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Margin expansion driven by value-added products

Pearl Global Industries (PGIL IN) reported strong set of numbers with a beat on all fronts led by volume growth of 20.9% YoY (2.6% beat on Ple). Improvement in average realization further supported the revenue growth, reaching the highest ever quarterly number of INR15.3bn, 16.0% above estimates. EBITDA margins stood at 10.7% vs our estimate of 10.0%, led by operating leverage and favorable product mix. Overseas business continued to demonstrate strong performance (23.6% YoY growth), with Indian operations witnessing a strong recovery (up 27.3% YoY). The company remains on path to expand its capacity to 120-130mn pieces by FY28 and is expected to announce the next CAPEX plan of INR2,000/2,500mn in coming quarters. PGIL IN is on track to surpass its INR60bn revenue mark by FY28 led by sustained healthy demand in USA, Europe and UK market despite geopolitical headwinds.

Management expects current EBITDA margins to sustain going ahead inching closer to the targeted range of 10-12%. While the management refrained from guiding significant improvement in realizations we estimate realizations to improve by ~1.7% over FY26-28E considering the removal of tariff related discounts. Accordingly, we have revised our FY27/28 EPS estimates upward by 7.2%/2.6%. We expect PGIL IN’s revenue/EBITDA/PAT to grow 13%/23%/27% over FY26-28E and margins to reach 11.0% led by strong volume growth of 10.7%. Maintain ‘Accumulate’ with TP of INR2,333 valuing the same at 24x PE of FY28E.

Revenue increased 24.4% YoY, robust recovery in India:

Consolidated revenue stood at INR15,280mn growing 24.4% YoY and 16.3% YoY, 24.5% above our estimates led by strong volume growth across geographies. Indian operations grew 27.4% YoY on account of removal of tariff overhangs resulting in robust order inflow. International operations continued their growth momentum by registering 23.6% YoY growth

Robust volume growth of 20.9% YoY:

Q1FY27 volume shipped stood at 20.8mn pieces (Ple 20.3mn pieces). The strong growth in volumes was led by healthy demand in USA and European market with positive customer sentiments. Realizations stood at INR735 (including export incentives), supported by higher value outerwear contribution. While realizations may drop sequentially in coming quarters due to seasonality those are expected to improve on a YoY basis.

Operating leverage and product mix to support profitability:

Management remains confident about sustaining double digit margins going forward led by strong volume growth and improvement in realizations. Consolidated margins stood at 10.7% during the quarter driven by operational leverage and product mix. Standalone margins dropped to 6.5% (vs 6.9% in Q1FY26), impacted by the wage increase in Haryana and Noida where it operates 4 factories. Adjusted for this the standalone margins would have been around 9%.

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