Buy Pearl Global Industries Ltd for the Target Rs.1,400 by Emkay Global Financial Services Ltd
We attended Pearl Global Industries (PGIL)’s investor day. KTAs: 1) PGIL guides for ~18% revenue CAGR (backed by ~15% volume CAGR) to achieve ~$1bn revenue by FY30. 2) This would be achieved by expanding the capacity base to ~170mn pcs by FY30 vs ~101mn pcs in FY26 (keeping geographical mix constant). 3) Capacity expansion will require Rs7bn capex, which includes ~Rs3.5bn capex on knit/processing unit (to be set up in Bangladesh). 4) On the margin front, PGIL guides for a higher margin orbit of 12-14% (vs 10-12% earlier), aided by its backward integration unit, ramp-up of India operations, and investment in renewable energy; 5) PGIL aims to reduce US exposure to ~40% by FY30 vs ~50% currently. As highlighted in our initiation (Stars are aligned; initiate with BUY), PGIL has a near-perfect track record of achieving its earlier guidance. Hence, we expect it to deliver on the new guidance, backed by tailwinds like FTAs, PLI schemes, etc. We retain our current estimates and TP; however, on performing sensitivity analysis on the new guidance, we see upside risk of >30% to our TP (base case scenario; Exhibit 1); retain BUY.
FY30 revenue guidance of ~$1bn; India revenue set to double
Management guides for FY30 revenue of ~$1bn, driven by
1) capacity expansion to 170- 175mn pcs (vs ~101mn in FY26)
2) higher utilization of ~80% vs 77% in FY26
3) higher realization of Rs660-670/pc (vs ~Rs640/pc in FY26). PGIL expects India revenue to double to Rs22-25bn by FY30 (vs Rs10.8bn in FY26). In the UK, management targets 2-3x revenue growth over 1-2 years, backed by India capacity and the FTA. Currently, EU forms 15-17% of consolidated revenue and PGIL sees higher volumes with FTA coming into effect. By FY30, PGIL expects the top 6 high-growth customers to contribute 50-55% to revenue, with the next 15 customers adding 35-40%, and the rest at 5-10%
Four levers to take margin to 12-14% by FY30
Tariffs held FY26 EBITDA margin at 9.3% (ex-tariff ~10%); for India business, reported standalone margin was 6.2% (~8% ex-tariff). Management expects margin to reach 12- 14% by FY30 via 1) scaling capacity, as higher volumes leverage existing infrastructure and the global manufacturing footprint; 2) backward integration through a knitting and dyeing processing unit; 3) bringing process capabilities in-house; and 4) new product expansion. The 1QFY27 margin of 10.7% already sits above the FY26 level. Revenue growth and margin expansion are expected to lift ROCE beyond 22%.
Capex of ~Rs10bn till FY30, at 22-25% ROCE target
PGIL plans capex of ~Rs10bn till FY30. Besides the Rs2.5bn capex in FY27, the company will spend Rs3.3-3.5bn toward capacity expansion across geographies and Rs3.5-3.8bn toward the knitting and dyeing unit. It will fund this capex through internal accruals and debt, targeting ROCE of 22-25%. The partnership model will continue, keeping asset turns healthy. On capital allocation, management's priorities, in order, are:
1) organic growth
2) a dividend payout of at least 20%
3) a net-cash balance sheet
4) selective, margin-accretive M&A.
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