This apparel maker isn't a newcomer to the market. Incorporated in 1987 and listed in 2007, the garment exporter has consistently remained profitable, maintaining double-digit return ratios over the past decade.
The pandemic hit hard, with net profit dropping to an all-time low of Rs 17 crore in March 2012, but the company has since rebounded sharply, with profits soaring to Rs 168 crore in March 2024.
Reflecting this impressive earnings performance, its stock price has skyrocketed from Rs 50 in January 2020 to Rs 835 currently, with no signs of stopping.
On Tuesday, shares of Pearl Global surged 11 percent intraday, closing over nine percent higher. At 11 am on July 18, the stock was trading at Rs 823, down 1.2 percent. Ace mid-cap investor Mukul Agrawal first picked up a 2.31 percent stake in the company in September 2021 when the stock was around Rs 150. Now, institutional investors are taking notice.
On July 15, HDFC Mutual Fund bought a 1.59 percent stake at an average price of Rs 731. Earlier last week, the Abu Dhabi Investment Authority acquired a 1.3 percent stake.
Also Read | Bulk deals: Abu Dhabi Investment Authority buys 1.34% stake in House of Pearl Fashions
What are the triggers for future growth, especially after such a remarkable surge in the stock price over the past three years?
Firstly, the overall outlook for textile exporters is improving. Over the past year, the textiles and apparel sector has faced challenges due to ever-changing trends, higher inventory buildup in the US, and inflationary pressures across key markets like the US, the UK, and the EU. However, demand is expected to rebound as inventory levels normalize and inflation eases, potentially boosting discretionary spending and demand for clothes.
The outlook for India is particularly positive. The Indian textile and apparel industry is projected to achieve a 10 percent CAGR from 2019, reaching $190 billion by 2026.
Analysts at Elara Capital highlight the benefits of the China+1 strategy for Indian textiles, as consumers and manufacturers seek alternatives to China-centric sourcing. This shift is gradually reducing China's share in the global clothing trade.
This is a huge plus for Pearl Global, which stands to gain significant market share due to its wide product range, multi-location manufacturing facilities, and strong customer relationships. "It enjoys long-term relationships with global brands and retailers across geographies," wrote Elara Capital. Currently, India holds a 4 percent share of the global textile and apparel trade.
Another positive factor is Pearl Global’s transition to an asset-light business model. The company stated in its annual report, "We have transitioned from owning manufacturing facilities to establishing strategic partnerships with factories. This shift allows us to optimize capital utilization, enabling us to fund operations through internal resources rather than relying on external financing. Additionally, we maintain a focus on timely collections to ensure financial stability."
The company also has ambitious plans to expand its current capacities. From 82 million pieces, the firm aims to increase capacity to 120-140 million pieces by FY28, indicating a capex of Rs 450-550 crore over FY24-28. This expansion will be funded through a mix of internal accruals, debt, and growth capital.
To support this, Pearl Global launched a Qualified Institutional Placement (QIP) to raise funds on July 15. The exchange filing did not specify the purpose of the fundraise, but the floor price for the QIP is set at Rs 748.68 per share, a 1.5 percent discount to the previous session's closing price.
Veteran investor Mukul Mahavir Agrawal holds a 3.44 percent stake in Pearl Global, according to June quarter shareholding data. A key risk for the stock would be any potential slowdown in demand for garment exports. Currently, the firm has 24 manufacturing units (including partnership facilities) spread across 5 countries. Any possible slump in the US, as certain macro indicators suggest, could dampen the positive outlook for this stock.
Over the past year, the stock price has jumped over 180 percent. Despite this surge, the firm's valuations remain attractive, with a trailing twelve-month PE ratio of 20.3x, below the industry median. Not a bad deal when the Nifty trailing P/E itself is higher.
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