PGILNSEQ1 FY'23August 22, 2022

Pearl Global Industries Limited

8,844words

83turns

10analyst exchanges

2executives

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Management on call

Pallab Banerjee

MANAGING DIRECTOR,

Sanjay Gandhi

GROUP CFO, PEARL GLOBAL

Key numbers — 40 extracted

82 million

facturing base with 22 dedicated manufacturing units. Our total capacity to manufacture is around 82 million units per year. Some of the key clientele includes Kohl's, Macy's, Tommy Hilfiger, Gap, Old Navy,

11%

apable to position itself as a global textiles hub. India textile exports are expected to grow at 11% CAGR, to reach about $65 billion by 2026 from a pre-COVID level of $36 billion happened in 2019.

65 billion

as a global textiles hub. India textile exports are expected to grow at 11% CAGR, to reach about $65 billion by 2026 from a pre-COVID level of $36 billion happened in 2019. Now for Pearl, despite these head

36 billion

s are expected to grow at 11% CAGR, to reach about $65 billion by 2026 from a pre-COVID level of $36 billion happened in 2019. Now for Pearl, despite these headwinds on account of high inventory levels in U

rs,

in 2019. Now for Pearl, despite these headwinds on account of high inventory levels in USA retailers, and the H1 being a weaker season for Indian apparel industry, that is due to the seasonality of th

95%

he growth in this quarter. On a consolidated basis, total income for Quarter 1 FY'23 increased by 95% year-on-year to Rs. 851 crore, facilitated by improved volume due to better capacity utilization

Rs. 851 crore

arter. On a consolidated basis, total income for Quarter 1 FY'23 increased by 95% year-on-year to Rs. 851 crore, facilitated by improved volume due to better capacity utilization and increased contribution fro

2.8%

ion from partnership facility. Partnership factory contribution to overall revenue, increase from 2.8% in Quarter 1 FY'22 to 21.3% in Quarter 1 FY'23, translating to 1.9 million pieces on a

21.3%

ty. Partnership factory contribution to overall revenue, increase from 2.8% in Quarter 1 FY'22 to 21.3% in Quarter 1 FY'23, translating to 1.9 million pieces on a standalone basis. EBITDA for

1.9 million

verall revenue, increase from 2.8% in Quarter 1 FY'22 to 21.3% in Quarter 1 FY'23, translating to 1.9 million pieces on a standalone basis. EBITDA for Quarter 1 FY'23 increased by 370 bps year-on-y

370 bps

ng to 1.9 million pieces on a standalone basis. EBITDA for Quarter 1 FY'23 increased by 370 bps year-on-year to 7.9%. PAT for the quarter stood at Rs. 36.4 crores versus a loss of Rs. 0.8 crore

7.9%

pieces on a standalone basis. EBITDA for Quarter 1 FY'23 increased by 370 bps year-on-year to 7.9%. PAT for the quarter stood at Rs. 36.4 crores versus a loss of Rs. 0.8 crore in Quarter 1 FY'22.

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Guidance — 20 items

Pallab Banerjee

opening

“India textile exports are expected to grow at 11% CAGR, to reach about $65 billion by 2026 from a pre-COVID level of $36 billion happened in 2019.”

Pallab Banerjee

opening

“Our multinational presence works as our strongest synergy as customers continuously aim to shift sourcing from China to other countries.”

Pallab Banerjee

opening

“We aim to act as an end-to-end supply chain provider who can do concept to the store.”

Pallab Banerjee

opening

“For our way forward, in nutshell, our next leg of growth will be driven by the following strategies: i) New customer acquisition ii) Geographical expansion iii) More automation in our facilities iv) optimum utilization of the existing facilities v) Growth through partnership facilities vi) explore PLI scheme for our growth engine in India.”

Sanjay Gandhi

“Yes, just to add we do like you said, we do have a internal benchmarking standard, where we are looking at, overall return on capital employed for any incremental partnership arrangement to be close to 20%, that's the target, we really work towards it.”

Sanjay Gandhi

“So, we would continue to maintain that, of course, Bangladesh, we did recently one acquisition, so the percentage will grow up by couple of points.”

Pallab Banerjee

“So, I think this is where we are really looking at it, I think in terms of the number definitely this is in our target line of achieving crossing Rs.”

Hemant Shah

“That is going to continue the per mix revenue, I mean, the value-added products will contribute more going forward do you think so?”

Hemant Shah

“3,000 crore of turnover, the efficiency and the utilization will be definitely good.”

Hemant Shah

“And if you can just elaborate something what kind of traction we can see or what kind of new customers or added volumes we can see, going forward?”

Risks & concerns — 6 flagged

As I said, like, there could be certain risks in the market, or in the macro factors that we are seeing otherwise, if it doesn't go overboard, like this risk doesn't become too much, or it doesn't go too much out of control.

— Pallab Banerjee

Now, if I go for a particular product mix, like during the pandemic period, we saw a decline in the bottoms wear, that means the pants and denim were selling less.

— Pallab Banerjee

Just to clarify, so obviously on revenue front you say there might be a slight dip, depending in Q3 or Q4, but from a margin standpoint, do you see a risk to your margin from what you have just delivered or that part you can mitigate through --?

— Pulkit Singhal

As I mentioned like the risk is definitely like if the war happens, or another that kind of big, I would say macro changes, if it doesn't happen than we are on our path.

— Pallab Banerjee

140 crores of revenue, but the profit is quite volatile.

— Shubham Jain

So, that is why a direct impact of cotton, major impact doesn't come or should not come.

— Pallab Banerjee

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Q&A — 10 exchanges

I just wanted to ask if our partnership model is similar to what our Related Party, PDS is doing with this sourcing business or is there a difference?

Pallab Banerjee

Our model is definitely different from PDS model. In PDS, basically, it's a more of a trading and sourcing model. Their business in terms of trading would be I would say close to about 80% plus, whereas we present ourselves to our customers as a manufacturer. We do have the partners who are working for us where certain capacities or certain factories we undertake for our production, which is completely dedicated to us. So, that capacity is completely dedicated throughout the year for us as manufacturer, whereas in trading it is as per the need. I hope the difference is clear to you. And when w

I just have two questions. Now, since we have done great sales in Q1, and one of the highest sales actually in the history of the Company, Q1. And it's a dull quarter, first half is usually the lean quarter. Is it fair to assume that we can comfortably do a top-line of say around Rs. 3,100 crore or so for FY'23?

Pallab Banerjee

So, I think this is where we are really looking at it, I think in terms of the number definitely this is in our target line of achieving crossing Rs. 3,000 crore in this financial year. The Quarter 1 has been really very encouraging and it's moving in this direction, with all other facilities really coming into place and utilization improving we are quite hopeful of going in that direction. Because usually even if we now do not grow for the next three quarters, I mean we can comfortably achieve Rs. 3,000 crores since the Q1 was extraordinarily strong. So, what was the reason for this traction

I have a quick question of the capacity utilization. So, what's the current capacity utilization, let's say for FY'22 and the 1st Quarter, if you could share with me? What is the capacity utilization was for, let's say, the last year and this quarter?

Pallab Banerjee

So, if you see, the way that we have established our factories, and the partner factories, we do have a capacity of almost about 80 million plus. So, out of that, we are at this point of time in the range of 65% utilization, I would say. So, definitely we are going towards from 65% to 75%, that's the kind of growth plan that we had for this year. And we are continuing on that journey. So, by capacity, I mean, the infrastructure that we have created, but we are not utilizing all the machines or the workforce, like we have not put in as of yet. So, we can, without any major CAPEX investment, we

As you mentioned, our majority of business comes from U.S, so any discussions with the customers because there is ongoing recession, any slump in demand which we are expecting, any guidance on that?

Pallab Banerjee

Recession or not recession, I think apparel is normally like after once your food and petroleum is taken care of, I think apparel is the next need, which will continue to happen, that is #1. #2 At this point of time, U.S. is undergoing a high inflation and fear of recession. So, let's see how that evolves. We are impacted more in the short run due to the inventory level or high inventory level with some of our customers, which definitely is the result of the inflation and to certain extent, maybe the fear of recession. So, because of which what we are seeing is some of our clients like from U.

I just wanted to know, considering we are at 65% capacity utilization so, we can fairly say that FY'23 would be taken care of without any need for CAPEX as such. So, I just wanted to know, are we planning to utilize the cash flow to pay off some of our debt, because we have got around like Rs. 500 crores debt. And what is the level that the management is looking into which they feel comfortable, having in balance sheet.

Sanjay Gandhi

So, just to answer your question on the debt and cash part, I think the first thing you talk about the capacity, right. So, I think the FY'23 capacity existing one is sufficient to take care of the revenue growth what we are looking at it so there is no need for any CAPEX to build, any major CAPEX. There will always be a maintenance or some additional expansion will keep on happening, some laundry machine to be added, some kind of a specialized machine, technology has to be added. So, those things will keep on continuing, but not the major one, like any Greenfield or Brownfield acquisitions re

If you could just help explain the last two quarters, Q1 of this year and 4Q I mean, you had high revenues in both the quarter. So, capacity utilization will be similar in fact higher previously. But the margin difference is quite huge. I mean, the previous quarter was 4.4, this time it's 7.9. So, what could be the reason for such volatility between two neighboring quarters?

Sanjay Gandhi

One of the reason what we have seen is that I think Mr. Banerjee mentioned that in terms of the product mix, which we have in overseas countries like Vietnam, the outerwear, therefore, the price realization has been a pretty good, improved. So, there is a good amount of the product mix, which has changed in Vietnam, which has really led to higher FOB and then resulting into higher margin. That's the major one contributor. The second is the style which were manufactured in Quarter 4 vis-à-vis what got shipped in Quarter 1, normally, we don't make a comparison from Quarter 4 to Quarter 1 because

I just wanted to understand a little bit more what's happening on the U.S. side of the business. You said that you already have the Quarter 3 bookings, so just talking a little bit more on that. So, is it something that you are seeing in terms of rates that are coming down? Or there's a simple volume hit by the retailers?

Pallab Banerjee

So, yes the volumes are coming down. In terms of rate, what happens is certain portion is market driven. If like the big players like Walmart or a Target or some of the other big players drops in number then certainly market has got more capacity and less orders. So, during that time, definitely the price becomes more competitive. But thankfully, in our industry, normally the selling cost has got a proportionality to the raw material price. So, the customers normally don't expect us to absorb the increase in raw metal price. And again, the second part is that when the demand becomes a little s

I had one simple question taking on from the earlier participants on the quarter-on-quarter movement of margins. You mentioned that the outerwear contribution was a little higher this quarter. So, on an H2 and H1 basis, will the margins again start moving downwards because H2 will start serving the summer-spring and the outwear will be lower so have higher revenues in the second half. But our margins can be a little subdued?

Pallab Banerjee

This is where a company like Pearl is able to make a balance because on one hand we have the outerwear production that we majorly undertake in Vietnam, Indonesia and some in Bangladesh and which is very much in this particular quarters is heavy, because now all the goods are getting shipped for the holiday season. And then comes the spring summer product which is majorly coming out a lot of fashion goes out of India and some out of Bangladesh and Indonesia as well which comes because of our presence in all the four locations so we are able to balance that. And going forward we are more confide

Just I had two questions, just to summarize what you mentioned during your opening comments, is it fair to assume that Bangladesh, Vietnam and Indonesia, from a margin seasonality point of view, the first half would be at peak and probably second half would be at a little bit lesser than what you show in the first half; while the India operations would achieve its peak margins in the second half of the financial year, is it fair to assume?

Pallab Banerjee

See that's the trend of the industry, like when I was explaining to, I think Mr. Jain earlier was that if you talk of the seasonality of the market, then these markets are poised to do this kind of product. Now, as a company, our endeavor would be to go for better margins, better product with better customers, independent of the season or the location. So, yes, like what you are talking about are the general setup of the industry and the countries. And of course, then we come in where we have to work and we have to build up our strategies so that we can deliver the best on all the four quarter

Thank you everyone. I hope we have been able to answer all your questions satisfactorily. However should you need any further clarification or would like to know more about the company, please feel free to contact our team or SGA our Investor Relations advisor. Thank you once again for taking the time to join us on the call.

Management

Speaking time

Pallab Banerjee

Moderator

Sanjay Gandhi

Akshay Kothari

Hemant Shah

Parth Desai

Shubham Jain

Keshav Kumar

Pulkit Singhal

Mohit Khanna

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Opening remarks

Pallab Banerjee

Hi, good morning, and I welcome everyone to our Quarter 1 Financial Year '23 Earnings Conference Call. Along with me we have our group CFO, Mr. Sanjay Gandhi, and SGA our Investor Relation Advisors. I hope all of you have gone through our Investor Presentation uploaded on the exchange and our company website. Since this is our maiden call, I would like to give a brief overview of our Company and the industry, followed by a review of the financial performance of the Company during the quarter. Pearl Global Industries Limited founded in 1987, is a leading apparel manufacturer, offering end-to-end sustainable solutions to the fashion industry. We have a multinational presence across eight countries, India, Indonesia, Bangladesh, Vietnam, for manufacturing and USA, Spain, Hong Kong and UK for client servicing and designing. Our diversified product offering across categories includes knitted tees, polos, and dresses, woven shirts, blouses, and dresses, denim jeans, outerwear jackets, active

Sanjay Gandhi

Good morning, everybody. And welcome to our first ever earnings conference call for Quarter 1 FY23. Coming to the financial and operational performance of the Company, we have reported the highest ever Quarter 1 performance since inception. Our strong financial performance during the quarter was aided by improved product mix, increased contribution from in-house manufacturing and partnership facilities and improved performance in Bangladesh and Vietnam factories, have been the key driver of the growth in this quarter. On a consolidated basis, total income for Quarter 1 FY'23 increased by 95% year-on-year to Rs. 851 crore, facilitated by improved volume due to better capacity utilization and increased contribution from partnership facility. Partnership factory contribution to overall revenue, increase from 2.8% in Quarter 1 FY'22 to 21.3% in Quarter 1 FY'23, translating to 1.9 million pieces on a standalone basis. EBITDA for Quarter 1 FY'23 increased by 370 bps year-on-year to 7.9%. PAT

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Pearl Global Industries Limited

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