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PAG reported a 2-5% EBITDA miss on modest expectations, due to a ~5% miss on volumes and higher marketing spends; realizations though were ~3% better on better mix. Although channel inventory is down by 5-10 days across categories since the ARS implementation, it remained at Q4 levels sequentially; PAG will need 2 more Quarters to completely bridge the gap between primary and secondary growth. Among channels, e-com (~10% mix) grew 32% and led most of the Q1 growth, while physical channels continue to see muted trends. Backed by pick-up in rural spends, Tier-2 and below towns are doing better than the Metros/Tier-1. With higher marketing activities, new launches, distribution expansion, and dedicated sales teams across categories, PAG expects strong growth revival in H2. However, we remain conservative due to a weak Q1/lack of near-term triggers, and maintain Reduce and TP of Rs37,300/sh (50x Jun25E EPS). Estimates do not see material changes due to only a small miss in Q1.

EBITDA miss of 2% over weak expectations; demand commentary encouraging:

PAG saw a muted topline of 4% in Q1, on ~3% volume growth amid weak demand trends. Realizations improved ~1.0%, led by premiumization and better growth in women wear/athleisure. Encouragingly, PAG is seeing early green shoots, given the discounting pressure from peers largely behind now. Channel inventory remained at Q4 levels and is likely to require a couple of more quarters to fully bridge the gap between primary and secondary growth. Channel consolidation continued as PAG further tapered its MBO distribution by ~2,100 outlets in Q1. Exit EBO count stood at 1,395, with 13 adds in Q1 and 150-180 additions expected in FY25. Distributor base increased to ~4,300 with ~200 additions in Q1 after 5 quarters of consolidation. Although gross margin was up by ~90bps on stable input cost and better mix, EBITDA margin dipped by ~60bps to 19.0% owing to higher operating expenses (accentuated by higher marketing spends in Q1). PAG maintained its EBITDA guidance of 18-21%.

Earnings-call KTAs: 1) Q1 trends were in line with the muted trends of Q4FY24; green shoots toward the tail-end of Q1 and Q2TD are led by better rural consumption. TierII/III towns (mix% in the late 40s) saw better growth vs Metros/Tier-I (~50% of the business); however, PAG did not witness growth disparity between regions. 2) Channel Inventory remained at ~20mn pieces in volume terms. Continued focus on lightening the channel inventory caused primary growth to lag secondary/tertiary channel growth. 3) PAG remained debt free at end-Q1; being cash rich, it declared Rs300/sh dividend, in line with its policy to distribute 50% of PAT. 4) PAG is unlikely to take a price hike in the current fiscal, as cotton prices remain stable. With no price hikes since Jul-22, PAG feels the product-value proposition has improved vs. peers. 5) While Q1 saw higher marketing spends, the full-year marketing budget will remain in the 4-5% guided range. 6) With ~200mn pcs of own capacity, ~60mn pcs of outsourcing capability and upcoming Orissa/Mysore plants likely to commence operations by FY25-end, PAG does not foresee need for more manufacturing capex in the near term. 7) Relatively lower growth in LFS was led by a few key account exits. 8) PAG has launched new designs in the athleisure segment, at sharp price points over past two quarters. 9) Online B2B margin is comparable with that of the offline business; while Online D2C margin is marginally lower due to higher customer acquisition/logistics costs. 10) PAG believes the earlier guided target of US$1bn sales by FY26 is tough to achieve due to prolonged slowdown. 11) Impact from the Bangladesh unrest is immaterial, as the supplier has already started operating normally, with supply-chain contingency on a particular vendor/staying low for PAG. 12) It aims to expand its modern retail channel by 150-180 stores every year.

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