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Underperformance continues

* P&G Hygiene and Healthcare (PGHH) delivered flat sales YoY at INR11.3b in 1QFY25 (est. INR12.4b) (FY ending June). Last three-year CAGR was 3% for the quarter and FY24 growth was 7.5%. Volume growth was muted in 1Q, after clocking healthy growth in 2HFY24 (12% growth). The company has witnessed growth in the feminine care category.

* Gross margin expanded 200bp YoY/370bp QoQ to 62.9% (est. 61.5%). Ad spends were up by 13% YoY (15.2% of sales). EBITDA grew 2% YoY to INR2.9b (est. INR3.0b). EBITDA margin expanded by 60bp YoY and 1150bp QoQ to 25.6%.

* With a portfolio of essentials and healthcare, the company remained focused on product innovation-led customer acquisition. Penetration play would continue but at a steady pace, despite the high scope of user additions. The stock trades at an expensive valuation of 63x/56x FY25E/ FY26E P/E. We reiterate Neutral rating on the stock.

Weak performance; margin improved

* Muted sales growth: PGHH reported flat sales YoY at INR11.3b (est. INR12.4b). Volume growth in the industry remained subdued, though the company saw growth in its feminine care segment.

* Strong margin performance: Gross margin expanded 200bp YoY and 370bp QoQ to 62.9% (est. 61.5%). Employee costs fell 5%, A&P rose +13% and other expenses remained flat YoY. As a percentage of sales, employee expenses declined 30bp YoY, Ad spending increased 180bp YoY to 15.2%, and other expenses remained flat YoY at 16.7%. EBITDA margin expanded 60bp YoY to 25.6% (est. 24.6%).

* Miss on earnings performance: EBITDA grew 2% YoY to INR2.9b (est. INR3.1b). PBT/PAT remained flat YoY at INR2.8b/INR2.1b.

Valuation and view

* We cut our EPS estimates by 2%/3% for FY25/FY26.

* Two factors make PGHH an attractive long-term core holding: 1) robust growth potential in the feminine hygiene segment (65-68% mix of FY24 sales), coupled with the potential for market share gains, aided by strategic initiatives, including the fortification of significant market advantages; and 2) potential for higher margin gains from the long-term trend of premiumization in the feminine hygiene segment.

* With a portfolio of essentials and healthcare, PGHH remained focused on product innovation-led customer acquisition. Penetration play would continue but at a stable pace, despite the high scope of user additions. The stock trades at expensive valuations of 63x/56x FY25E/ FY26E P/E. Further, we do not see any medium-term trigger. Reiterate Neutral with a TP of INR16,500, based on 55xSep’26E EPS.

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