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Muted revenue; weak GM impacts profitability

* P&G Hygiene and Healthcare’s (PGHH) 2QFY26 revenue growth was broadly in line with our expectations, but profitability was a miss. Similar margin anomalies have been observed in past quarters. Revenue grew 1% YoY to INR11.5b (in line) in 2QFY26, reflecting flat growth in the base quarter. Overall revenue growth has remained weak over the past few quarters.

* Gross margin contracted 160bp YoY and 230bp QoQ to 61.3% (est. 63.5%), reflecting the usual volatility between quarters. Employee costs declined 20% YoY, while A&P grew 2% YoY and other expenses rose 3% YoY. EBITDA declined 2% YoY to INR2.8b (below), while EBITDA margin contracted 80bp YoY and 370bp QoQ to 24.8%. The high COGS was partially offset by lower employee costs, helping limit the contraction in EBITDA margin.

* PGHH exhibits significant volatility on a quarterly basis, but its annual performance remains highly stable. We model a 26-27.6% EBITDA margin during FY26-28E, implying ~10% EBITDA CAGR over FY26-28E.

* The stock trades at rich valuations of 49x/45x FY26E/FY27E P/E. Reiterate Neutral with a TP of INR14,000 (based on 45x Sep’27E EPS).

Revenue remains flattish YoY, while margins contract

*Flattish revenue: PGHH registered 1% YoY revenue growth to INR11.5b (est. INR11.6b). Growth remained flat in the preceding and base quarters, reflecting a trend of weak revenue performance over the past few quarters.

* Miss on margin: Gross margin contracted 160bp YoY and 230bp QoQ to 61.3% (est. 63.5%). GM volatility between quarters is usually high. Employee costs reduced 20% YoY, while A&P grew 2% YoY and other expenses rose 3% YoY. EBITDA margin contracted 80bp YoY and 370bp QoQ to 24.8% (est. 25.5%).

* Miss on profitability: EBITDA declined 2% Y

Valuation and view

* We broadly retain our EPS estimates for FY26-28.

* Two factors make PGHH an attractive long-term core holding: 1) high growth potential for the feminine hygiene segment (65-68% mix of FY24 sales), coupled with the potential for market share gains and strategic initiatives, including the strengthening of its competitive advantages; and 2) the potential to sustain high operating margins from the long-term premiumization trend in the feminine hygiene segment.

* With a portfolio of essentials and healthcare, PGHH remains focused on product innovation-led customer acquisition. While penetration play will continue, it is expected to proceed at a stable pace despite the high scope of user additions. The stock trades at rich valuations of 49x/45x FY26E/FY27E P/E. Further, we do not see any medium-term trigger. Reiterate Neutral with a TP of INR14,000, based on 45x Sep’27E EPS.

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