businesses of the two have evolved over the last few years.
Eicher Motors Ltd.: Royal Enfield – the Game Changer
We note that the share of Royal Enfield motorcycles in the company’s sales grew aggressively over the last 5 years. The motorcycle business has proven to be the game-changer for the company’s financial performance and valuations. Manufacturing capacity has been raised 9x since 2010.
| Royal Enfield Sales Data | 2011 | 2012 | 2013 | 2014 | 2015 |
| Gross Sales (incl. excise) RsCr | 662.85 | 1,073.65 | 1,763.06 | 3,074.41 | N.A. |
| Sales Volume | 74,626 | 113,432 | 178,121 | 302,592 | 452,759 |
| Volume Growth y-o-y | 41.9% | 52.0% | 57.0% | 69.9% | 49.6% |
| Average Sales Realisation Rs | 88,823 | 94,651 | 98,981 | 101,602 | N.A. |
| % of Company Sales | 10.8% | 15.3% | 23.7% | 32.9% | N.A. |
| Company Gross Sales RsCr | 6,130.29 | 6,995.04 | 7,433.29 | 9,351.74 | N.A. |
Royal Enfield sales volumes grew 7.6x, at 53.8% CAGR, during FY10-15. Royal Enfield enjoyed industry best EBIT margin of 25.2% in CY15. The manufacturing capacity is to be ramped up from 0.6mn units p.a., to 0.62mn p.a. during 2016, and further to 0.9mn by 2018. 1 new product is to be launched by end-2017.
We expect the share of Royal Enfield motorcycles to move up, within the company’s consolidated sales, going ahead.
Page Industries: Riding the Consumerism Boom, on the back of Rising Share of Organized Sector
Page Industries has also been ramping capacities up over the last few years, and its Jockey brand has become a force to reckon with, in the innerwear market. It is riding on the consumption boom and fast growing market for ladies’ innerwear in India. The rising share of unorganized sector in the innerwear market is a key positive for Page Industries, which is already a leading player in the segment.
What Do These Two Diverse Companies Have in Common?
We note that there are a few similarities between the two companies, such as:
We carried out a Comparison between the two and tabulated the same along a few criteria as contained later in this article.
Conclusion: Royal Enfield has been the Game Changer for Eicher Motors Ltd.
Based on our analysis as contained in this article, we conclude that investors seem to have clearly favored Eicher Motors Ltd. over Page Industries Ltd, in terms of stock price returns.
The one single reason we can think of which led to outperformance of Eicher Motors, is the 7.6x sales volume growth in Royal Enfield motorcycles since 2010, particularly after the launch of the Royal Enfield ‘Classic’.
In contrast, the innerwear segment in which Page Industries operates, remains competitive, with most leading global players already present in the Indian innerwear market.
Eicher Motors’s outperformance vis-à-vis Page Industries is significant in the backdrop of higher liquidity (trading volumes) enjoyed by the former, that too, in spite of slightly lower free-float and institutional ownership, than the latter. However, a much larger number of FIIs and MFs have invested in Eicher Motors than in Page Industries. Retail ownership is also higher in case of Eicher Motors Ltd.
The Road Ahead: Businesses Remain Robust; Investors Could Benefit from a Stock Split
Eicher Motors will likely continue to ride on the success of Royal Enfield motorcycles, by raising the manufacturing capacities. While the motorcycle market in India shrunk in 2015, the share of the premium segment, in which Royal Enfield has a strong presence, is in fact growing. This bodes well for the company.
Page Industries too will continue to grow by increasing manufacturing capacities. It entered the niche swimwear segment by tying up with the Speedo brand a few years ago.
As stated above, neither company has made any issue of bonus shares or split the stock. Both stocks have become “high-priced” stocks since the last 4-5 years, materially hampering liquidity. We believe investors could benefit, if the companies were to split the stock into face value of Rs5 or Rs2 per share.
Revenue and Profit Track Record
| (Figures in RsCr unless stated otherwise) | Eicher Motors | Page Industries |
| Sales CY15 / FY15 | 11,924 | 1,543 |
| Sales FY16 YTD | 1,348 | |
| 5-year Sales CAGR | 22.1% | 35.4% |
| EBITDA CY15 / FY15 | 1,807 | 319 |
| EBITDA FY16 YTD | 286 | |
| 5-year EBITDA CAGR | 38.1% | 37.9% |
| PAT CY15 / FY15 | 943 | 196 |
| PAT FY16 YTD | 175 | |
| 5-year PAT CAGR | 37.9% | 37.7% |
| 3-year Average EBITDA margin | 12.8% | 20.8% |
| Effective Average Tax Rate (last 3 years) | 27.1% | 33.1% |
| RoE CY15 / FY15 | 27.3% | 42.9% |
| Dividend Payout ratio CY14 / FY15 | 26.4% | 48.9% |
Note: Eicher Motors has been in existence much before Page Industries. While Eicher Motors was incorporated in 1959, Page Industries was incorporated in 1994. Besides, the nature of the business partly explains the higher revenue size of Eicher Motors. The higher revenue CAGR of Page Industries can be attributed to smaller base. In spite of lower revenue CAGR, Eicher Motors’s EBITDA and PAT CAGR is almost the same as of Page Industries.
Balance Sheet Numbers
| (Figures in RsCr unless stated otherwise) | Eicher Motors | Page Industries |
| Paid-up Equity Share Capital | 27.15 | 11.15 |
| Reserves | 3,429 | 445 |
| Gross Block | 3,255 | 214 |
| Debt | 0 | 30.85 |
| Cash | 569 | 6.79 |
| EV | 50,752 | 11,044 |
| Debt-Equity ratio (x) | 0.00 | 0.07 |
Note: Eicher Motors is in the automobile industry and has an asset-heavy business model. Its gross block (consolidated financials) is significantly higher than that of Page Industries. However, so is its market capitalization.
Cash Flow from Operations
| (Figures in RsCr) | Eicher Motors | Page Industries |
| CY12 / FY13 | 496.02 | 87.14 |
| CY13 / FY14 | 716.20 | 74.01 |
| CY14 / FY15 | 1047.47 | 167.00 |
Note: Eicher Motors generates much higher CFO than Page Industries in relation to revenue size.
Stock Data
| (Figures in Rs unless stated otherwise) | Eicher Motors | Page Industries |
| Face Value | 10 | 10 |
| Price (Feb-29-2016) | 18,900 | 9,880 |
| No. of Shares Cr | 2.715 | 1.115 |
| Free Float Shares Cr | 1.225 | 0.547 |
| Market Cap RsCr | 51,321 | 11,020 |
| Free Float Market Cap RsCr | 23,154 | 5,400 |
Per Share Metrics
| (Figures in Rs) | Eicher Motors | Page Industries |
| EPS TTM | 347 | 199 |
| CEPS TTM | 474 | 219 |
| Book value | 1,273 | 409 |
| Dividend per Share | 50 | 72 |
Valuations
| Eicher Motors | Page Industries | |
| P/e (ttm) | 54.4 | 49.5 |
| P/c (ttm) | 39.9 | 45.1 |
| P/b (ttm) | 14.8 | 24.1 |
| P/s (ttm) | 4.3 | 7.1 |
| EV/EBITDA | 28.1 | 34.6 |
| Dividend Yield | 0.3% | 0.7% |
| EV RsCr | 50,752 | 11,044 |
Note: These valuations do not constitute advice to buy or sell the stocks discussed.
Stock Ownership Pattern
| Eicher Motors | Page Industries | |
| Promoter Stake | 54.9% | 51.0% |
| Free Float | 45.1% | 49.0% |
| FII Holding | 26.6% | 34.3% |
| DII Holding | 4.9% | 5.4% |
| Retail Holding | 13.6% | 9.3% |
| No. of FII Investors | 483 | 122 |
| No. of MF Investors | 200 | 40 |
| No. of Retail Investors | 66,053 | 27,475 |
Note: Eicher Motors has a much higher absolute number free float shares, than Page Industries. It also has much higher number of FII, MF and retail investors, vis-à-vis Page Industries.
Trading Volumes and Stock Returns
| Eicher Motors | Page Industries | |
| Avg. Daily Volumes (NSE) Last 12 mths | 78,800 | 12,100 |
| Avg. Daily Turnover (NSE) Last 12 mths | 141.3 | 16.5 |
| Avg. Deliverable Volumes (NSE) Last 12 mths | 49% | 54% |
| Daily Volume as % of Free Float | 0.6% | 0.2% |
| Daily Volume as % of Retail Holdings | 2.1% | 1.2% |
| 3-year Returns | 582% | 196% |
| Returns since Page Industries Listing | 6184% | 3535% |
| Beta | 0.35 | 0.45 |
Note: Higher trading volumes for Eicher Motors can be attributed to higher number of free float shares and retail investors. Eicher Motors’s trading volumes are higher in relation to its free float and retails holdings too. Both stocks enjoy comfortably high deliverable volumes, highlighting high share of delivery-based buying.
We computed returns for both stocks since the listing of Page Industries on March 16, 2007. Eicher Motors has given far superior returns, not just vis-à-vis NSE Nifty 50, but vis-à-vis Page Industries Ltd. too, over the last 3 years, and since listing of Page industries.
Notes
Consolidated figures have been considered for Eicher Motors Ltd.
Eicher Motors used to follow the calendar year as its financial year. However, it will revert to the financial year and hence its current financial year will have 15 months, ending on March 31, 2016. The company’s FY15 figures in above tables should be considered as CY15, and so on.
Balance sheet figures are as at December 31, 2015 for Eicher Motors Ltd. and as at September 30, 2015 for Page Industries Ltd.
Beta computed for the period March 16, 2007, to February 29, 2016. Beta is relative to NSE Nifty 50 for Eicher Motors, and to Nifty Midcap 100 for Page Industries.
Stock ownership patterns as at December 31, 2015.
Relative Stock Price Performance over Last 3 Years
Eicher Motors has squarely beaten not just the Nifty 50 index, but also Page Industries over the last 3 years.
Disclaimer
This blog article is for educational purpose only, and not meant to be investment advice, or a recommendation or solicitation to buy, or sell, the securities named herein. It is based primarily on information publicly available, including company websites, published financial results, annual reports, analyst presentations, media reports, etc.
The author does not claim accuracy of his opinions and estimates as contained in this article. While the author has taken reasonable care to avoid errors or misstatements of facts, he does not accept responsibility for errors, if any, in this article.
In any case, the author will not be liable for losses, if any, arising from the use of this article.
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