Buy Pearl Global Industries Ltd for the Target Rs 1,450 by Emkay Global Financial Services Ltd
Pearl Global (PGIL) posted adjusted consol EBITDA of Rs1.7bn (up 41%/4% yoy/qoq), 10%/4% above Emkay/street estimates. Adj revenue grew 29% yoy, led by ~15% volume growth and ~13% rise in realization. Adj EBITDAM stood at ~10% (Emkay: 10.3%), adjusted for the ~Rs100mn tariff gain and ~Rs15mn of value-added services (VAS) profit to other income. High freight costs pulled down India ops EBITDAM to ~2.5% vs 4% in 2QFY26. Our view: PGIL has offset the sharp rise in opex (25%) with its robust revenue growth (27%) in 1HFY27. Hence, we increase FY27E EBITDAM to 10.6% vs 10.3%. However, the impending Bangladesh minimum wage revision (expected hike of 35-40%) coupled with moderating volume growth in FY28E (high base of FY27) is likely to keep margin flat yoy in FY28E (estimate unchanged). Factoring in the capacity additions toward meeting the FY30 target of 170-175mn pieces, we raise FY29E EBITDA by 11% and continue to value PGIL at 24x 2QFY29E EPS. We revise up our TP by ~4% to Rs1,450 from Rs1,400; maintain BUY.
Realization-led beat; other expenses temper margin gains
Adjusted revenue (adj for Rs1.1bn of VAS and tariff income) stood at Rs16.9bn (Emkay: Rs15bn), up 29%/11% yoy/qoq, as volume/realization rose ~15%/13% yoy. Gross margin was flat yoy at ~45% but fell by ~6pps qoq on higher knits share. Employee costs and other expenses rose 26% yoy on account of rising wage bill (India) and higher freight costs. As a result, EBITDA stood at Rs1.7bn (up 41% yoy); APAT came in at Rs1.3bn (Emkay: Rs1bn), up 74%/24% yoy/qoq, aided by higher other income and lower effective tax rate of 6.7% vs 9.3% in 2QFY26.
Earnings call highlights
1) US retailers remain cautious given lean inventory despite strong demand.
2) Canada and UK volumes grew strongly this year, EU volumes inched up, while those for Japan and Australia were steady.
3) UK volume rose significantly after the India-UK FTA; EU FTA is expected by early CY27.
4) Vietnam land is acquired and capex is under evaluation.
5) FY27 revenue guidance is >Rs60bn, with a healthy 3Q order book.
6) PGIL offered logistics as VAS to select customers over Christmas, as container rates hit $12,500 (vs $2,000-3,000 normally).
7) The new 7mn-piece-capacity Bangladesh unit runs at ~20% and should be at full capacity in 6-8 months.
8) India utilization was 68-69% in 1HFY27 and should rise with the Bihar ramp-up; Guatemala is working toward breakeven.
9) Realization rose, led by Vietnam and Indonesia and aided by a 7-8% yoy fall in the rupee.
10) The Bangladesh wage revision is due in early Dec-26; Management expects ~15% or slightly higher wages and highlighted that PGIL pays well above the minimum wage.
11) The Bangladesh unrest has minimal impact on PGIL’s operations.
12) Tax rate guided at ~15%.
13) Capex of Rs9-9.5bn would be capitalized by FY29 (CWIP: Rs2.3bn in 2HFY27; ~Rs3.5bn each for capacity and backward integration).
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