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Q&A: Page Industries Limited & Others

Modified on November 13, 2018

The current article in this series provides responses related to:

  • Queries on analysis of Page Industries Limited
  • Return on Equity (ROE) and other balance sheet queries


Page Industries Limited


Dr. Vijay, Thanks for the detailed reply on Page Industries Limited.

Read: Analysis: Page Industries Limited

I have a few more points:

  1. Sustainable Growth Rate (SGR) for page is around 28 to 31% based on 10year avg RoE or 3 year avg RoE, using SGR=RoE*(1-DPR). I am confused with your Self-Sustainable Growth Rate (SSGR) number of 40 to 50% being more than SGR.
  2. 3 year SGR is greater than 3y avg sales growth of 30% and 3yr avg profit growth of 30%. This implies, debt should come down. In fact debt/equity ratio has come down from 0.93 to 0.35 in the last 5 years. However, your analysis indicates likely rise in debt.
  3. Company gets debt at 6% rate under TUFF scheme and hence it pays dividend and at the same time uses debt to grow. Nothing wrong here.
  4. Management has gradually reduced its stake to 51% by selling mainly to retail investors, right from ₹450 level to ₹17,000 level over the last 5 years.
  5. It is a licensee company.
  6. Market cap is ₹15,280 Cr and it is reported that entire market size of innerwear market is ₹1,800 Cr. I am unable to understand this as a valuation indicator.
  7. Rate of return analysis: Assuming 30% CAGR in eps for next 10 years, and assuming sustainable P/E of 30 at the end of 10 years, the likely price CAGR is 18% over next 10 years. Therefore, its high growth in earnings will be negated by PE contraction in future and one may end up with 18% price CAGR.

Would like to have your opinion on above points especially 1, 2 & 6.

Author’s Response: 

Hi, Thanks for your valuable inputs!

1&2) SGR (based on ROE and DPR) and SSGR though seemingly similar, are not exactly the same. The same has been discussed in the comments to the SSGR article as response to queries of other readers. I suggest you to read these queries and my responses on the SSGR article. You may read the discussion here:

Readers’ Queries: Self-Sustainable Growth Rate (SSGR)

I am sure that your queries 1 & 2 would be resolved post reading those comments.

6) I would like to point out that the estimate of market size might or might not be correct. However, assuming that market size if indeed only ₹1,800 cr., there is no limitation that market cap of any company or industry cannot exceed market size.

Assume there is only one company (say Page Industries) in entire industry and it meets the entire demand of ₹1,800cr. With 13% PAT margin, this company would earn ₹234cr. in profits (1800*0.13). Now even if the market size stays constant at ₹1,800 cr., the annual stream of profits of ₹234 cr. would be valued at least at ₹2,340 cr. Assuming 10% rate of return (or interest rates/FD rates) i.e. ₹234/0.10. (This uses present value of an annuity).

Moreover, if market size increases even by minuscule amount every year, say 2% every year, then the value of annuity would be more at about ₹2,925 cr. (234/ (0.10-0.02)).

Therefore, I would like to point out that there is no upper cap on market cap limited by industry size.

Stressing again, I do not think that entire market size if ₹1,800 cr. otherwise it would mean that current sale of Page of ₹1,500 cr. has already captured, whatever was there to be captured. There are many other competitors having their niches, huge unorganized segment. Therefore, I believe that market size is more than ₹1,800 cr.

Hope it helps resolve your queries!


Follow up Query

Sorry. It was a typo. Market size is ₹17,000 to ₹18,000 Cr not ₹1,800 Cr. In the original write-up I had mentioned it as ₹17,000 cr.

Author’s Response:

Hi Vijay,

Thanks for writing to me!

In any way, the conceptual analysis stays the same as discussed in the earlier response.

All the best for your investing journey!




Sir, Looking at DHP’s annual report of 2013-2014, I found that it has ₹1.78 crore invested in equity and debt mutual funds. I find many other good, profitable companies like Control print, Narmada Gelatins, etc. – also have investments in mutual funds and shares.

Read: Analysis: DHP Limited

Why do these companies make such investments- just to keep their cash somewhere and gain returns?

My understanding is that the company should give out surplus amount as dividend or reinvest in its own business. Is it advisable to invest in companies which make investments in mutual fund and share markets?


Author’s Response:

Hi, Thanks for writing to me!

I appreciate the important observation made by you for these companies.

I agree that the ideally, a company should either reinvest or distribute its profits. However, many a times, a company might not have the reinvesting opportunity immediately when the profits are generated and they might have investment plans some time down the line. Therefore, to temporary deploy the cash, they invest in alternate avenues like mutual funds.

Read: Understanding Annual Report of a Company

It is important to understand, how long this idle cash has been with the company. If it is many year, then I would question it. However, you should remember that one such company which kept on investing is cash into such other assets (like stocks etc.) is Berkshire Hathaway managed by Warren Buffett. Berkshire was a textile company, however, the return from its investment exceeded textile business returns and it became one the best investment opportunities in the life time of mankind.

Hope it helps!



Dr. Vijay,

I am new to this forum and not an expert on finance but I have been investing since year 2000. I feel that in this article you are trying to relate RoE with valuation which is not correct.

Why Return on Equity (ROE) is not meaningful for Stock Market Investors!

RoE represents efficiency of a company in using its resources. It has nothing to do with CMP. RoE should never be used as valuation tool. We have to focus on other tools such as sales growth, NPM, debt/equity etc. In fact RoCE takes care of debt part and hence RoE and RoCE can be used together. For valuation we can use P/E or its inverse earnings yield, PEG, Rate of return

Author’s Response:


Thanks for your feedback and inputs!

You are right that by definition, ROE measures business performance. However, the article aims to highlight that focusing on ROE alone without factoring in the price that an investor pays to buy that ROE, should not be the preferred approach.

The article uses the concept of Price to Book value (P/B ratio) to substantiate the concept of Effective Profitability Ratio. Regarding other parameters for valuation analysis, including the ones mentioned by you, an investor may read the following article:

How to conduct Valuation Analysis of a Company





  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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