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We upgrade PAG to ADD from Reduce, while increasing our TP by ~32% to Rs44,700 from Rs33,750. The upward TP revision is a blend of 25% increase in the multiple to 50x and ~8% increase in earnings, backed by healthy growth pick-up (~14% in Q4 vs ~4% in 9M) and management confidence on growth sustainability in FY27. We believe PAG is well poised to transition toward a midteen growth phase, helped by perfect mapping of ‘demand-side’ tailwinds (market consolidation) with ‘supply-side’ initiatives like distribution expansion, consumer activations, premium products (Groove/Bonded Tech), and removal of the ARS impact. PAG highlighted that the growth pick-up is led by tertiary consumption and not by channel up-stocking or festive mismatch. PAG reiterated its EBITDA margin band of 19-21% (vs 22% in FY26), as it expects the strategic RM stocking, price hikes, and capex incentives to restrict the impact of the RM inflation and normalization of tech/marketing investments in FY27. Despite the working capital WC inching up, the balance sheet remains robust with post-tax RoIC profile of ~70%.

Revenue beat led by better-than-expected volume growth

PAG reported a robust 14.1% top-line growth in Q4 (vs ~4% in 9M) – around 4% higher than our estimate, led by 10.8% volume growth. Encouragingly, the management expressed its continued confidence on the growth momentum sustaining. Realizations improved ~3%, led by increased traction toward value-added premium offerings and outerwear, thereby lifting ASPs. After a consolidation phase in H1FY26 (~190 closures), distribution expansion picked up in H2FY26 as PAG added ~5,000 MBO outlets in H2 – taking the total count to 115,644 (up ~4% YoY). EBO additions remain robust, at 23/126 in Q4/FY26, respectively, taking the EBO count to 1,579. Gross margin (GM) was down by ~250bps YoY to 58.4%, on RM inflation. However, EBITDA margin declined by ~60bps as the GM decline was partially offset by operating leverage. Despite the 22% EBITDA margin in FY26, PAG maintained its EBITDA guidance of 19-21%, as it expects input cost inflation and the normalization of marketing/tech costs to impact margins in FY27

Volume growth remains key priority; Bonded/JKY Groove gain traction

The Q4 realization gain of ~3% was primarily led by premiumization and better revenue mix. PAG effected a ~2% weighted-average price hike toward Mar-end, mainly linked to product upgrades (heavy fabric, zipped pockets). Apart from the product upgrade and premiumization, PAG indicated that an additional price hike is likely in Q1, aimed at offsetting the impact of the rise in RM costs. However, PAG reiterated that volume growth remains the key strategic priority and that it is open to absorbing part of the impact of inflation to deliver continued volume growth. The new bonded collection continues to see strong traction and is a key driver for ASP expansion in Q4. Also, PAG has launched a nationwide outdoor campaign to further scale up the bonded-tech portfolio. JKY Groove is also seeing robust demand, with both summer and winter collections selling out faster than expected. Encouraged by such response, the company is now scaling up Groove 3 across 500 EBOs, select MBOs, and all e-commerce channels.

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