Pearl Global Ind Q2 FY26 earnings call

What moved the numbers, as management explained it

• Higher realization from Vietnam and Indonesia (high value-added products) drove H1 revenue growth of 12.7% despite volume growth of only ~3%.
• Tariff cost impact: ₹21 cr in H1 (₹8 cr in Q2 standalone) absorbed in India operations, compressing reported margins by ~130 bps. (one-off)
• Losses at new facilities in Guatemala and Bihar compressed margins; ex these losses and tariff, H1 EBITDA margin would have been 10.6% vs reported 9.3%.
• ESOP expenses excluded from adjusted EBITDA; reported EBITDA includes ESOP cost (H1 adjusted EBITDA ₹236 cr excludes ESOP). (accounting)
• Volume growth slowed to ~3% in H1 (vs ~30% prior year base) due to tariff overhang and customers deferring orders; mix shifted to higher-realization Vietnam/Indonesia products.
• U.S. exposure from India cut to 50% from 60%+ earlier; some U.S.-bound production moved to Bangladesh/Vietnam/Indonesia to avoid 25% penalty tariff discount ask of ~15%.

The numbers management led with

• H1 FY26 pieces shipped: 37.1 million pieces (vs 36 million in H1 FY25)
• Group installed capacity: 93.6 million pieces currently; 100M+ by mid-FY27; 110-115M by end FY27; 130-135M by FY28
• U.S. share of total sales: ~49% (down from ~86% in FY21)
• FY26 capex commitment: INR250 crore committed; INR134 cr utilised to date

Guidance on this call

What changed since the Fri 8 Aug 2025 call

By business

Balance sheet, capex and funding

• Net worth ₹1,271 cr at Sep 30, 2025 vs ₹1,146 cr at Mar 31, 2025.
• Cash and bank balance ₹416 cr plus ₹128 cr in mutual fund/FD = ₹544 cr at Sep 30, 2025 (vs ₹513 cr at Mar 31, 2025).
• Working capital days at 33 as of Sep 30, 2025.
• ROCE 29% in H1 FY26, up 375 bps from 25.2% in H1 FY25.
• FY26 capex committed ₹250 cr; ₹134 cr already utilized; Bangladesh apparel unit ₹110 cr allocated (₹65 cr committed), laundry facility ₹90 cr allocated (₹33 cr committed).
• Interim dividend declared ₹6/share for H1 FY26 (20% payout ratio, 120% of face value); received ₹32 cr dividend from Bangladesh and HK subsidiaries.

The industry, as management sees it

Management views the global apparel sourcing landscape as actively shifting out of China toward Vietnam, Indonesia, Bangladesh, and India, supported by favourable tariff regimes and FTAs (U.S.–Vietnam, EU GSP for Bangladesh LDC, U.K. FTA and pending EU FTA for India). U.S. retailer demand is described as 'wait-and-watch' — conservative open-to-buy, price points held flat, but order books rebuilding for spring/summer season. India–EU FTA conclusion expected by year-end is flagged as a material structural catalyst for Indian RMG exports from FY27 onwards.

Risks management named

• U.S. reciprocal tariff forcing ~15% FOB discount on India-sourced shipments
• Volume growth only ~3% in H1 FY26 vs ~30% in prior year, tariff demand destruction
• Initial ramp-up losses at Guatemala and Bihar facilities (new units in stabilisation phase)
• U.S. retailers holding conservative open-to-buy and pressuring supply chain on price points
• Capacity utilisation drag from newly commissioned facilities (typically 85% cap during ramp)

Not answered directly

• Naming new India customers
• Exact FY28 capacity number pending Board capex approval
• Bangladesh laundry margin improvement exact quantification

Asked for a number, answered without one

• Margin improvement from Bangladesh laundry facility: Said 18-20% IRR from capex of ₹90 cr; declined specific margin lift figure; said would work it out and share in next earnings call once capitalization happens.
• Tariff impact split between Pearl discount, value chain pass-through, brands: Said ~14-15% discount on FOB to mitigate 25% penalty tariff; said 3 sizable customers not given any discount; declined to break down further.
• Names of new India customers: Declined to share specific customer names; said takes 5-6 months to build traction with new customers.
• FY27 specific capacity utilization target: Said 85% is highest for new facilities, 90-95% for continuously running facilities; no specific FY27 utilization number given.

Every question, with its answer

1. 1. Volume outlook / India H2 ramp

   Kishore Kumar, Unifi Capital

   Question. H1 volumes are moderating versus the strong 30%+ growth last year. Is this due to U.S. customer postponement? How do you see volume trends going into H2, given India typically contributes a sizable portion of H2 spring/summer shipments?

   Answer, Pallab Banerjee, Managing Director. Pallab acknowledged the quarter is seasonally slower on shipping. Said order books remain robust, but U.S. customers placing business in India have been asking for mitigation of the extra penalty tariff. Said the company is not aggressively pushing U.S. business from India while tariff economics are unfavourable; alternate markets (Japan, Australia, Europe, U.K.) are opening up. India standalone H1 was roughly flat YoY; no meaningful switch in manufacturing or shipping activity yet.

   Follow-up. Given tariffs persist, are you going to keep doing the India-U.S. spring/summer business from India or shift to Bangladesh and other geographies?

   Answer. Pallab said moving volume to other countries improves bottom line, since India production currently forces the company to share the tariff penalty. But minimum India lines on products with India-specific capability are being maintained. Q3 order book looks fine; Q4 bookings underway. If India-U.S. tariff deal is struck, expects a surge in demand. Until then, will not push number growth for U.S. market from India; will be aggressive in all other markets.

2. 2. Tariff pass-through math

   Kishore Kumar, Unifi Capital

   Question. Can you break down the Q2 tariff impact — how much discount did Pearl absorb, how much was passed to the value chain, and how much is being absorbed by brands?

   Answer, Pallab Banerjee, Managing Director. Explained U.S. customers are asking for ~14–15% discount on FOB to mitigate the 25% penalty tariff. Discount is negotiated customer-by-customer based on services and business understanding. Said at least 3 sizable customers currently get no discount; for others, the discount varies based on negotiation outcome.

   Follow-up. Should we expect similar margin impact in the coming quarter if tariffs sustain for a full quarter?

   Answer. Pallab said U.S. exposure from India was 60%+ last year; this year it has been reduced to just below 50%. The company is also trying to move out customers where tariff discount demands are unviable. Said impact will progressively reduce; if a bilateral deal is struck, this becomes a non-issue. Reaffirmed strategy is in place so the company doesn't have to depend heavily on the U.S.

   Partly answered.

3. 3. Geographic mix evolution

   Sahil Sharma, Dalmus Capital Management

   Question. You mentioned reducing U.S. revenue contribution from 86% in FY21 to ~50% now. How do you see the geographic mix evolving 3–5 years out, and which markets are you prioritising?

   Answer, Pallab Banerjee, Managing Director. Reaffirmed the INR6,000 crores-by-2028 roadmap is on track. Said 3–5 year planning is too long given fast-changing geopolitics; the company will remain flexible. Has captured sizable brands across Australia, Japan, Europe (Spain), and U.K. and will continue to push wallet share there. U.S. retailer sentiment is conservative — open-to-buy being held back — so other markets are being accelerated.

   Follow-up. H1 volume growth was only ~3% vs ~30% last year. Is this a capacity constraint or demand-side?

   Answer. Pallab said capacity is built and ready; this is a demand/macro issue, not a capacity one. Growth is slower because of macro factors, but will continue; H2 also expected to grow.

4. 4. Group capacity

   Sahil Sharma, Dalmus Capital Management

   Question. What is the current Group-level capacity?

   Answer, Sanjay Gandhi, Group CFO. CFO said current Group capacity stands at 93.6 million pieces. Bangladesh new facility is under construction; Bihar has just started commercialisation. With the committed capex, installed capacity will cross 100 million pieces by mid-FY27. With high value-add and partnerships, expects to ship almost 100 million pieces by end of H1 FY27.

5. 5. U.S. demand & retail pricing

   Shradha Agrawal, AMSEC

   Question. How are you reading U.S. demand as retail prices start to rise? Our read is that retailers are currently holding back price increases to the consumer.

   Answer, Pallab Banerjee, Managing Director. Pallab agreed price tickets have not moved yet; U.S. retailers are surgically raising prices only where they can. Most are still holding core/basic price points by pressuring the supply chain and absorbing some cost. Said retailers are also not aggressively buying — they're keeping open-to-buy close to season in a wait-and-watch mode.

   Follow-up. In that context, how does the order book look for next spring season across your geographies?

   Answer. Pallab said Pearl is growing customer base — targeting customers gaining market share and entering new ones. Said order book is as per plan across geographies. In India specifically, not pushing U.S. business aggressively given high tariff/discount drag.

6. 6. Tariff pass-through math clarification

   Shradha Agrawal, AMSEC

   Question. You indicated that a 15% discount offsets the 30% incremental reciprocal tariff impact on India. I didn't get the math — how does 15% offset 30%?

   Answer, Pallab Banerjee, Managing Director. Clarified it is for the 25% penalty, not 30%. Walked through: a $10 garment with 25% tariff lands at $12.50; reducing FOB by ~15% to $8.50 brings landed cost back to $12.50 — that's how the math works. Confirmed the 15% FOB discount number is correct for the 25% penalty case.

   Follow-up. For Vietnam and Indonesia, what has been the extent of tariff sharing with retailers? Broad quantification?

   Answer. Pallab said when 10% tariff came in, retailers asked for ~2% partnership, which has continued. When tariff went from 10% to 20%, no significant additional ask because sourcing alternatives had similar tariffs. Said ~1–2% tariff sharing in other markets; will try to build into costing for next season.

7. 7. Margin trajectory Q3-Q4 FY26

   Shradha Agrawal, AMSEC

   Question. Assuming the tariff situation continues for another quarter, Q3 would see full impact. Can we expect margins to revert to pre-tariff structure by Q4, or is there a structurally lower margin profile?

   Answer, Sanjay Gandhi, Group CFO. CFO said risk reduces for non-India geographies because new season bookings can factor tariff in. For India, the 25% penalty is too big to fully neutralise, so impact will persist on India-U.S. business. Said the company is confident of maintaining similar margin profile to last year for overall Q3/Q4 despite India tariff drag, with efforts to improve it.

   Partly answered.

8. 8. Realisation vs volume mix

   Tejas Gutka, Electrum Portfolio Managers

   Question. Volumes are flat, revenue has grown — clearly a realisation bump. Can you give colour on that?

   Answer, Sanjay Gandhi, Group CFO. CFO confirmed H1 revenue growth ~12.7%, with quantity growth of 3–3.5%; the rest is realisation. High value-added products in Vietnam and Indonesia grew faster; lower value-add declined. Mix and product composition favourably shifted to higher realisation, which CFO said is sustainable.

   Follow-up. If the tariff overhang comes off, would this also improve margin profile?

   Answer. CFO said yes — removing the reciprocal tariff would have taken EBITDA margin above 10% for the last two quarters and Q4 of prior year. As India-U.S. tariff situation improves, the company is poised for double-digit EBITDA margins constructively and that should improve further.

9. 9. FY28 revenue target upside

   Tejas Gutka, Electrum Portfolio Managers

   Question. The INR6,000 crores target by FY28 looks easily achievable at the current pace. Is there a need to revisit it higher?

   Answer, Sanjay Gandhi, Group CFO. CFO agreed on acceleration. Reiterated capacity crossing 100M pieces by mid FY27, which means shipment volumes can accelerate vs the FY28 target. Said capacity leverage available in India; other geographies also adding capacity. Will be well positioned to capture upside if tariff situation normalises and India FTAs materialise.

   Follow-up. Does the 12% EBITDA margin aspiration still hold assuming tariff changes?

   Answer. CFO said aspiration is 100% intact; business becoming more resilient. Pallab added that all levers are in action except the India tariff lever, which is slowed. Targeting 12% EBITDA remains on the table.

10. 10. Capacity FY27-FY28 buildout

    Bhavya Gandhi, Dalal & Broacha Stock Broking

    Question. Can you give exact capacity additions for FY27 and FY28 closing?

    Answer, Sanjay Gandhi, Group CFO. CFO said with all current capex, FY27 capacity should be in excess of 100M pieces, inching toward ~110M. With overseas partnership opportunities under exploration, FY27 end could be 110–115M. Will update FY28 number as capex plan is finalised. Internal direction remains 130–135M pieces (in-house + partnership) by FY28.

    Follow-up. With Vietnam/Indonesia mix rising, can consolidated realisations inch toward INR700 on a full-year basis?

    Answer. CFO said H1 realisation is close to INR700, driven by Vietnam/Indonesia value-add. Said there is potential to improve full-year realisation, but did not commit to a specific number — will update as strategy evolves.

    Partly answered.

11. 11. Capacity utilisation ceiling

    Bhavya Gandhi, Dalal & Broacha Stock Broking

    Question. For FY27, if you are closer to 110M pieces, can you touch 90% capacity utilisation, or is 80–85% more realistic?

    Answer, Pallab Banerjee, Managing Director. Pallab said new facilities take a couple of years to reach full operation; 85% is the realistic peak during ramp-up. If facilities are continuously running, 90–95% is achievable. That is why the company plans for 120M+ capacity to deliver 100M shipments.

    Follow-up. Can you quantify margin improvement from the Bangladesh laundry facility?

    Answer. CFO said the laundry capex is ~INR90 cr; internal ROCE expectation is 18–20% from washing cost savings and efficiencies. Facility gets commercialised in H2; full benefit to flow in FY27–28. Exact number to be shared in next call as plant nears capitalisation.

    Partly answered.

12. 12. New India customers

    Bhavya Gandhi, Dalal & Broacha Stock Broking

    Question. For India, you've added new customers — can you name them and provide qualitative/quantitative detail?

    Answer, Pallab Banerjee, Managing Director. Pallab declined to name customers, saying it's premature. Said India has added domestic brands and international customers. Typical customer onboarding takes 5–6 months from trial to traction, with acceleration after first-year delivery. Top 6–8 customers are the ones usually shared with analysts.

    Not answered directly.

13. 13. Volume/realisation trade-off

    Prerna Jhunjhunwala, Elara Securities

    Question. You have let go some volumes and realisation. If these actions were not taken, what would revenue have been this quarter?

    Answer, Pallab Banerjee, Managing Director. Pallab pushed back on the framing — said it's not about letting go of business. Stable customers are being re-routed from India to other countries so the customer avoids the 25% penalty tariff. Said under no circumstances is the company turning away business; it is being moved to lower-tariff geographies where possible.

    Follow-up. If tariffs weren't there, revenue could be higher by ~15%?

    Answer. Pallab confirmed yes — most retailers are asking for compensation of the extra penalty tariff, which is a sector-wide India issue. Wherever possible the company absorbs it through cost or other benefits. If tariff goes away, India region can book more aggressively.

14. 14. Country/geography mix Q2 FY26

    Kishore Kumar, Unifi Capital

    Question. Can you share the country mix for this quarter? How much of the U.S. exposure came from India vs other geographies, and what does the rest-of-world mix look like?

    Answer, Pallab Banerjee, Managing Director. Pallab said U.S.-bound goods are just below 50% of total (~48–49%). India-specific U.S. exposure is similar; Indonesia and Vietnam have higher U.S. share; Bangladesh and India balance it out. Spain and Japan are the next biggest markets at ~15–17% combined, followed by Australia, U.K., and rest of world.

    Follow-up. On volume guidance for H2 — last H2 was a high base. Should we expect similar volumes or higher?

    Answer. Pallab said order booking has already crossed last year's H2 level. Last year grew ~30%; this year growth will be more modest but on an upward trajectory.

15. 15. Strategic learnings from tariff disruption

    Pulkit Singhal, Dalmus Capital Management

    Question. What learnings from navigating the trade war are shaping your strategy for the next 3–5 years?

    Answer, Pallab Banerjee, Managing Director. Pallab said core manufacturing expertise is the foundation. Diversification — both manufacturing base and customer base — is the second key learning. Said strong design presence across all markets is the third. CFO added capital allocation discipline and a sound balance sheet as critical — they enabled Bangladesh growth capture during disruption.

    Follow-up. Even with diversification, the top 5 clients are still a heavy portion. Can you push faster client diversification?

    Answer. Pallab said they will maintain ~50% of business with top 5 because that drives strategic efficiency; the top 5 can change based on growth. Balance 50% will be a dynamic set of high-growth/wallet-share-gaining customers. Said diversification in the balance 50% is happening as the company grows.

16. 16. Volume growth H2 outlook

    Manjubhashini, ASK Wealth Advisory

    Question. H1 volume growth was only ~3% vs ~40% last year. How should we think about H2 — flat or growth?

    Answer, Pallab Banerjee, Managing Director. Pallab explained this is a fashion business, not commodity; piece counts vary with garment type (a jersey/T-shirt drives higher piece count than a jacket/pants). Capacity is fully utilised, productivity and revenue are growing; piece-count growth is not the right metric to focus on. Said could see a bigger piece-count number in H2 depending on order mix.

    Follow-up. H1 grew 12% on top line — should we aspire to higher than that in H2?

    Answer. Pallab said aspiration is definitely high; H2 is expected to grow on the order book visibility.

    Partly answered.

17. 17. U.S. sales mix definition

    Manjubhashini, ASK Wealth Advisory

    Question. Earlier guidance was that 15–16% of consolidated sales is U.S.-bound from India. Is there any change?

    Answer, Pallab Banerjee, Managing Director. Pallab explained the 15–16% was India-export-to-U.S. as a share of total turnover; globally, U.S.-bound goods are ~49% of total turnover. If a U.S.-based customer is global, exposure is ~60%+ in terms of customer mix. ~INR1,250 cr of H1 revenue landed in U.S.

    Follow-up. Assuming tariffs don't ease, can incremental volumes be supported from other geographies?

    Answer. Pallab confirmed yes, 100% — incremental volumes can be moved from India to other geographies.

18. 18. FY26 EBITDA margin guidance

    Manjubhashini, ASK Wealth Advisory

    Question. Even if tariff situation continues status quo, are you guiding for flattish EBITDA margin in FY26 vs FY25?

    Answer, Sanjay Gandhi, Group CFO. CFO said company is very confident of maintaining same EBITDA margin; making efforts to improve. H1 saw improvement; H2 will try to improve over last year. Full year target is same or slightly better. Pallab added 'slightly better.'

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