Pearl Global Industries Ltd Management Discussions.

INDUSTRY OVERVIEW

India is one of the largest exporter of textiles and apparels with a massive raw material and manufacturing base. The industry is a significant contributor to the economy, both in terms of its domestic share and exports. It contributes about seven percent to industry output, two percent to the GDP and 15 percent to the countrys total exports earnings. The sector is one of the largest sources of job creation in the country, employing about 45 Mn people directly.

The Indian textile and apparel market was worth $ 90 bn in 2017. the market is further projected to reach $ 198bn by 2023, at a CAGR of around 14 percent during 2018-2023. India is the largest textile exporter in the world. Indias share in global trade of textiles and apparels is approximately 6 percent. Today the textile and apparel market has become a vital contributor to the Indian Economy. The apparel export has seen a positive trend from November 2018 onwards. Between April-December 2018, Ready-made garments (RMG) exports from India stood at $ 11,350.44 mn. Total textile and apparel exports from India increased by seven percent to Rs.1600.10 bn. In April to November 2018 compared to exports of Rs.1492.54 bn. in the corresponding period of last fiscal. The total exports of textiles and apparels are expected to touch $ 82bn by 2021 with CAGR of 12.06 percent.

India is one of the fastest growing economies in the world and is the 6th largest economy that is expected to be among the top five global economies by FY 2020.Currently, India ranks 6th in the world in terms of nominal GDP and is the third largest economy in the world in PPP terms. Indias GDP is expected to reach US$3.5 trillion by FY2021, it is also expected that this growth trajectory of Indian economy will enable India to be among the top three global economies by FY2050. Not to deny that sustained high-real GDP growth of over 6% since FY1991 has led to a fundamental transformation of the Indian economy.

COMPANY OVERVIEW

Pearl Global Industries Ltd is a multinational apparel manufacturing conglomerate, with integrated value chain around Design & Development, Global manufacturing, marketing & distribution and sourcing & supply chain for the world Apparel & Fashion Industry. Pearl Global Industries is operating 19 state of the Art Manufacturing Plants out of India (Gurgaon, Chennai, Bangaluru), Vietnam, Indonesia and Bangladesh. Pearl Global Industries Ltd is a dynamic enterprise, pursues the opportunities in markets globally and brings technology & quality to clients, while reiterating its belief of delivering the best, in customer services and manufacturing. Our 26000+ strong diversified, skilled, multicultural workforce has the experience of working in different geographies, with diverse product styles/categories, as our core differentiator. Our product range includes knits, woven and bottoms (basic and complex designs) across men, women and kids wear segments. We have a well diversified and de-risked manufacturing base across India, Indonesia and Bangladesh. We have a total capacity to manufacture around 69 million garments per annum (including own and outsourced facilities).Our revenue structure is primarily export based, with a major contribution coming from exports to the United States. We provide total supply chain solutions to customers-value retailers and high end fashion brand, retails in the United States and Europe. Our business model enables us to offer superior quality products across various countries, catering to all kinds of consumers. Our esteemed global clientele includes premium retailers in USA and Europe, including GAP, Banana Republic, Kohls, Macy, Ralph, Lauren, Tom Tailor and Next among others.

We strive to be the most preferred vendor to the top global apparel brands and be ranked amongst the top garment manufacturers in the world, in terms of quality, service standards and ultimately-customers satisfaction, keeping in line with our broader vision.

1. Our manufacturing facilities

Country Name Factories
India Pearl Global 11
Bangladesh Norp knit 2
Indonesia PT Pinnacle 3
Vietnam Pearl Global Vietnam 1
Total 17

2. Our Pillars of Strengths

a) A Multi Location Manufacturing capability

Global apparels sourcing market is witnessing a shift from China to other low-cost Asian countries, primarily Bangladesh, India and Indonesia. Our Company already has a strong manufacturing presence in leading sourcing nations such as India, Bangladesh, Indonesia and Vietnam. Each of these countries exhibits certain core advantages.

b) Design Cell

Our Company has a dedicated in house design team of 75+ designers in Hong kong, India, Bangladesh, Indonesia, Vietnam, USA, UK and Spain. The design teams continuously observe the trend in all markets across the world and visit almost all the globally renowned fashion and textile fairs to refresh their inspiration for new design ideas. As a result they are well equipped to serve the global brands from concept boards to ready new samples. New design ideas also emerge from our various marketing teams, who are close to and in continuous conversations with buyers located in Hong Kong, London, USA and Germany. There is an increased focus being placed on creating brand-specific product designs to generate and accelerate business opportunities for global brands and retailers.

c) Strong Compliance across all Factories:

Compliances in all our facilities are directly linked to the corporate office, which drives all strategy of social compliance, new initiatives and sustainability directly from the top. The corporate compliance acts as a communication hub and control tower for all our customers, providing them with a single point of contact. Strong compliances are established and maintained in all our facilities in line with international standards and several channels are available in each facility to address any concerns. We drive our social responsibility initiatives with a focus on environmental sustainability, gender equality, health and capacity building, in line with our Chairmans vision of a better world and the United Nations Sustainable Development Goals.

3. E-Commerce Channels

We have already ventured into e-retail through our online website www.sbuys.in . Our vision behind this is to provide international trend to online shoppers. In addition to our own retail platform, we have established tie-ups with leading online marketplaces. SbuyS is a popular brand among online shoppers for western women wear and kids wear. It brings in the latest international fashion in Women wear (19-29 yrs).

Beyond Clouds is our another flagship brand which brings in interesting fashion wear for pre-teen girls (8-14yrs). www.sbuys.in has successfully completed four years and is showing exponential growth every year. The brand is managed by a team of experience and dedicated professionals. We are confident of capitalizing the growth prospect. We expect that this channel to evolve gradually and become more significant in the coming years. Since our margin contribution through this channel is higher than B2B, our top line growth in our B2C business has positive impact on our bottom line.

COMPANY PERFORMANCE AND MANAGEMENT OUTLOOK

The company has achieved a gross income of Rs. 866.56 Crore compared to Rs. 758.79 Crore in last financial year and Net Profit Rs. 21.50 Crore as compared to Net Profit Rs. 2.66 Crore in the previous year on the standalone basis and consolidated income of Rs. 1,791.42 crore compared to Rs. 1,543.60 in the last financial year and net profit Rs. 67.10 crore as compared to net profit Rs. 23.08 crore in the previous financial year.

Going forward, as the expanded capacity in Vietnam become fully operational, the share of overseas manufacturing will increase leading to improvement in overall margins. In the last year as the expanded capacities in Bangalore and Chennai fully operational, the share of in house manufacturing already increased leading to improvement in overall margins.

Forward integration into online fashion apparel retailing in the brand "SBUYS". Online retailing is a high-growth space and offers strong potential to build a business model with healthy margin profile.

GOVERNMENT INITIATIVE

To promote exports of readymade garments and made-ups, government of India increase Merchandise Export from India Scheme (MEIS) rates from 4 to 6 percent under Mid-Term review of Foreign Policy 2015-20. the government is also making investments under the scheme for Integrated Textiles Parks and the Technology Up-gradation Fund Scheme for training workforce and to encourage private investment in the Indian textile and apparel industry. the Government has been implementing various policy initiatives and programs for development of textiles and handicrafts particularly for technology, infrastructure creation, skill development including:

• Amended Technology Up-gradation Fund Scheme(ATUFS)

• Scheme for integrated Textile Parks

• SAMARTH-Scheme for capacity building in textile sector

• Silk Samagra-integated silk development scheme

• North Eastern Region Textile Promotion Scheme (NERTPS)

• National Handicraft Development Program (NHDP)

Comprehensive Handicrafts Cluster Development Scheme (CHCDS) the Government approved scheme on rebate of state and central embedded taxes (RoSCTL). RoSCTL came into effect from 7th March,2019. It is applicable for both apparel and made-ups. Apparels products currently get RoSCTL of 1.5% to 1.7%. Embedded taxes are total upto 5%.

The Indian government has come up with a number of export promotion policies for textile sector. It has also allowed 100 percent FDI in the Indian Textile sector under automatic route.

OPPORTUNITIES & THREAT

Rising cost of labour in china and marginal price difference in fabrics prices in India and china are helping India. Since costs are rising in china, the media to long term business will move to other countries which can better or match china cost and delivery capabilities. Since buyers are looking at alternate markets for sourcing, India has greater chance, being economically and socially stable country. Besides, large garment industry in India is getting more organized for higher demands.

However, the inflationary situation in India demands for rise in wages for workers also. Cotton prices are also rising in India, which require authorities intervention like ban on cotton exports. Due to rising cost, India faces competition from low cost countries like Bangladesh and Indonesia. In todays market scenario, where most of the top retailers of the world are consolidating their vendor bases, stand alone vendors are going out of business and there share is being taken over by companies like PGIL. Vendors that are able to offer value addition in terms of design input, provide different sourcing options and have the operational and financial resources to meet retailers increasing requirements are being categorized as their "Preferred Vendors". is gives the vendor an edge over the competition. Due to all its investments over the last couple of years, your company through its subsidiaries has already been categorized as Preferred Vendor by various big Retailers in US and Europe.

RISKS MANAGEMENT & CONCERNS

The overseas buyers are reducing not only their orders but also their prices due to serious liquidity problems being faced by them.

Garment manufacturing is totally a labour intensive and even after greater automation it will remain so. The obsolete and antiquated labour legislation has hindered the growth of the extremely labour intensive garment manufacturing. The restrictive industrial and labour laws restrain managements capability to respond professionally, effectively and speedily to the fast changing dynamic international textile scenario and request for labour reforms with flexible labour laws to increase productivity. There is an urgent need for flexible labour norms specific to garment manufacturers and exporters to enable them to meet the increasing international competition especially with regard to employment of casual labour and overtime hours of work during high season which are necessitated by the requirement of meeting tight delivery schedules required for export.

The Company has established factories and operating in the region for long time continuous efforts for betterment of labour has been conducted to improve the condition both at work and home for labour company till now havent faced any labour issues in terms of strike etc.

The Company is undertaking various measures like lean manufacturing at ground level to increase the productivity and further reduce rejection to improve margin.

INTERNAL CONTROL SYSTEM

The Companys internal control system has been designed to provide for:

i) Accurate recording of transactions with internal checks and prompt reporting through SAP

ii) Adhere to applicable Accounting standards and policies.

iii) Review of capital investments and long term business plans.

iv) Periodic review meetings to manage effectively implementation of system.

v) Compliance with applicable statutes, policies, listing requirements and operating guidelines

vi) Effective use of resources and safeguarding of assets.

vii) IT systems with in built controls to facilitate all of the above.

The Company has adequate systems of internal controls to ensure that transactions are properly recorded, authorized and reported apart from safeguarding its assets. Your company has successfully implemented SAP for its manufacturing units and will continue upgrading the same. the Company has its own Corporate Internal Audit set up which carries out periodic audits at all locations and all functions and brings out deviations to internal control procedures. The observations arising out of audit are periodically reviewed and compliance ensured. It has successfully implemented SAP for its manufacturing units and will continue upgrading the same.

HUMAN RESOURCE MANAGEMENT

The Pearl Global Industries Limited, forward-thinking and employee centric human resource department is devoted to providing effective policies, procedures, people-friendly guidelines and support governance with the organization. Our HR philosophy revolves around right people for the right job, maintaining a safe, hygienic, and sustainable work environment across geographies, capability building at all level with program such as iLEAD [Leadership Development Program], SEED [Operational Development Program], innovate with technology with our Human Resource Management System, Pay for Performance [Achieve: Pearls Performance Management System]. There by building a PearlONE culture, with employee engagement being centric of all our HR initiatives. Presently Company employs 6200 work force.

DETAILSOF SIGNIFICANT CHANGES (I.E. CHANGEOF 25% OR MORE) IN KEY FINANCIAL RATIOS

Details of changes in Key Financial ratios are given below:

S. No. Particulars FY 2018-19 FY 2017-18 % Change Reason for change in Ratio
1 Debtors Turnover (Days) 48.37 44.93 7.66% Increased debtors due to change in customer mix
2 Inventory Turnover (Days) 118.25 125.62 -5.86% Better control of inventory
3 Interest Coverage Ratio 3.25 2.01 61.38% Higher margins and increased turnover
4 Current Ratio 1.15 1.13 1.97% Higher margins and reduced utilisation of Working capital limits
5 Debt Equity Ratio 0.13 0.16 -20.36% repayment of debts and no new loans
6 Operating Profit Margin 14.45% 9.20% 57.05% Higher margins and turnover
7 Net Profit Margin 2.48% 0.35% 606.80% Higher margins and turnover
8 Return on networth 6.80% 0.89% 662.27% Better profitability

CAUTION STATEMENT

Investors are cautioned that this discussion contains statements that involve risks and uncertainties. Words like anticipate, believe, estimate, intend, will, expect and other similar expressions are intended to identify such forward looking statements. The Company assumes no responsibility to amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events. Besides the Company cannot guarantee that these assumptions and expectations are accurate or will be realized and actual results, performance or achievements could thus differ materially from those projected in any such forward looking statements.