Buy Pearl Global; target of Rs 380: Sunidhi Securities

Sunidhi Securities' report on Pearl Global Industries (PGIL)

"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 labour, higher output, lower wage cost, low attrition levels, low rejection and special expertise in wovens, will provide good operational flexibility. Creating direct employment for an additional 3,000 skilled workers, the expansion is in keeping with PGIL's long-term commitment to „Make in India', PGIL is readying itself for an improving demand flow of orders from leading brands in advanced markets. It aims to leverage its new “lean manufacturing” capability over its existing fixed marketing and design overheads to further improve our EBITDA margins and return-on-capital ratios."

"Given India's demographics, the decade ahead will offer even better prospects for the Indian Textile Industry as it is set for strong growth buoyed by both rising domestic consumption as well as export demand. Abundant availability of raw materials and a skilled workforce, uncertainties & rising costs in competing neighboring countries augurs well for India becoming a global sourcing hub. Looking at this potential of development of the textile industry, the Government of India has extended TUF Scheme for next Plan period and the State Governments have also launched special schemes to promote investment in textiles. PGIL is hopeful that the additional capacity along with future ones, will significantly improve its industry ranking within the top 7 manufacturers out of India. With this capacity enhancement, it is poised to be a leading player amidst the exclusive club of market peers within the garment manufacturing space."

"The Chennai facility provides PGIL the ability to keep adding on capacity into the future with minimal investment. Benefits of the increased expansion in Bangalore are expected to positively impact the PGIL's books by FY15-16, while the Chennai expansion benefits will reflect in FY16-17. The capacities are expected to generate incremental revenues of Rs 100-150 crore, which will further enhance its EBIDTA margin. PGIL shows improved visibility on business front and expects to sustain growth along with improved margins over comings quarters. At the CMP of Rs 259, the share is trading at a P/E of 13.7x on FY16E and 9.8x on FY17E. We recommend BUY with a target price of Rs 380 at a P/E of 14.5x on FY17E", says Sunidhi Securities research report.

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