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Capacity expansion to drive volume growth

* Pearl Global (PGIL) is a global apparel manufacturing company with an integrated, endto-end supply chain and a presence across 10 countries, holding an annual capacity of 101m pieces. We believe Indonesia and Guatemala to grow at ~13% over FY26-28, followed by Bangladesh (~11% adj. inc. Hong Kong), India (~9%) and Vietnam (~8%).

* PGIL has established relationships with marquee clients and continues to expand its customer network. Management remains focused on its top five customers, prioritizing large-volume programs over smaller orders from fragmented clients. It has identified top-tier (USD60-100m revenue) and second-tier customers (USD40-60m revenue), which together contributed ~60% of revenues in FY24. Management aims to increase this contribution to over ~80% by FY28.

* The company plans to add ~20m pieces of capacity by FY28, taking total capacity to 121m, with utilization expected at ~78%. In India, current capacity stands at 26m pieces, with an additional 6-7m pieces planned in Bihar. In Bangladesh, capacity is expected to increase by 10m piecesin FY27. We believe this expansion will drive volume growth.

* We model a revenue, EBITDA, and PAT CAGR of 14%, 25%, and 29%, respectively, over FY26-28, fueled by capacity expansion across geographies.

* We initiate coverage on PGIL with a BUY rating and an EV/EBITDA-based TP of INR2,300, valuing the stock at 15x FY28E EV/EBITDA (50% premium to the 10-year mean led by better asset turnover, higher PAT margin, and better return ratios).

Global apparel exporter with diversified manufacturing presence

PGIL is a global apparel manufacturing company with a network of 25 manufacturing units spread across multiple geographies and an annual capacity of 100.8m pieces. In Bangladesh (~49% of sales; inc Hong Kong), capacity is being expanded by 10m pieces to 70m pieces by FY28, with 11% growth (adj. inc. Hong Kong) expected over FY26-28. India (~22% of sales) is projected to deliver ~9% CAGR over FY26-28, supported by the addition of 6-7m pieces in Bihar. Vietnam (~20% of sales), focused on high-engineering products, is also expected to grow ~8%. Indonesia and Guatemala (9% of sales combined) are projected to grow at 13% over FY26-28. Overall, we expect 14% CAGR over FY26-28, driven by double-digit volume growth, supported by ~3% realization growth.

Targeting over 80% revenue contribution from identified customers

PGIL has strong relationships with key clients such as Kohl’s, Macy’s, Inditex, and PVH Corp. Management remains focused on its top five customers, prioritizing largevolume programs over smaller orders from fragmented clients. Management has identified top-tier (USD60-100m revenue) and second-tier customers (USD40-60m revenue), which together contributed ~60% of revenue in FY24. Management targets to increase this to over 80% by FY28. These customers include PVH Corp. (USD90–100m), Kohl’s (USD80–100m), Inditex (~USD75m), MUJI (~USD60m), and GAP Inc. (~USD40m). Notably, PGIL’s revenue contribution from these top clients accounts for less than 2% of their total procurement, indicating significant headroom for growth. From a product category perspective, management is focused on bottoms, men’s shirts, winter jackets, sleepwear, athleisure, and knit tops, which are expected to drive sustained revenue growth through a balanced mix of scale

Valuation and view: Initiate coverage with a BUY rating

We initiate coverage on PGIL with a BUY rating and an EV/EBITDA-based TP of INR2,300, valuing the stock at 15x FY28E EV/EBITDA (50% premium to the 10-year mean, led by better asset turnover, higher PAT margin, and better return ratios). We believe ongoing capex (adding 20m pieces over FY26-28), supported by strong relationships with top five customers, provides a competitive edge over peers. The company delivers among the best return ratios in the industry, driven by its asset-light model (~25% of revenues). Overall, PGIL appears well-positioned for a gradual recovery in earnings quality; however, we believe the improved ratios are already reflected in the current market price, as the company trades at a premium valuation compared to Arvind and Gokaldas

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