Pearl Global Industries Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Textile

Company

Pearl Global Industries Ltd

Reco Price
Rs. 226
Price Target (1.5 - 2 Years)
Rs. 450
Upside
99.12%

Date

January 14, 2016
Sensex
24772.97
CNX Nifty
7536.80

Exchange

Code

NSE
PGIL
BSE
532808

Geographical diversification will lead to future growth.

Leading Player:
Pearl Global Industries Ltd (PGIL) is a leading garment exporter from India. It is involved in manufacturing of high quality garments for leading brands around the world. The company has factories across India, Bangladesh and Indonesia, thus being strategically located to reap the benefits of different kinds of skilled labor to achieve operational efficiency.

Association with leading brands:
Pearl Global manufactures garments for leading brands like GAP, And Tailor, Macy’s, Old Navy, Primark and many more. All its factories are approved by its customers thus giving it an advantage and creating an entry barrier for newer players to enter this business. Most of the garments are exported to America since America is the biggest market available, it gives enough scale to company to expand the operations and grow comfortably. PGIL has minimal amount of Debt and has a good working capital cycle which shows that it has operational efficiency.

In house product development and design:
PGIL has a dedicated in-house design team of 75 designers located in Hong Kong, India and Indonesia. This team on a regular basis shops in markets all over the world and visits all the globally renowned fashion and textile fairs to collect design ideas. They are well-equipped to serve the global brands from concept boards to customers. New design ideas are generated from marketing team which is positioned in Hong Kong, London, USA and Germany as they are close to the actual buyers. Focus has been on creating brand specific product designs to generate and accelerate business opportunities for the global brands and retailers.

Capacity Expansion:
PGIL is undergoing capacity expansion in South India for a total investment of around Rs. 20-27 crore, funded through internal accruals and a TUFS (Technology upgradation Fund Scheme) loan. The new facilities are expected to be instrumental in helping the company raise its cumulative production capacity by about 7% to 4.09 million pieces/month, through the addition of 1300 machines to reach a total of 9800 machines spread across India, Bangladesh and Indonesia. PGIL plans to install 500 new machines in Bangalore, adding 180000 garment pieces per month. At Chennai, PGIL is installing additional capacity of 800 new machines, which has got commissioned in December 2015. PGIL has taken a 60000 sq. ft. facility in Peenya, Bangalore, on long term lease, while in Chennai it has acquired a contiguous land parcel measuring 4.72 acres, on which it has built a facility to manufacture an additional 200000 pieces a month.

Geographical shift:
With South India fast emerging as the new garment manufacturing hub of India, the proposed capacity expansion is expected to help PGIL to reduce its geographic concentration risk by diversifying operations across North and South India. Another significant reason to move south is to gain a competitive edge to meet complex and diverse product design requirements of leading global retailers. The Southern marketplace known for certain fabrics and skilled and disciplined labor, higher output, lower wage cost, low attrition levels, low rejection and special expertise in wovens, will provide good operational flexibility.

Stock Data

CMP (Rs)
242.4
Face value (Rs)
10
52 Week Range (Rs)
184 - 282
Market cap (Rs Crores)
525.13
Price To Book Value (x)
1.58
P/E Ratio (x)
15.69
EV/EBIDTA (x)
6.88

One Year indexed Stock Performance

Pearl Global Industries LtdSensex
Pearl Global Industries Ltd
Performance (%)
1m
6m
12m
Absolute
13.27
3.41
3.11
Sensex
-1.50
-11.31
-9.41

Shareholders

(in %)
30-Sep
Promoter
66.58
FII
5.5
DII
6.43
Others
21.49
Total
100

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Industry

India’s total textile and apparel industry (domestic plus exports) is a $108 billion market, of which roughly $40 billion is export oriented. This is projected to grow at a CAGR of 9.5% and almost double at $221 billion by 2021. India is one of the largest producers of textiles and apparels in the world, second only to China. Textile industry plays a significant role in India’s economy, which is largely dependent on textile manufacturing and exports. The industry is the second largest employer after agriculture, providing direct employment to over 45 million people. The Indian Textile Industry contributes approximately 5% to India’s GDP and 14% to overall Index of Industrial Production (IIP). Furthermore, the textile and apparel exports it contribute roughly 11% to India’s export earnings. Textile exports have grown by roughly 11% over the last decade and account for 5% of India’s total global trade.

Profile

Pearl Global Industries Limited is an India-based company engaged in manufacturing and export of readymade garments. The Company's segments include manufacturing; marketing, distribution, sourcing and trading, and branding and retailing. The Company manufactures and exports fashion garments to global brands. The Company's product range includes knits, woven and bottoms, including basic and complex designs. The Company offers its products in various categories, which include men, women, kids, career wear and home furnishings. The Company's business divisions include manufacturing excellence, HOPF US, home furnishings, marketing solutions and customer care, design and product development, sourcing solutions, warehousing and inventory, and technology. The Company has manufacturing base across India, Indonesia and Bangladesh.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-13
Mar-14
Mar-15
Mar-16E
Mar-17E
Mar-18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBIDTA
  • Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Profit Before Tax
  • Provision for Tax
  • Tax Rate (%)
  • Profit After Tax
  • Minority Interest
  • Consolidated Net Profit
  • Adjusted EPS
  • 3820.24
  • -
  • 3727.27
  • 92.97
  • 2.43
  • 30.50
  • 123.46
  • 34.26
  • 89.21
  • 26.77
  • 62.44
  • -13.89
  • 48.55
  • 18.21
  • 37.52
  • 30.33
  • -6.54
  • 23.79
  • 10.98
  • 4698.96
  • 23.00
  • 4639.85
  • 59.11
  • 1.26
  • 65.28
  • 124.39
  • 39.92
  • 84.47
  • 28.90
  • 55.57
  • -4.81
  • 50.77
  • 6.70
  • 13.21
  • 44.06
  • -5.42
  • 38.64
  • 17.84
  • 1023.74
  • -78.21
  • 974.09
  • 49.65
  • 4.85
  • 24.05
  • 73.70
  • 23.49
  • 50.20
  • 15.85
  • 34.36
  • -0.14
  • 34.21
  • 9.90
  • 28.94
  • 24.31
  • 0.76
  • 25.07
  • 11.57
  • 1173.00
  • 14.58
  • 1107.00
  • 66.00
  • 5.63
  • 25.00
  • 91.00
  • 20.00
  • 71.00
  • 16.00
  • 55.00
  • 0.00
  • 55.00
  • 20.00
  • 36.36
  • 35.00
  • 0.00
  • 35.00
  • 16.66
  • 1350.00
  • 15.09
  • 1250.00
  • 100.00
  • 7.41
  • 25.00
  • 125.00
  • 20.00
  • 105.00
  • 18.00
  • 87.00
  • 0.00
  • 87.00
  • 27.00
  • 31.03
  • 60.00
  • 0.00
  • 60.00
  • 28.56
  • 1550.00
  • 14.81
  • 1405.00
  • 145.00
  • 9.35
  • 25.00
  • 170.00
  • 20.00
  • 150.00
  • 20.00
  • 130.00
  • 0.00
  • 130.00
  • 41.00
  • 31.54
  • 89.00
  • 0.00
  • 89.00
  • 42.36
Source: Stockaxis Research, Company Data
Note: Company’s Financials have adjusted in 2015 due to demerger of its PDS Multinational Fashions Ltd from Pearl Global Industries Ltd.

Valuation

Going forward in next 2 years they should reach 85% utilizations and hence margins will also improve also they have got a new customer- Primark which should bring additional business of Rs 200 crores. Also their south India capacity expansion is expected to help the company raising its cumulative production capacity by about 7% to 4.09 million pieces/month, through the addition of 1300 machines to reach a total of 9800 machines spread across India, Bangladesh and Indonesia. Hence company is expected to post strong financials in next 2 years.

Hence we assign valuation of 9.95x FY 2018E indicating target price of Rs 450 which is a fair valuation compared to its peers.

 
 

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