PBH has always run a leveraged balance sheet. The leverage levels in recent years have increased as the company entered a capital investment cycle to expand capacity and build new plants. In addition, cash flow in FY2025 has been weaker than usual due to a meaningful investment in working capital (increasing inventory and accounts receivable). Overall, the current cash flow has made leverage levels temporarily much higher than they should be.
With that said, revenue growth in the most recent quarters was around 15.7%, driven by healthy organic growth of around 9.2%, and the company has also guided for strong growth in FY2026, with capital expenditures already having peaked. We think that if the company can continue to show strong growth and as cash flow stabilizes, the debt levels will naturally deleverage. It takes time for this to play out, but for now we would stick with the company.