Pearl Global Ind Q4 FY24 earnings call

Wed 22 May 2024PGIL

In brief

Pearl Global Q4 FY24 revenue up 20% YoY at ₹877.4 cr; adj EBITDA up 31% at ₹83.9 cr; on track for FY28 ₹6,000-6,200 cr target

Management's tone: Confident
What was said: Leaned positive
Guidance: Guidance held
Analyst pushback: Medium
Stock, next session: +0.59% (Nifty 50 +0.31%)

FY24 consolidated revenue grew 8.8% YoY to ₹3,436.2 cr; Q4 FY24 revenue grew 20.2% YoY to ₹877.4 cr led by 21% overseas growth.
FY24 adjusted EBITDA grew 22.5% YoY to ₹316.4 cr with margin up 100 bps to 9.2%; Q4 adj EBITDA up 30.8% at ₹83.9 cr, margin 9.6%.
ROCE improved 400 bps to 28.2% in FY24; net working capital days reduced to 30 from 38; net debt/EBITDA at 0.25x.
Standalone revenue fell 13.6% YoY to ₹953.7 cr due to business transition to Bangladesh; Q4 standalone grew 16.6% to ₹320 cr.
FY24 capex of ₹115 cr on PPE; plans ₹500-550 cr over 4 years with India FY25 capex of ₹70-90 cr for new states.

An AI read of the company's transcript · the filing

The numbers

The quarter, Q4 FY24

	This quarter	A year ago	Last quarter	Margin
Revenue	₹877 cr	+20.2%	+24.6%
EBITDA (excl. other income)	₹80.8 cr	+0.3%	+23.4%	9.2% (11% a year ago)
Net profit	₹51.4 cr	−1.1%	+43.6%	5.9% (7.1% a year ago)
EPS (₹)	₹11.82	−50.7%	−28.3%

From the company's filed results for the quarter ended 31 Mar 2024 (consolidated), not from the call. EBITDA here excludes other income, so it can differ from the figure management quotes.

Where management's figures differ from the filing

Q4 FY24 EBITDA: said Adjusted EBITDA ₹83.9 cr (margin 9.6%), excluding ESOP expense of ₹2.5 cr; filed EBITDA ex other income ₹80.84 cr (margin 9.2%). Stated is adjusted EBITDA excluding ESOP only; filed is EBITDA excluding other income; ₹3.06 cr gap is definitional.

What moved the numbers, as management explained it

Q4 FY24 PAT after minority interest down ~1% YoY at ₹51.3 cr because Q4 FY23 had exceptional gain of ₹17.8 cr (₹13.5 cr for FY23); underlying profit improved. (one-off)
FY24 adjusted EBITDA excludes ESOP expense of ₹8.6 cr (₹2.5 cr in Q4); ESOP expense guided at ₹4.5-5 cr for FY25 - a non-cash adjustment to EBITDA. (accounting)
Operational efficiency in Bangladesh drove EBITDA margin improvement; international operations benefited from economies of scale and Taka devaluation.
Standalone revenue declined 13.6% due to business transition to Bangladesh (knit business shift); mix shift depressed consolidated-to-standalone spread.
Overseas revenue grew 21% YoY in FY24 while consolidated grew only 8.8% - the slower consolidated growth reflects the standalone business drag, not demand weakness.
Bangladesh wage hike impact 12-15% on wage bills (~1-1.5% of top line) absorbed via automation, efficiency and the recent Taka devaluation.

Guidance

Guidance on this call

What	For	What management said
FY28 consolidated revenue	FY28	On track to achieve INR6,000 crores to INR6,200 crores of top line by FY'28
FY28 consolidated EBITDA margin	FY28	By 2028 we should be anywhere between 10 to 12 percent EBITDA margin
4-year capex plan	FY25-FY28	We will be investing anywhere between INR500 crores to INR550 crores in next four years
FY25 India capex	FY25	Commitment to capex around INR70 crores to INR90 crores of capex in India for capacity expansion in other states
FY25 ESOP expense	FY25	ESOP expenses for next year will be in the range of INR4.5 crores to INR5 crores
FY28 capacity (pieces)	FY28	Path to become 120 million to 140 million kind of capacity that we should be having for 2028
FY25 Bangladesh machine capacity addition	FY25	We will be looking to add maybe 1,000 to 1,500 machine capacity
FY25 India maintenance capex	FY25	Maintenance capex around INR8 crores to INR10 crores in India
FY25 Bangladesh maintenance capex	FY25	Maintenance capex of INR8 crores to INR10 crores for Bangladesh
Stable-state net working capital days	—	Net working capital days around 35 days should be a stable state for us going forward
Dividend policy	—	Company will declare dividend of at least 20% of consolidated profit after tax in a given year

The business

By business

Consolidated (Group)

FY24 revenue up 8.8% to ₹3,436.2 cr; adj EBITDA up 22.5% to ₹316.4 cr; PAT ₹169.1 cr; overseas revenue grew 21%; margin 9.2%.

FY24 revenue ₹3,436.2 cr (+8.8% YoY) · Q4 FY24 revenue ₹877.4 cr (+20.2% YoY) · FY24 adj EBITDA ₹316.4 cr (+22.5% YoY) · Q4 FY24 adj EBITDA ₹83.9 cr (+30.8% YoY) · FY24 EBITDA margin 9.2% (+100 bps) · Q4 FY24 EBITDA margin 9.6% (+80 bps) · FY24 PAT ₹169.1 cr (+10.5% YoY) · FY24 EPS ₹40.26 vs ₹34.45

Outlook: On track for FY28 revenue ₹6,000-6,200 cr; EBITDA margin guided to 10-12%; capex ₹500-550 cr over 4 years.

Standalone (India)

FY24 revenue down 13.6% to ₹953.7 cr on business transition to Bangladesh; Q4 revenue up 16.6% to ₹320 cr on woven growth; PAT ₹28.2 cr.

FY24 revenue ₹953.7 cr (-13.6% YoY) · Q4 FY24 revenue ₹320 cr (+16.6% YoY) · FY24 adj EBITDA ₹49.3 cr · FY24 adj EBITDA margin 5.2% vs 6.4% · Q4 FY24 adj EBITDA margin 6.4% · FY24 PAT ₹28.2 cr · Q4 FY24 PAT ₹11.9 cr

Outlook: Confident of improved standalone performance as FY25 starts; capacity expansion in existing factories and new states planned.

Bangladesh operations

Wage hike impact 12-15% on wage bills (1-1.5% of top line); FY24 capex ₹40 cr (55% upgradation/automation); Taka devaluation an additional help.

FY24 capex ₹40 cr · Wage hike impact 12-15% of wage bills · P&L impact 1-1.5% of top line

Outlook: Plan to add 1,000-1,500 machine capacity; maintenance capex ₹8-10 cr planned; looking at inorganic opportunities.

Vietnam operations

FY24 capex ₹13 cr (₹5 cr automation, ₹8 cr building); serves higher-end customers; steadier growth pace planned.

FY24 capex ₹13 cr · ₹5 cr towards automation

Outlook: No capex planned currently; continue to grow at relatively steadier pace serving higher-end customers.

Indonesia operations

FY24 capex ₹16 cr towards capitalization of building from CWIP; numbers expected to recover after shifting away from seashore facility.

FY24 capex ₹16 cr

Outlook: Will gain back numbers as new facility utilization improves; no further capex planned.

Guatemala operations

FY24 capex ₹4 cr growth capex; getting more queries from US customers due to faster transit (just over a week) despite limited Central America capacity.

FY24 capex ₹4 cr

Outlook: Capitalization completed on 31 March; capacity has been added in the last one year to serve faster-transit US demand.

Balance sheet, capex and funding

Gross debt ₹445 cr in FY24 vs ₹448 cr in FY23; net debt/EBITDA at 0.25x; cash accruals being used to control interest cost.; debt
ROCE improved 400 bps to 28.2% in FY24 (from 24.2%) on overseas profitability, prudent capital allocation and working capital efficiency.; returns
Net working capital days reduced to 30 in FY24 from 38 in FY23; debtor days 28, inventory days 53, creditor days 52.; working_capital
FY24 PPE capex ₹115 cr + ₹1.25 cr IT capex; India ₹42 cr, Bangladesh ₹40 cr, Indonesia ₹16 cr, Vietnam ₹13 cr, Guatemala ₹4 cr.; capex_spent
FY25 capex guidance: India ₹70-90 cr + IT, Bangladesh 1,000-1,500 machine additions, India maintenance ₹8-10 cr, Bangladesh maintenance ₹8-10 cr.; capex_planned
Dividend ₹38.1 cr distributed in FY24 (22.5% of consolidated PAT), in line with policy of at least 20% of consolidated PAT.; funding

The industry, as management sees it

Global textile and apparel market expected to be relatively flat in the coming year amid geopolitical volatility, US election-year caution, and European/UK recession; US retailers have fully cleared excess inventory and demand is back on track but with low-single-digit growth expected; Asia-Pacific including China, Australia and Japan along with Bangladesh and Vietnam remain structurally stronger as production shifts away from higher-cost locations.

Risks management named

India standalone profitability pressure on fixed cost absorption with recovery expected in FY25
Finance cost up sharply from INR 47 cr to INR 83 cr in two years due to lease interest and borrowing cost being actively optimised
US retailers remain cautiously optimistic and buying close-to-season ahead of elections creating order volatility risk
Bangladesh Taka devaluation benefit partly offset by ongoing macro uncertainty under new crawling-peg regime
High attrition and absenteeism in Indian factories running at roughly double the ~4% rate seen in Bangladesh, Vietnam, Indonesia

Q&A

The Q&A spanned about 50 minutes with five distinct analysts. The dominant theme was the achievability of the FY28 target and Pearls relative valuation discount to Gokaldas; Hemant Shah pressed the hardest on this and Pallab largely acknowledged the valuation gap while attributing it to Pearls shorter IR history. Pulkit Singhal was the most probing with four follow-up questions covering working capital sustainability, capacity utilisation rationale, FY25 quantitative guidance where management stayed directional, and the sharp rise in finance cost. Sanchit Chawla probed margin walk and pricing power, while Ashya Jain asked about Q1 FY25 demand and the capex plan. Capex bifurcation and margin roadmap were answered with specifics; absolute FY25 revenue and margin band was the most-deferred topic.

Not answered directly

FY25 quantitative revenue growth band
FY25 specific EBITDA margin band
Why Pearl trades at a discount to Gokaldas on a relative valuation basis
Sustainability of US nearshoring demand post-election
Concrete Bangladesh capacity addition quantum

Asked for a number, answered without one

Q1 FY25 / FY25 revenue growth band: Sanjay said we are 'solidly on track at least in that direction' referring to 15-18% to as high as 20% CAGR, but did not give a specific FY25 number.
FY25 margin band: Sanjay spoke qualitatively about 'good margin from all the locations' and evolving India digitization but gave no specific FY25 margin number.

Every question, with its answer

1. FY28 revenue target
Hemant Shah, Seven Islands PMS
Question. On the FY28 target of INR 6,000–6,200 cr revenue, are you on track, and how?
Answer, Pallab Banerjee, Managing Director. Pallab confirmed the strategy presented in February remains exactly the same and Pearl is solidly on track. Focus is on top-tier and second-tier customers; the company continuously monitors customer health and shifts volume away from financially weaker ones. While FY24 was an exceptional year impacted by Bangladesh wages, the company still closed at about 9% growth and remains becoming stronger only. Operational efficiency builds up as scale grows, supporting the bottom-line delivery promised.
Follow-up. Barring FY24, can we comfortably expect at least 15–18% CAGR growth with EBITDA margin of about 10%?
Answer. Pallab confirmed the FY28 plan is entirely organic with the existing infrastructure plus planned new facilities; no business acquisition is required to hit the target. Operational efficiencies keep building as the top line grows, so the bottom-line number continues to improve as guided.
2. Capacity and existing infrastructure
Hemant Shah, Seven Islands PMS
Question. With existing infrastructure (barring planned two-to-three-year expansion), what is the optimum revenue and sales level?
Answer, Pallab Banerjee, Managing Director. Pallab explained production capacity has grown from 80 million pieces one-and-a-half years ago to about 84 million pieces currently. The plan is to scale to 120–140 million pieces by 2028. India operations are maximising existing factories and exploring partnerships; Bangladesh is strengthening capacity utilisation and partnerships; Guatemala has added capacity over the last year.
Follow-up. Will there be per-unit realisation improvement going forward, particularly in Vietnam and Indonesia?
Answer. Pallab said UVR improvement is always the endeavour but the FY28 numbers were built assuming similar UVR; any UVR upside would be additional. Importantly, UVR is partially controllable via customer mix - exposing more to higher-value customers and reducing exposure to highly price-competitive ones.
3. Peer comparison vs Gokaldas
Hemant Shah, Seven Islands PMS
Question. How does Pearl compare with Gokaldas Exports on products and valuation, and where is Pearl lagging?
Answer, Pallab Banerjee, Managing Director. Pallab acknowledged this is a difficult one and attributed the gap to Pearls IR journey having begun only in 2021 versus Gokaldass longer history with the Street. Pearl emphasised its global footprint including Vietnam, Indonesia, Sri Lanka, and India and superior ROCE and EBITDA delivery. Pearl has not done any acquisition to grow numbers and is targeting 10–11% EBITDA margin at scale implying about INR 600–700 cr EBITDA on FY28 revenue. The CEO invited further dialogue: we are very open and communicative; we definitely want to increase the valuation because a proper valuation is something that all of us would like to have.
Partly answered.
4. Demand outlook and Q1 FY25
Ashya Jain, Jain Capital
Question. How is Q1 FY25 shaping up, what is the global demand outlook, and is any industrial-level slowdown anticipated?
Answer, Pallab Banerjee, Managing Director. Pallab said demand is healthy and the US over-inventory issue is completely over, so orderbook is no longer a complaint. However, US retailers remain cautiously optimistic due to elections, geopolitics, and sticky inflation and interest rates; they are planning low single digit growth for the year. UK and Europe are in technical recession and conservative; stronger players like Inditex continue to grow. Australia, Japan, and China are relatively upbeat having just exited COVID restrictions. Pearls global manufacturing footprint allows it to serve Asian brands global supply chains as well.
Follow-up. Can you provide the FY25 capex plan?
Answer. CFO Sanjay Gandhi gave the FY25 capex guidance: India INR 70–90 cr for capacity expansion and IT and digitisation; Bangladesh evaluating opportunity to add 1,000–1,500 machine capacity with amount unconfirmed; Vietnam and Indonesia no major capex; Guatemala capex completed as of 31 March. Maintenance capex of INR 8–10 cr each in India and Bangladesh. Part of the FY25–FY28 INR 500–550 cr four-year capex envelope.
5. Margin drivers and outlook
Sanchit Chawla, Subhkam Ventures
Question. How has the margin journey progressed from 4% to 9% over recent years and what were the low-hanging fruits captured; how will the next 300–400 bps of expansion be delivered?
Answer, Sanjay Gandhi, Group Chief Financial Officer. CFO outlined three margin drivers: operating leverage from factories that had commenced operations and were stabilising; favourable customer mix change; and higher-margin product mix including leveraging overseas marketing and design infrastructure in US, UK and Spain. Pallab added that the period pre-2019 lacked rigour in synchronising top-line growth and expansion; new governance discipline on factory ROI, break-even timing, and customer pipeline has lifted margins. As piece count scales from 51 million in FY23 toward 90–100 million, scale leverage will keep pushing EBITDA toward the 10–12% band.
Follow-up. How is garment pricing decided and what % of supplied garments carry Pearls own designs?
Answer. Pallab explained the pricing mechanic: retailers design into fixed retail price points such as $19 SKU so designers and engineers build backward into a target buying price. When Pearl participates in design upfront it captures better buying price of potentially 10–40 cents more per piece and better visibility; when retailers take pre-designed specs and shop among 10 manufacturers it becomes pure price competition. Pearl estimates about 50% of supplied garments currently carry some design input from the company.
6. Debtor days and working capital
Pulkit Singhal, Dalmus Capital Management
Question. Debtor days have come down from 45–50 days historically to about 25–28 now; what drove this and is the new level sustainable as you scale?
Answer, Sanjay Gandhi, Group Chief Financial Officer. CFO attributed the reduction to non-recourse factoring and risk-mitigation policies plus geographic mix shift. Target remains about 30 days for debtors plus or minus 2–3 days. On Japan and Australia exposure with longer lead times, debtor days may rise slightly. Overall net working capital days steady-state viewed as 35–40 days, with FY24 at 30 and FY23 at 38. Some inventory-day elongation expected of 4–5 days due to geographic mix.
Follow-up. Capacity additions are running ahead of sales and utilisation; why add capacity rather than improve utilisation in existing units?
Answer. Pallab explained the structural reality: getting a factory or region approved by international clients takes 6–18 months due to compliance audits and customer evaluations; capacity must be pre-built. India has specific challenges with attrition and absenteeism running at about double the 4% rate seen in Bangladesh, Vietnam, and Indonesia; the solution is moving into interior locations with less migratory labour. Pearls existing capacity can be effectively reallocated across product lines so under-utilisation is not a concern, only preparation for future orders is. Capacity will scale from 84 million toward 120–140 million pieces by 2028.
7. FY25 guidance specifics
Pulkit Singhal, Dalmus Capital Management
Question. Can you specifically quantify the FY25 revenue growth band and margin band, given visibility into the first 4–5 months?
Answer, Sanjay Gandhi, Group Chief Financial Officer. CFO gave directional guidance rather than specific bands: the US inventory destock is behind, growth strategies are intact, and FY25 is solidly on track in the 15–18% or up to 20% CAGR direction. On margins, CFO noted international operations have very solid control as visible in results, while India is on a learning curve with digitisation, automation, and governance upgrades. Every location is expected to deliver margin internally, though some face more challenges than others.
Follow-up. Finance cost rose from INR 47 cr to INR 83 cr in two years even with gross debt flat; why and how should we view this line item going forward?
Answer. CFO explained: INR 13.6 cr of the total is interest on lease liability up from INR 8 cr, an INR 5–6 cr rise. Term loan and working capital interest is INR 46.8 cr; the balance comes from factoring, LC charges, and bank processing fees. Reduction in interest rates, potential prepayment of high-cost long-term loans, and improvement in credit rating are levers being deployed. Pearl is conscious of high interest cost and is using internal accruals to bring it down where possible; leverage will move with the growth strategy.
Not answered directly.

What was said

Topic by topic, in the order it was spoken

Welcome and Global Industry Overview · Pallab Banerjee (Managing Director)

Global textile and apparel market projected to be relatively flat in coming year due to macro and geopolitical volatility, including upcoming US elections
Asia-Pacific dominates textile trade; China is largest producer and consumer while India, Vietnam, Bangladesh and Indonesia are structurally growing
Developed Asian economies face escalating labour and production costs prompting production shift to cost-effective geographies
Raw material price volatility flagged as a challenge; opportunity cited in sustainable and organic materials and rapid e-commerce expansion

Western Markets and Inventory Cycle · Pallab Banerjee (Managing Director)

US retailers have effectively bounced back from last year excess inventory; consumer confidence expected to improve gradually
Retailers are buying close-to-season to avoid over-inventory and preferring nearshoring and faster transit options
Red Sea disruption favours transits via the African route; Pearl shipping on FOB terms so no cost impact but one-week earlier delivery expected
UK and European Union markets still going conservative; successful retailers such as Inditex outperforming the macro

Asia-Pacific Markets and Outlook · Pallab Banerjee (Managing Director)

Australia, Asia and Japan markets relatively upbeat; China, Australia and Japan exited COVID lockdowns only in 2023 and recovering momentum
Asia-Pacific less directly exposed to Western geopolitical headwinds, supporting diversified sourcing demand

Country-wise Manufacturing Strategy · Pallab Banerjee (Managing Director)

Bangladesh: continuing capacity expansion leveraging stable workforce, banking ecosystem, logistics and trade agreements; recent Taka devaluation is an additional help
Vietnam: continued growth at relatively steadier pace servicing higher-end customers; no major capex planned
Indonesia: new inland facility replacing the seashore site vulnerable to global warming is ramping up; capitalisation reflected in FY24 capex
India: capacities enhanced in Haryana, Karnataka, Tamil Nadu; planning production in new states with trained lower-cost labour
Guatemala: about one-week transit to US attracting customer queries; capacity remains a fraction of Asia footprint

Strategic Direction and FY28 Goals · Pallab Banerjee (Managing Director)

Continue adding capacity with customers getting stronger globally; reduce exposure to financially weak counterparties
Focus on exceeding past records of revenue, capacity, efficiencies and bottom-line profits
FY28 objectives of revenue INR 6,000–6,200 cr and EBITDA margin 10–12% reiterated as solidly on track
Strategy involves expansion plans, marketing and design focus, customer wallet-share growth, and stronger governance and digitisation

Consolidated Financial Performance · Sanjay Gandhi (Group CFO)

FY24 consolidated revenue INR 3,436.2 cr up 8.8% YoY versus INR 3,158.4 cr FY23; overseas revenue up 21% YoY
Q4FY24 revenue INR 877.4 cr up 20.2% YoY; adjusted EBITDA INR 83.9 cr up 30.8% with margin 9.6% versus 8.8%
FY24 adjusted EBITDA INR 316.4 cr up 22.5% and margin 9.2% versus 8.2%, excluding INR 8.6 cr ESOP expense versus INR 2.7 cr in FY23
FY25 ESOP expense guided at INR 4.5–5 cr; PAT after minority interest INR 174.8 cr up 17% YoY; EPS INR 40.26

Standalone Performance · Sanjay Gandhi (Group CFO)

FY24 standalone revenue INR 953.7 cr down 13.6% YoY due to business transition of knit business to Bangladesh
Q4FY24 standalone revenue INR 320 cr up 16.6% YoY on woven business recovery
Standalone adjusted EBITDA margin compressed to 5.2% versus 6.4% on negative operating leverage from fixed employee and other costs
Management confident of improved standalone performance in FY25 with new-state capacity expansion

Balance Sheet and Working Capital · Sanjay Gandhi (Group CFO)

Gross debt flat YoY at INR 445 cr; net debt to EBITDA at 0.25x; net working capital days cut from 38 to 30
ROCE up 400bps to 28.2% on profitability in overseas markets, prudent capital allocation, and efficient working capital management
Debtor days increased to 28 from 24; inventory days down to 53 from 59; creditor days up to 52 from 45; steady-state net working capital around 35 days

Bangladesh Macro Update · Sanjay Gandhi (Group CFO)

Bangladesh Bank introduced Crawling Peg Exchange Rate System; Taka allowed to fluctuate within a band
Bangladeshi Taka currently around 117 per USD; recent devaluation is an additional help to Pearl after the FY24 wage hike
Central Bank dispensed with the smart formula, making interest rates fully market-based as per IMF conditions

FY24 Capex and Dividend · Sanjay Gandhi (Group CFO)

FY24 PPE capex INR 115 cr plus INR 1.25 cr IT capex; allocated India INR 42 cr, Bangladesh INR 40 cr, Indonesia INR 16 cr for CWIP capitalisation, Vietnam INR 13 cr, Guatemala INR 4 cr
India FY24 capex split 50% growth and 50% maintenance and leasehold; Bangladesh 55% upgradation-automation and 45% maintenance; Vietnam INR 5 cr automation plus INR 8 cr building improvement
FY24 dividend payout INR 38.1 cr at 22.5% of consolidated PAT against policy of at least 20% of PAT
Well on track to achieve INR 6,000–6,200 cr revenue and 10–12% EBITDA margin guidance for FY28

In their words

We are solidly on track on this strategy that we presented to all of you in the month of February. The strategy remains exactly the same.

Pallab Banerjee (Managing Director, Pearl Global Industries)

The market has to realize and give a proper valuation to Pearl as well. And any other thing, like I am very open... we definitely want to increase the valuation because a proper valuation is something that all of us would like to have.