Buy Pearl Global Industries Ltd for the Target Rs 2,800 by Emkay Global Financial Services Ltd
We initiate coverage on Pearl Global (PGIL) with BUY and TP of Rs2,800 (implying ~15% upside), on the back of
1) PGIL’s exposure in key exporting nations (Bangladesh, India, Vietnam) ensuring business continuity despite headwinds (steep tariffs, FTA window expiry, etc)
2) PGIL reporting one of the highest capacity adds (up ~30% by FY29E vs FY26 levels) in the garmenting space, implying ~12% volume CAGR over FY26-29E
3) margin expansion led by relief from one-off costs (tariff burden share/start-up costs, in FY26) and breakeven at gestational units, along with efficiency investments paying off
4) robust balance sheet, which allows PGIL to self-fund growth opportunities. Further, we see its ROIC improving to 35%/38%/40% in FY27E/28E/29E, respectively, from 31% in FY26. We expect FY26-29E revenue/EBITDA/APAT CAGR of ~13%/~22%/~27%. Further, given the recent sharp rise in stock price, PGIL trades at ~26x 1YF PER (~50% premium to 3Y mean of ~18x). We still value the stock at 24x on 1HFY29E EPS, given
1) catalysts that can lift its India operations’ capacity utilization
2) adequate capex ensuring growth
3) best-in-class return profile.
Presence across key exporting nations
PGIL’s enviable moat Unlike peers, PGIL saw its EBITDA margin improving in FY26, a year inflicted with US tariffs/ME crisis. A primary reason for its outperformance is its multi-geography asset base in key exporting nations that allows PGIL to dilute the impact of unfavorable tariffs, rising labor costs, or political instability in a particular geography. Further, the multi-geo base enables the company to diversify its product portfolio based on the geography’s strength – eg supplying cotton knit garments from India or synthetic jackets from Vietnam which helps increase wallet share/ASP or add customers.
Growth backed by surge in volume
PGIL is on track to increase its capacity by 30% to ~130mn pieces by FY29E – one of the highest among peers. As existing (particularly, India) and new capacities ramp up, we expect PGIL to log 12% volume CAGR over FY26-29E. Given the already elevated ASP levels, we estimate a meagre ~1% FY26-29E CAGR, which implies 13% revenue CAGR.
Margin expansion on the cards
We expect EBITDA margin to expand by 230bps (vs FY26 levels) and reach 11.5% in FY29E. Key growth levers:
1) relief from one-off costs seen in FY26 (such as ~Rs360mn tariff, ~Rs130mn startup losses)
2) Bihar and Guatemala operations reaching breakeven and Indonesia operations turning profitable
3) efficiency gains from the in-house Bangladesh laundry facility and renewable energy capacities.
Healthy balance sheet; set for accelerated capex (including inorganic)
PGIL keeps a tight grip on working capital (a ~1.5-month cash cycle) and a comfortable net debt-to-EBITDA of ~0.4x as of FY26. We estimate total capex of ~Rs5bn over FY27- 29 vs cumulative OCF of >Rs18bn, aiding PGIL in turning net cash positive, at ~Rs5.5bn by FY29. This enables PGIL to self-fund future capex or adopt the inorganic route.
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