ABOUT

• Pearl Global Industries Limited (PGIL) is a multinational textile company specializing in apparel manufacturing, sourcing, and distribution. 

• They have a range of products including childrens-wear, activewear, denim, knits, woven, outwear and sleepwear. 

• They also offer services such as apparel designing with a team of 75 designers across 5 countries.

• They primarily focus on exports to countries like the USA. Other than the USA, they also export to Europe, Japan, Australia, UK and Canada.

• During FY 23-24, they received 72% of their revenue from countries outside India and 28% inside India.

• The company owns multiple manufacturing facilities around the world. This helps it to diversity its manufacturing base, access lower labor costs and benefit from various trade agreements. 

• It owns 7 manufacturing facilities in India, 11 units in Bangladesh, 4 units in Vietnam, 4 in Indonesia and it recently opened a manufacturing facility in Guatemala which will benefit it with shorter lead times for servicing US customers. 

• It also has various Design and Marketing offices in the US, UK, Spain and Hong Kong.

• The company also has a wholly-owned subsidiary "Pearl Global (HK) Limited" in Hong Kong which engages in sourcing and trading ready-to-wear apparel.

• The company's major clients include famous brands like GAP, Ralph Lauren, Old Navy, Inditex (Zara, Massimo Dutti), PVH (Calvin Klein, Tommy Hilfiger), etc:

EXPANSION

1. Capex plans

• According to the management, their capex plan over FY 25 across geographies is approximately 125 crores.

• The company has already capitalized on 63 crores of capex in the first half across geographies.

• This capex has been done in Chennai, to build plant and machinery. It has also been done in Bangladesh to replace plant and machinery and to expand a washing facility.

• Furthermore, they have also expanded into Guatemala which will help them gain proximity to clients in the US. This will help reduce shipping time and costs. Guatemala also benefits from the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) which helps it provide duty free access to the US market for apparel products. 

• Since the company has only spent about half of the yearly capex commitment in H1, H2 should see a considerable spend in capex. 

• Pearl Global has long-term capex plans of adding capacity equivalent to 10 factories with 1000 machines each, representing a total investment of Rs 500 Cr by 2028. 

• The funds for the ongoing and future capex is supposed to be drawn from a mix of internal accruals, debt and proceeds from the most recent QIP where they raised INR 149.5 crores. They also have a sizeable INR 510 crores of free cash balance in their books as of July 2024.

2. Strategic Partnerships

• As of FY 24, about 16% of Pearl Global's production was done through partnership factories.

• The company follows a strategic partnership model which involves collaborating with factories owned and operated by other entities, enabling Pearl Global to expand its production capacity without the significant upfront investment required for building and owning new factories.

• This helps it expand into new markets and geographies without significant investment into factories, machinery and other fixed assets.

• Pearl Global leverages its extensive experience in apparel design and procurement to guide its partners. The company provides design specifications, technical expertise, and quality control protocols to ensure that the products manufactured by its partners meet its standards and customer requirements.

• While partners cover the fixed capital costs, Pearl Global invests in the working capital needed for day-to-day operations. This includes financing raw material purchases, managing inventory, and covering other short-term expenses

• By leveraging existing production facilities, Pearl Global can bring new products to market faster, reducing lead times and responding more quickly to changing customer demands.

• By reducing capital expenditures and operational costs, the partnership model can contribute to improved return on assets (ROA) and return on equity (ROE).

• The partnership model plays a crucial role in mature markets like Vietnam and Bangladesh, where established ecosystems make it advantageous to collaborate with existing factories.

3. Qualified Institutional Placement (QIP) in July 2024

• The company successfuly completed a QIP raising 149.5 crore in July 2024.

• Funds from the QIP are being used to reduce borrowings by 97.5 crores.

• The rest of the proceeds will be utilised towards other corporate activities which might include Capex and acquisitions.

4. Acquisitions 

• During FY 24, Pearl Global acquired a 55% equity interest in "Pearl GT Holdco Ltd," a British Virgin Islands company. This acquisition included Pearl GT Holdco's two wholly-owned subsidiaries, "Corporacion de Productos Y Servicios Asociados, Sociedad Anonima" (CORPASA) and "Shoretex, Sociedad Anonima" (SHORETEX), both based in Guatemala. 

• This acquisition costed the company about 45 lakhs in cash and 24 lakhs in the form of goodwill on the acquisition of the subsidiaries.

• During the year, the company's subsidiary "Pearl Global (HK) Limited" also acquired 100% equity interest in "Trinity Clothing Limited" from a third party. Trinity Clothing is engaged in the trading of fabrics and interlining. The acquisition was made as part of the Group’s strategy to expand its business operation, expecting to benefit from the synergies of broader customer base. 

SECTOR ANALYSIS

FINANCIALS

PEER COMPARISON

SWOT ANALYSIS

RISKS AND MITIGATION

• Risk 1: Client concentration risk

Mitigation 1: Pearl Global relies heavily on a select group of clients for the majority of its revenue, with 60-65% of its income coming from its top five clients. This concentration poses a significant risk, as the garment sector requires an extensive approval process to achieve vendor status with reputable buyers. However, to mitigate this risk, Pearl Global has established itself as a preferred long-term vendor for numerous customers and is actively working to expand into new markets.

• Risk 2: Fluctuations in currency value

Mitgation 2: Pearl Global has minimal currency exposure, thanks to natural hedges for its overseas operations. Additionally, the company sources 99% of its fabric domestically in India, significantly reducing its reliance on foreign currency.

• Risk 3: Political tension in Bangladesh

Mitigation 3: The company has a significant manufacturing presence in Bangladesh, a country currently facing political unrest and power outages. This situation poses a potential threat to Pearl Global's operations in the region. However, the company's diversified manufacturing facilities across the globe help mitigate these risks. Its recent expansion into Guatemala is particularly strategic, providing a strong export base to the U.S., which is its primary market. Furthermore, despite a six-day curfew in Bangladesh during July 2024, the company's operations were not significantly impacted, as it recorded its highest-ever shipping volumes in August 2024.