We hosted the management of Pearl Global Industries (PGIL)in our ‘Nuvama Emerging Ideas Conference 2024: Bharat’s Swarna Kaal’. PGIL is one of the leaders in design, manufacturing, and export of diverse apparel products for all seasons, with an annual capacity of 84mn pieces. Its manufacturing facilities are spread across five countries, thus making it a top contender to emerge as one of the top suppliers to global brands. It exports to various fashion brands and retailers across the globe. PGIL is a classic turnaround story with a focus on superior margin. The improvement in operational metrics was led by: i) a higher wallet share from existing clients and better productivity, ii) average realisation of 7% CAGR over FY20–24 on the back of a superior product mix, and iii) margin expansion due to a change in the product mix and operating leverage. We expect growth to be driven by: i) client additions and higher spends from existing customers; ii) incremental capex leading to steady volume growth; and iii) margin expansion on higher productivity. PGIL is a perfect candidate for a valuation re-rating given its execution capabilities, growth opportunities, and quality management. The stock is not rated.
Valuation and view
The textile sector faced a tumultuous phase in the last five years on COVID-related issues, higher inflation in the US, greater inventory with global retailers due to supply chain issues, and a surge in cotton prices and freight costs. With most of these events abating, we expect the sector to return to the growth track and see volume-driven revenue growth from here on. PGIL has been improving its productivity and is on a capex spree. Its manufacturing bases in Bangladesh, India, Vietnam, Indonesia and Guatemala make it one of the preferred suppliers for top retailers and brands. With all growth levers in place and multiple industry tailwinds, PGIL will be one of the foremost beneficiaries.
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