PGIL-Sleeping Tiger about to Roar

Pearl Global Industries Ltd established in 1987 by Mr. Deepak Seth is a multinational apparel manufacturing company that provides end to end supply chain solutions to brands across the globe. PGIL have presence Across 8 countries such as India, Indonesia, Bangladesh, Vietnam, USA, Spain, Hong Kong & U.K. It have well diversified and de-risked manufacturing base with 22 manufacturing units across 8 countries. Total capacity to manufacture is around 82 millions unit per year.
It have marque clientele -**KOHL’S , MACY’S TOMMY HILFIGER, GAP , OLD NAVY, NEXT, NORDSTORM ** among others.
In May 2014 PDS LTD was demerged from PGIL. The Sourcing, Marketing & Distribution (SDM) business was entrusted with PDS Ltd and PDS Ltd ceased to be a subsidiary of the company. PDS Ltd is now a successful multinational platform company delivering stellar results.
PGIL’s manufacturing facilities along with capacity and items produced.


PGIL sales are growing rapidly consistently from 2018 onwards with GP margin in sync with sales with the exception of 2020-2021 due to covid.

Now coming to QTR 1 FY 23. The results were steller with highest ever QTR 1 revenues since inception.



Positives

Company is consistently growing its sales and profits
Company is having multiple manufacturing facilities in low cost countries which makes it competitive
Increase in capacity utilizations for inhouse and partnership factories in India , Bangladesh and Vietnam with better product mix paints a brighter future.
PGIL can gain over the medium to long term on the back of China + 1 adoption
Promoter Holding is consistent about 67 % with no pledged shares.
Low market cap to sales ratio
Debt Equity Ratio below 1
No of Subscribed Shares is 2.17 crs with very low floating shares
Famed investor Mukul Agarwal having 3.46 % shares as on June 2022.

Negatives.

Promoter having sister company PDS Ltd in the same line of Business
Cotton prices can have major impact on profitability.
EBITDA margins are fluctuating from -0.2 % in FY 18 to 4.4 % in FY 22.

Disclosure:- Having Position (This is not a investment advise. Please do your own due diligence)

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PGIL have reported good results in spite of inflationary raw materials situation and recession fears in its major markets of Europe and North America


PGIL is constantly trying to diversify its revenues in different geographies by increasing its focus in India in this tough recession like conditions in Rest of World. PGIL offers its customers different options to choose for China +1 by having manufacturing capacity in India, Bangladesh, Vietnam & Indonesia

.

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Pearl Global have given decent results from last few quarters. This quarter result is more significant as it comes in background of not so good results from other companies in this sector. The results of PDS Ltd, Gokaldas Exports, KPR Mills have all showing profit degrowth, but PGIL have given stellar results with confidence of growing topline and bottomline in coming quarters.

The acquisition of company in Guatemala will give PGIL easy and fast access to the North American Market

The most significant part of the result is increase of per unit price. The increase in realisations per unit means the company is moving upwards of value chain

PGIL have consistently shown improved performance in CAGR sales growth, profit growth and most importantly stock price. There return on equity have also improved

Hope experts will guide more with pros and cons of the company.

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PGIL concall transcript.
The management seems confident to achieve the targeted revenue growth of 15-20 %

PGIL have given stupendous 40 % return in last one month and six month return is 130 %.

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Latest Q4 results announced -

Latest Investor presentation -

FY24 Consolidated Performance:
• Total Revenue stood at Rs. 3,436.2 crores, a growth of 8.8% YoY
• Adjusted EBITDA (excl. ESOP expense) stood at Rs. 316.4 crores, a growth of 22.5% YoY

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started digging pearl global since earning yield is good with relatively low P/E. However found a few red flags:

  1. Tax rate is consistenly low across years.
  2. Debt to Equity ratio is on the higher end. And at this debt level company has paid out dividend couple of times.
  3. Although operating at low cost centers NPM lingers around 3-5 %. Is there any potential for this going up further?

Regarding your red flags i want to give some data from the March 2024 Balance Sheet.

Your Point No1 - Tax Rate is consistently low.

28% of Sales is in India and rest 72% of Sales is Export Sales. PGIL also produces major portion of its
Goods In Bangladesh and Vietnam, where Textile Exports are taxed favourably.

Your Point No 2:- Debt/Equity Ratio:-


Gross Debt have declined from 564 cr in March 22 to 445 cr in March 24. Company is having Cash and Bank Balance of 285 cr as on March 24, So net Debt is still lower.

And Regarding dividend payments


Company Have made a policy of distributing at least 20 % of net profit as dividend and 22.5% of NP was given as Dividend for FY24.

Your Point No 3 regarding NP %
PGIL have maintained approx 5% of NP after minority Interest for FY 23 and FY 24. Sales have grown
32% compounded for last 3 years with profit growth of 172% for last 3 years.

With Client list of World’s best retailers in it’s portfolio and maintaining 5 % of NP is good achievement.

Hoping PGIL maintains its momentum and achieve new height in its journey to a billion dollar company. It’s Sales to Market cap is still lower then 1

Disc:- Invested from Lower levels.

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for point 2, it is because of accounting rules. Future lease obligations appear as debt.

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