Pearl Global Ind Q1 FY26 earnings call

What moved the numbers, as management explained it

• Vietnam revenue grew 75% YoY and Indonesia ~50% YoY, lifting consolidated revenue +16.6% and shifting the mix toward higher-realization geographies.
• Tariff-related burden share of ~₹11.75 cr (~0.9% of Q1 group revenue) hit adjusted EBITDA, with negotiations typically settled at 1-2% give-up on prices. (one-off)
• Operational losses at newer facilities (Guatemala, Bihar) and the tariff costs together took out ~140 bps from the consolidated adjusted EBITDA margin.
• India standalone EBITDA margin expanded 250 bps to 7.3% on customer and product mix change and productivity gains.
• Average realization rose because of the higher share of Vietnam and Indonesia in the group, with Q1 seasonally skewed to outerwear for Western markets.

The numbers management led with

• Q1 FY26 consolidated revenue: INR1,228 crores; +16.6% YoY
• Q1 FY26 tariff-related cost impact: INR11.75 crores (~0.9% of group Q1 revenue)
• India U.S. tariff exposure: 50% total U.S. tariff on India (25% reciprocal effective Aug 7 + 25% penalty effective Aug 27)

Guidance on this call

By business

Balance sheet, capex and funding

• Dividend received of ~₹18 cr from NorpKnit (Bangladesh) and Pearl Global Hong Kong during Q1 FY26; subsidiaries have been paying dividends since FY22.
• No new CapEx committed this quarter; will await tariff stability before further outlays; Bangladesh 5-6 million pieces capacity expansion under execution.
• Bihar: 500 machines installed, remaining 300 to be added in phases; plan to operate in 2 shifts depending on demand.
• Solar panels commissioned across 3 Gurgaon units adding 722.2 kW of renewable capacity; 2 more plants to be commissioned in Q2 FY26.
• Receivables risk managed via nonrecourse factoring and insurer-backed cover across customers; customer credit risk reviewed monthly, sometimes twice a month.

The industry, as management sees it

Management views the U.S. apparel market as still expanding (2–5% annually historically, ~7% in import data for first 5–6 months of CY25) with no major demand drop visible yet — Spring/Summer 2026 placements proceeding. However, the 20% baseline tariff is expected to translate to a 6–10% retail price hike, which will likely cause some consumer demand elasticity. Pearl expects the supply side to tighten (a $6 bn market effectively removed by India tariffs), making it more of a supplier's market over time, and sees growth in Japan, U.K., EU and Australia as the offset to U.S. uncertainty.

Risks management named

• India exposed to 50% U.S. tariff stack; ~15% of group revenue potentially impacted
• India adjusted EBITDA could swing back to operational drag in near term
• Burden-share negotiations with U.S. customers still ongoing; 1–2% discounts extended so far
• Potential customer shakeout among U.S. retailers with weak market share
• Realisation could face 6–10% MRP-led demand elasticity risk if tariffs are passed through fully

Asked for a number, answered without one

• Full-year revenue and margin guidance: Management declined a fresh number, reiterating the 12-14% volume CAGR guidance and saying the combination of volume and realization will play out; clearer guidance at H1 / start of H2.
• India entity share of group OpEx: Deferred to an offline discussion rather than a specific number.

Every question, with its answer

1. 1. Realisation sustainability

   Bhavya Gandhi, Dalal & Broacha Stock Broking

   Question. How sustainable are the higher Q1 realisations given the historical INR600 guidance? What is the right full-year average realisation to walk out with?

   Answer, Sanjay Gandhi, Group Chief Financial Officer. Q1 realisation is structurally higher because Vietnam contribution is always larger in Q1 and outerwear mix (jackets) trends to Western markets. So the year-on-year comparable level is sustainable. However, for full-year basis management is holding to the previously stated INR625–650 assumption. Pallab added that outerwear is now being experimented in India and Indonesia, which could lift annual realisation, but it is not yet a definite forecast.

   Follow-up. What are the capacity utilisations in Indonesia and Vietnam?

   Answer. Indonesia is in ramp-up phase — it was operating at only ~50% of capacity last year; with a 90–95% target it should achieve $32–35 mn of annualised sales. Vietnam is at ~95% utilisation in Q1, with room to add lines via partner facilities approved by customers.

2. 2. India U.S. exposure and shift feasibility

   Bhavya Gandhi, Dalal & Broacha Stock Broking

   Question. How much of the India production lands in the U.S. and how would the shift to other geographies be feasible given Bangladesh is at 90% utilisation?

   Answer, Pallab Banerjee, Managing Director. India was ~25% of group top line; close to 60% of that (last year) landed in U.S., implying ~15% of group top line was U.S.-bound from India. Both Bangladesh and Vietnam have expandable capacity — Pearl has been growing and has partner facilities that can add more lines, and these facilities are already customer-approved.

3. 3. Strategic shift feasibility by geography

   Kishore Kumar, Unifi Capital

   Question. Shifting India production to Bangladesh/Vietnam/Indonesia is not straightforward because of product-category expertise (cotton vs man-made) and the need to retrain employees and retool sourcing. Will cost of production go up, and is this even feasible?

   Answer, Pallab Banerjee, Managing Director. Pallab acknowledged it is not a simple overnight shift. Two-phase plan: (1) immediate 2–3 month response to maintain customer wallet share — India and Bangladesh have similar cotton-base capability, Vietnam and Indonesia have outerwear/activewear readiness; (2) medium-term ecosystem build-out for raw-material sourcing and skill development. Management is hopeful of a U.S.–India resolution but is preparing readiness regardless. Not 100% of volume will shift; the priority is maintaining customer confidence.

   Follow-up. Given the earlier July 9 deadline, has there been significant front-loading of shipments to the U.S.?

   Answer. Not much, because Q1 was a lower season for the India market and the extra tariff came in mid-production. Pearl is trying to move up the last fall/holiday goods, but it is not a huge massive number.

4. 4. Full year guidance

   Kishore Kumar, Unifi Capital

   Question. Is the 12%–14% volume guidance still intact, and what is the full-year guidance on margins and revenues?

   Answer, Sanjay Gandhi, Group Chief Financial Officer. Sanjay confirmed 12%–14% volume CAGR guidance remains in place as Pearl entered the year. Q1 was soft on volume but realisation was strong; H1 close and start of H2 will allow clearer guidance. Pallab added that Pearl is ready to take advantage of any scarcity created in other regions and has the readiness to absorb the opportunity, similar to how it capitalised on the Bangladesh situation last year.

5. 5. India utilisation and U.S. exposure

   Riken Gopani, Capri Global

   Question. You said India capacity is ~20 mn and ~15% goes to the U.S. — should we read that as 15% of the group top line is U.S.-bound from India?

   Answer, Sanjay Gandhi, Group Chief Financial Officer. Sanjay clarified the 15–18% is of group revenue going to U.S.A. (not India capacity). India capacity is 24.5 mn pieces. Pallab added that India is currently clocking at ~50% utilisation, and at 50% tariff most U.S. customers will try to avoid paying, so Pearl's immediate response is to fill that 50% utilisation with non-U.S. business — Japan, Australia, local Indian — to maintain margin and market share.

   Follow-up. What was the tariff impact on Q1 gross margins, and how will it change going forward?

   Answer. Tariff impact in Q1 was INR11.75 cr, ~0.9% of Q1 group revenue. On the 10% initial tariff, customers asked for a 50:50 burden share; Pearl negotiated mostly in the 1–2% range (some customers zero, some up to 2%+). As clarity emerges for non-India regions, this burden-share process is winding down; costing is done quarterly so the impact will progressively reduce over the next 3–4 quarters, though it is also a function of whether the market is a buyer's or supplier's market.

6. 6. H2 volume and margin outlook

   Dhvanil, iWealth Fund

   Question. U.S. retail is growing 3–4% and inventories are already prepared. With a 20% baseline tariff in other geographies and 25–50% in India, how should one think about H2 volume growth and incremental margin?

   Answer, Pallab Banerjee, Managing Director. Pallab walked through the math: of final retail realisation, ~50–55% is cost of goods landed; a 20% landed-cost increase implies ~10% retail price hike to fully pass it through. U.S. retailers have two tools — increase the price ticket or reduce markdowns. So far no major drop in projected orders has been seen. Pearl expects the situation to evolve into a supplier's market given the $6 bn market disruption; Pearl's strategy is to play with growth-mode retailers (Calvin Klein, Tommy, Gap, American Eagle, Abercrombie) and avoid those losing share. U.S. retail imports for first 5–6 months grew ~7% (single digit), while Japan, U.K. and EU posted double-digit growth.

7. 7. BEPS and tax rate

   Chirag, MS Capital

   Question. Are the BEPS norms applicable to the Hong Kong entity, and what is the overall guided tax rate?

   Answer, Sanjay Gandhi, Group Chief Financial Officer. BEPS is not yet applicable to Pearl Group — the entity is still below the threshold and is a couple of years away. Current effective tax rate guide is 15%, which is also the BEPS-mandated rate when it kicks in.

   Follow-up. Could India operations swing back to a loss-making position given more volume impact and India is already below group average EBITDA?

   Answer. Pallab acknowledged near-term (1–2 months) challenge if the 25% penalty persists. The plan is to fill displaced U.S. capacity with Japan/Australia growth and other markets, but it is not certain that the vacuum can be fully absorbed. Pearl will consider every other option; if some U.S. business stays, customers will force burden share. Group exposure remains small at ~15%.

8. 8. Customer credit risk and receivables

   Chirag, MS Capital

   Question. How does Pearl assess customer credit risk — what are the broad things looked at to ensure receivables are protected, given even large chains can face trouble?

   Answer, Pallab Banerjee, Managing Director. Pallab described a foundational discipline: nearly every customer is covered by nonrecourse factoring or a strong insurance company backing. Pearl collects continuous input on customer health, with deep senior-most relationships (Pallab, Vice Chairman Pulkit Seth, country CEOs) providing early warning. Sanjay added that any new customer onboard or wallet-share increase goes through a continuous validation/review process, monitored more frequently when the situation is tight. Chirag followed up on whether review is at group or buying-division level — Pallab clarified that when public information is not available, Pearl engages directly with the customer's financial team.

   Follow-up. Are these analyses at group level or at buying-division level?

   Answer. Reviewed monthly, sometimes twice-monthly, including at the Independent Director level. When public data is limited, Pearl engages the customer's financial team directly to complete the picture.

9. 9. U.S. apparel demand elasticity

   Pulkit Singhal, Dalmus Capital Management

   Question. With tariffs being inflationary across the U.S. and translating to 6–7% MRP increase on apparel, what has historically been the impact when apparel prices have risen so much?

   Answer, Pallab Banerjee, Managing Director. Pallab noted that 6–10% retail price increase is the math needed to absorb 20% tariff if fully passed through. U.S. retailers have two tools — change the price ticket or reduce markdowns. Both have been used, with about 30–40% of products already showing price-ticket/markdown changes last season. Customer projections for Spring/Summer season were maintained; final placements are being watched over the next 2–3 weeks.

   Follow-up. Now that other countries are also at 20% (and India possibly 25%), what burden share is the supply chain being asked to take?

   Answer. When the first 10% was imposed, U.S. customers asked for 50:50; Pearl offered 1–2%. With the final ~20% number now a week old, no customer has come back asking for further burden share in the last 7 days. On the India 50% stack, in the last 24 hours 1–2 customers have said either move production or absorb the additional 25% — Pearl's response is to move it out. Too early to establish a steady-state answer.

10. 10. Margin defence and cost initiatives

    Prerna Jhunjhunwala, Elara Securities

    Question. What helped maintain margins in this environment, and what cost-control initiatives were taken to manage burden sharing?

    Answer, Pallab Banerjee, Managing Director. Two factors equally: (1) a continuous improvement / cost-reduction journey that gained momentum as challenges intensified, and (2) negotiation power driven by geographic diversification — three to four years ago Pearl was ~90% dependent on the U.S., which would have been a very different situation. Customers value vendors that can juggle production across geographies, an advantage Pearl demonstrated during the pandemic and now during the tariff war.

    Follow-up. Given U.K. FTA and Japan/Australia as attractive markets, can India still service the U.K. profitably vs Bangladesh's strong cost position?

    Answer. U.S. remains the most attractive market for size and value. Japan is the second-most attractive (Muji, Uniqlo) — Pearl has six years of experience and a steadily rising exposure. U.K. is about 1/5–1/6 the size of U.S.; Australia and EU are next priorities. India has been shying away from domestic retail but Pearl has started with two small Indian customers and may grow. China is being serviced via U.S./Japan brands already present there; Russia is being studied but is too premature to commit to.

11. 11. Customer geographic diversification

    Prerna Jhunjhunwala, Elara Securities

    Question. Are U.S. customers also diversifying their delivery locations to mitigate tariff risk?

    Answer, Pallab Banerjee, Managing Director. Pallab noted that Pearl has not yet heard of significant multi-country marketing diversification from U.S. customers post-tariff. The brands serviced (Calvin Klein, Tommy Hilfiger, Gap, Old Navy, American Eagle, Abercrombie & Fitch) already have a global footprint. Department-store-style retailers (e.g., Kohl's) are more U.S.-only, so brand-mix favours Pearl. ~65% of revenue is from U.S. customers, but actual U.S.-destined goods is <50% of the business.

12. 12. Bangladesh capex clarification

    Vikram Suryavanshi, PhillipCapital India

    Question. Bangladesh capacity addition — is the 5–6 mn piece expansion on top of existing plans, or the same?

    Answer, Sanjay Gandhi, Group Chief Financial Officer. Sanjay confirmed the 5–6 mn piece Bangladesh capacity addition is the capex announced in Q4 FY25, currently under execution. No new capex has been committed in Q1 FY26.

    Follow-up. How will Guatemala play out given its relatively small capacity — can it scale for the U.S. market?

    Answer. Guatemala priority is breakeven and reducing the loss incurred last year, not immediate expansion. There is U.S. demand, but Guatemala is a new and smaller country with limited raw-material availability. As raw-material ecosystem develops and Pearl masters work culture, the next leg of growth can be considered — not immediate.

13. 13. Russia market opportunity

    Vikram Suryavanshi, PhillipCapital India

    Question. With Russia potentially opening up, who are the major countries supplying Russia today and how could that opportunity play out?

    Answer, Pallab Banerjee, Managing Director. Pallab said Russia is a smaller market with 4–5 large brands/retailers; Pearl has done some third-party exploration. There is geopolitical risk, so the company is keeping watch without active pursuit. Size is similar to Australia. If the Ukraine war resolves, the market could open up; until then, focus remains on EU. Pearl continues to study China and Russia alongside other markets.

14. 14. Full year volume and margin guidance

    Kishore Kumar, Unifi Capital

    Question. Given the Aug 27 tariff deadline and potential front-loading, can you give full-year guidance on volume, revenues and margins — earlier guidance was 12%–14% but Q1 was only 3%?

    Answer, Sanjay Gandhi, Group Chief Financial Officer. Sanjay reconfirmed 12%–14% volume CAGR guidance is being held. Q1 was soft on volume but realisation was high; the combination is expected to deliver the stated growth. More clarity will be available at the end of H1 and start of H2. Pallab added Pearl is ready to take advantage of any scarcity created in other regions, similar to how it capitalised on Bangladesh last year.

    Follow-up. Is the INR11.75 cr tariff impact only the discount, or does it include freight?

    Answer. Sanjay confirmed it does not include freight costs. Pearl operates on FOB basis for most shipments across all countries, so the INR11.75 cr is purely the tariff-related discount / burden share given to customers.

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In their words