Ladies and gentlemen, good day and welcome to Pearl Global Industries Limited's H1 FY25 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements will be guaranteed for future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Pallab Banerjee, Managing Director of Pearl Global Industries Limited. Thank you, and over to you, sir.
Thank you and good morning, everyone. I welcome you to our Q2 H1 FY25 earnings conference call. Along with me, we have our Group CFO, Mr. Sanjay Gandhi, and SGA, our Investor Relations Advisors. I hope all of you have had a chance to go through the investor presentation uploaded on the exchange and our company website. I'm pleased to announce that our growth momentum persisted in the first half of the fiscal, resulting in our highest-ever consolidated half-yearly revenue adjusted EBITDA and profitability. During the first half of the fiscal, we saw a 21.6% increase in consolidated revenue, led by the sales growth in Bangladesh, India, and Vietnam due to strong order book and healthy growth in sales volume. We have touched almost INR 200 crore adjusted EBITDA on a consolidated basis in H1 of FY 2025.
Once again, this is a proof that our strategies are working well and a testament to our competitive advantage as a global manufacturer. Our consistent growth is fueled by capitalizing on our key strengths: our multi-land presence, diverse product categories, in-market design expertise, and strategic customer relationships. This growth has been largely driven by the increased orders from existing customers, enhancing our relationships and expanding the wallet share among customers we have acquired over the past five years. Let me share an overview of the industry and our business outlook. Global retailers are sharing positive outlook on both inventory levels and overall demand trends. The global inventory restocking cycle has concluded, leaving retailers with optimized stock positions. In the recent updates, we indicated lower inventory levels driven by stable demand.
The U.S. retail demonstrated a resilience in 2024, with estimated monthly revenues reaching $17.7 billion in September, a 1% increase compared to September of 2023. We anticipate that the purchasing activity will remain healthy and stable throughout the rest of the year. Annually, the U.S. market has been growing 2%-5% over the last few years, and I think this trend will continue through this year. We may end anywhere between 1%-2% growth. As of August 2024, year-to-year update, total imports into the U.S. have declined by nearly 4% year-on-year, with improvements that we expect in the second half of the year. Most retailers are compliant with the situation of a reduced line due to overstock situation after the summer season, which was up to the import of months after the import of month of March of this year.
Most U.S. retail industry leaders held a cautiously optimistic outlook thus far, but that is due to majorly because of the election year. With the Trump government coming in, with a focused approach towards the U.S. economy as its center and the MAGA movement, we anticipate a positive outlook going forward. Moving on to the U.K. retail situation, this market grew last year by almost 5%, and year-to-date, we have seen a trend of 2%. As of August 2024, the total imports into the U.K. have decreased by almost 11%. Though improvements are anticipated in the later half of the year, the Christmas sales seem to be gaining momentum this month. We are seeing a positive trend from our customers. The apparel imports into the European Union have decreased by approximately 3% year-to-year as of August 2024, whereas for Japan, it has decreased by almost 5%.
However, we have seen positive traction in both these markets, with our wallet shares with the customers growing somewhat significantly. We have received positive response from our Australian retailers as well. As we continue to improve our market shares with customers across all the above markets, our order book of business share with our U.S.-based customers is trending towards 67%, and the non-U.S. being at 33%. Non-U.S. customers are from the European Union, Japan, Australia, U.K., and Canada in that order. However, please do note that most of these customers do have stores across the world, and thus our numbers for each country will be somewhat different. Moving on to the logistics, the Red Sea crisis and elevated logistics continue to drive up the transportation expenses for retailers in the U.S. and U.K. and some of the other Western countries.
However, our cost remains unaffected as all our shipments are subject to FOB terms. Our priority is to accelerate delivery timelines, as customers expect shipments at least a week earlier to accommodate this time, which is needed for vessels to reroute around the African continent. This has become a norm for now. Further challenge in recent times is also the cost and availability of the containers for us. This has started to ease off. Our manufacturing facility in Guatemala, with a transit time to the USA just over a week, continues to attract increasing interest and inquiries from our customers. However, the overall capacity of Central America, and even for us, remains limited and is only a fraction of what we have in Asia. Now, moving on to Bangladesh.
Bangladesh underwent a period of unrest, followed by a change in government, and had faced a curfew shutdowns for almost six days in July and early August. Since then, our facilities have been running at full capacity. We noticed good opportunities to gain market share, as some of the bigger vendors were forced to scale down their operation due to financial irregularities and stricter regulations from the banks and the interim government. We experienced 97% plus attendance immediately as we restarted after the curfew was lifted. This further improved as we moved on. Our business in Bangladesh is at all-time high. Following the disruptions in July, we achieved our highest shipments volumes ever in August and in with zero delays in our deliveries. Our customers are now confident in our ability to deliver on time from Bangladesh facilities and having a strong backup.
We have witnessed good growth coming from customers based in Europe, U.K., U.S., and Japan in our Bangladesh factories. We are pleased to share that our order book is currently full, with strong visibility for the fiscal year and beyond. We do take pride in highlighting that our ability to navigate the crisis, both financially and operationally, remained resilient, enabling us to achieve our best-ever performance from Bangladesh. It is the second-largest exporter of our world, just next to China. Through the recent turmoil, it is driving consolidation within the industry, and companies with strong balance sheets that of Pearl Global are in a position to thrive and capitalize on this trend. In fact, we are seeing greater willingness amongst our partners, factories, for even greater collaboration. Our European Union and U.K. customers are keen to strategically guide and support us in this journey.
This country still has advantages of lower cost, higher efficiency, productivity, availability of skilled workforce, and well-experienced middle and lower-level management staff, along with the favorable trade agreements with important markets of the EU, U.K., Canada, Australia, and China. It continues to improve its logistics infrastructure. This will continue to keep them ahead of competition from other geographies. Moving to our operations in Vietnam, we have seen strong growth from this country in this quarter, and we are confident in maintaining this upward trajectory. Going forward, we will continue to expand in this geography at a steady pace while providing exceptional service to high-end customers. Indonesia is set to regain its performance levels after a decline for the past two years. Our new factory is now fully ready, and we have got good response from our existing and new customers.
We will continue to ramp up the production lines and output over the next two to three quarters steadily. Again, our endeavor is to service our high-end customers from this geography as well. Coming to our performance in India, we have witnessed good growth from our Indian operations, which grew by 31.4% year-on-year in quarter two of this financial year 2025 and 18.3% year-on-year if looked at for H1 of financial year 2025. On the margin front, in India, we still have opportunities significantly. We added newer capacities in our existing facilities in metros of Gurgaon, Bangalore, and Chennai over the last six months, and are in the process of adding newer capacities in the second-tier cities of Muzaffarpur, Bhubaneswar, and in Indore.
As these production lines with diversified product and customers are still in a ramp-up phase, thus leading to temporarily higher costs, we expect this to improve in a few quarters. We already have and we foresee good order book for upcoming spring and summer season products leading to for India. Historically, quarter two and quarter three have been slower quarters for us. We have limited product offered, and we believe that we are on the right path to mitigate and lower this risk going forward. With above actions, we are confident of improving the margin territory from the year 2025 onwards even in India. We do observe an active interest from our customers to have a bigger presence in India, especially since they are overexposed in Bangladesh. However, they are used to the cost structure of Bangladesh.
On a cost comparison, the Tier 2 and Tier 3 cities of India are closer to the cost structure of Dhaka, and there is availability of steady workforce. However, we need to quickly ramp up the ecosystem and train these workforces to be efficient and compete with the Bangladesh market. For now, our customers are confident of our strength across both sides of the border and partners even more. In summary, all our initiatives are progressing well. We will continue to strengthen our relationships with customers who are strengthening their positions in the global market. Our focus remains on consistently breaking previous records of revenue, capacity, and efficiency, which will directly contribute to enhancing our bottom-line profits. We are solidly on target with our forecast of top-line and bottom-line for the year and the strategic goals of 2025 that I shared with you earlier.
Now, I will hand over to Sanjay Gandhi, our Group CFO, who will walk you through the quarter two and H1 financial year 2025 financials. Sanjay, over to you.
Thank you, Pallab. Good morning, everybody, and welcome to our Earnings Calls for Q2 and H1 FY 2025. I will now take you all through our financial and operational performance. Starting with consolidated financials, we are happy to report that on a consolidated basis, the highest-ever quarterly revenue and half-yearly performance in terms of consolidated revenue sustainability and profitability. Revenue increased to INR 1,201.9 crore in quarter two FY 2025, a notable increase of 25.1% year-on-year. H1 FY 2025, revenue increased by 21.6% year-on-year to INR 2,254.7 crore. The growth in revenue was led by sales growth in Bangladesh, India, and Vietnam due to strong order book and healthy growth in sales volume.
Adjusted EBITDA for the quarter Q2 FY 2025 increased to Rs 98.8 crore, reflecting a growth of 24.0% year-on-year. Adjusted EBITDA margin stood at 8.2% in quarter two FY 2025. We are happy to share that we have almost touched Rs 200 crore consolidated adjusted EBITDA H1 FY 2025. Adjusted EBITDA increased by 21.6% year-on-year to Rs 199.2 H1 FY 2025 with adjusted EBITDA margin at 8.8%. EBITDA growth year-on-year is in line with the revenue growth. Please note that adjusted EBITDA excludes expenses of Rs 2 crore in quarter two FY 2025 and Rs 4.2 H1 FY 2025. As for quarter two FY 2025, it increased to Rs 55.6 crore, reflecting a growth of 42.8% year-on-year. H1 FY 2025, that increased by 36.2% year-on-year to INR 117.6 crore.
If you look at PAT after minority interest, this increased by 47.4% year-on-year to INR 58.5 crore in quarter two FY 2025. For H1 FY 2025, PAT after minority interest increased by 41.1% year-on-year to INR 123.8 crore. PAT after minority interest margins stood at 4.9% in Q2 FY 2025 and 5.5% in H1 FY 2025, witnessing a growth of 80 basis points year-on-year in quarter two FY 2025 and H1 FY 2025, respectively. Please note, quarter two FY 2025 had an exceptional expense of INR 4.2 crore, whereas H1 FY 2020 had an exceptional gain of INR 1.4 crore. Exceptional items include gain on the sale of non-core assets and VRS expense H1 FY 2025. Coming to standalone financials, for quarter two FY 2025, revenue increased to INR 287.1 crore, representing a 31.4% increase year-on-year.
The H1 FY 2025 increased by 18.3% year-on-year to INR 563.2 crore. Increase in revenue due to growth in business with existing as well as new customers. Adjusted EBITDA witnessed a decline of 54.7% year-on-year and stood at 4.2 crore in quarter two with adjusted EBITDA margin at 1.5% for the reason which has been H1 FY 2025, adjusted EBITDA witnessed a decline of 40.7% and stood at 17.5 crore with EBITDA margin at 3.1%. EBITDA margin has been impacted due to lower gross margin on the new style and customer addition during the quarter and the year, and higher manufacturing costs incurred during H1 with continuation of ramping up of factory in Chennai and one factory in Gurgaon. As for quarter two FY 2025, grew by 9.7x, INR 11.6 crore. H1 FY 2025, PAT grew by 115% year-on-year to INR 27.5 crore.
Please note, quarter two FY 2025 had an exceptional expense of INR 3.5 crore on account of QIP H1 FY 2025 had an exceptional gain of INR 2 crore. Our strong performance in the group level is reflected with our strengthening balance sheet. Cash and cash balance, including cash earmark for healthy payments, stood at INR 37 crore as of September 2024. Gross debt stood at INR 498 crore. Net debt to EBITDA stood at 0.28 H1 FY 2025. As of September 2024, net working capital days stood at 37 days. On a steady-state basis, with the growth in the business, the customer wishes, we believe that net working capital days of around 35-45 should be a stable state for us going forward. On a capital expenditure side, our CapEx commitment plan across geographies for FY 2025 is approximately INR 125 crore.
Total fixed asset capitalized during H1 is INR 63 crore across geographies. In India, it is largely Chennai factory expansion, including plant and machinery. In Bangladesh, it is a washing facility expansion, replacement of plant and machinery. In Guatemala, it's largely an extension, addition of new lines and buying plant and machinery. In Bangladesh, as Pallab mentioned earlier, the industry is witnessing consolidation and a growth in order book for vendors, suppliers with a stronger operating metrics. For us, we had the best-ever performance for Bangladesh region due to the reason which we have highlighted. Looking at the situation, we will evaluate opportunities for greenfield, capex, inorganic acquisition, respectively. However, we will wait and watch the stability and situation to normalize further. At this time, we'll continue to expand via asset-light model that is partnership activity catered to the strong inflow of order from existing as well as new customers.
If we are, total CapEx commitment will be in the range of INR 30-35 crore in two periods. This will be a combination of debt and equity. This will be committed in H2 of this financial year. As you all are aware, we have a steady dividend policy in place. With respect to the same, the company has declared an interim dividend of INR 5 per share with dividend distribution amounting to INR 22.9 crore, which is 19.5% of consolidated net after tax, so consolidated profit after tax. Just to summarize, we have witnessed a strong performance in the first half of this fiscal year. Coupled with a strong and diverse customer base, geographical presence, we are well positioned for a strong performance in the coming years and are well on track to achieve our stated guidance for this year and towards our FY 2028 goals. Thank you.
We shall now open the floor to question and answer.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their dashboard telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment to call the question queue attendee. The first question is from the line of Palash Kawale from Nuvama Wealth . Please go ahead.
Hello sir, this is I am audible. Hello. Yes sir, you are. Yeah, you are audible. Thank you for the opportunity and congratulations for good quarter. Sir, do you see operating leverage peaking for the second half of the year? Yeah, that's it. That's the only question we have. Sure.
We are seeing the volume growth in H1, and we believe that this volume growth and value growth should continue in H2. And yes, by the end of this year, we should see that leverage kicking in.
Okay sir, thank you. Thank you for your answer. That's it for my side.
Normally, if I have to add to what you're saying, definitely this will be the spring-summer season for the Western markets, and we are seeing a good traction in terms of our order book. So naturally, this volume will continue to go up, and that will give some kind of leverage benefit to us. Despite the kind of forecasts we have been seeing, we think that we're solidly on track on that. Thank you for your answer, sir. Thank you. Ladies and gentlemen, you may press star and one to ask a question.
The next question is from the line of Pranav Shikhare from the Navneet Family Office . Please go ahead.
Hello sir, am I audible? Yes sir. Hello. My question was, okay, what are your CapEx plans going forward, and what is the capacity utilization we could see at all the three facilities which are in India, Bangladesh, and Vietnam? And what kind of capacity expansion also we could see at these three facilities going forward?
So I will let Sanjay speak specifically on the CapEx part. But what I can tell you about in terms of the trend of business that we are seeing in India, definitely, as you just heard from us, we are seeing quite a significant uptrend. And even in Bangladesh, I think the utilization would be very high because the kind of order interest that we are seeing from our customers are significantly higher out there.
So in India, our capacity utilization will improve. Bangladesh, I think most of it will cross, and that's where we will be adding some more capacity. And Indonesia, as I just mentioned, that it will be the new facility that we have started that will be ramping up to the full capacity over the next two to three quarters. And Vietnam, we are experiencing a steady growth. So in all the locations, we will be seeing a better utilization of the capacity that we have published. Of course, in geographies like Bangladesh, we have to expand some of the capacity as well. Sanjay, over to you for the CapEx part.
Sure. So as I mentioned earlier, that we are looking at an INR 125 crore CapEx commitment approximately in H2 of this year, and this will happen in Bangladesh and India.
We are also looking at an opportunity, a strategic opportunity which may fructify in the second half of this financial year. So that may entail an additional spending of INR 20-25 crore.
So what is the spend between all the capacities for the CapEx?
Sorry, if you could repeat your question, I couldn't hear it.
What will be the spend between all the three facilities that we have?
Three geographies, you mean? India, Bangladesh, and Vietnam, I think that's what the question is.
Yeah.
What will be the spend? So what will be the spend?
What is the spend of the CapEx between all the three capacities?
Sorry, there is some noise disturbance, so I could not hear.
Yeah, so the spend in terms of so we are looking at INR 25-40 crore in India in H2, and INR 70-80 crore in Bangladesh, and INR 20-25 crore between Vietnam and Indonesia.
Okay. So my question is, what kind of cautiousness are we seeing from U.S. retailers like this in terms of imports now, and what are the inventory levels, and what else with the de-stocking which has happened? Has it normalized now?
Yes, I think U.S., what we are seeing is in terms of the high stock level that we have experienced for the last one year. But that part is over from the spring-summer buy. That is over, getting over in this holiday season, which is currently in store, which is getting sold. So this holiday shipment actually was shipped much earlier.
So if you see, now from spring-summer onwards, the numbers that have been coming in have been quite normal. So if you even look into the month-wise imports of U.S., like where January was minus 16% of this year, whereas if you look into the recent months, it's hovering at a very low negative percentage or in the positive. That means they are buying much, much more. And again, as we are now, the shipments will start going for the summer season now, and then followed by the fall and holiday, which we think fall and holiday of next year. That means the goods which will be sold in the period of August to December. I think we should be back on track with this normal. So if I talk in terms of number, last year they had done about $78.8 million worth of imports, U.S.
I think this year it will cross that number, and again, for the next year, the number would start growing up. So from that point of view, I think this economy, if you're talking about with the election over now, and we have a clear majority, I think that was one thing that was disturbing everybody, whether there will be a clear majority or there will be chaos. So I think with that thing now behind us, I think we should be looking into a good growth in the U.S. market. There are certain policies which are being debated and all, but I think still overall, the consumer sentiment and all things could improve.
And also sir, what are the top eight clients contributing to the total revenue currently?
So if we look at our top five customers at this point in time, top five or six, I think the number is quite significant. We are closing to almost about 67% plus, 68%, 69% in that range. It's coming from the top five customers. And I think these are the customers who are also in regular conversation with us in terms of their strategy over the next two to three years. So I think we are in a very competitive position from that point of view and getting that visibility from these guys. So you mentioned that you will be only focused on value-added products which will increase the realization for us. So you see, we are operating across seven categories. We are also in our mix, if you look at it, we have all sections of the market.
So we are supplying to the what you call premium customers or the premium brands. And then we are also supplying the bigger kind of stores or the big box retailers. And we are also supplying to the discounters, if you think of U.S. market. Similarly, for other markets also, we have always targeted all the three segments. I think by focusing on the three segments and having a separate strategy for all, it does mitigate the risk of the economic downturn or upturn. So that's something I think we are steadily on that path, and we are not looking to change that. Yes, now if you're talking specifically of value items or premium segments, we do quite a lot, and that's significantly growing both across our Vietnam and Indonesia, and demand is going up at this point in time.
And also, we are servicing some clients from Guatemala as well. India and Bangladesh, we have a section into this kind of premium customers. And also, we have a larger section in these two countries, which is the other two sections of the market, that is your mass market retailer as well as the discounters. So that's what we have been following. Does that answer your question? Yeah. One last question. Can you also give a brief look of what is the average selling price for our product in India and then Bangladesh and Vietnam and Indonesia if you could? So we have so far been talking about an overall average price. I think we given you a forecast of 2028. So we calculated on an annual average of our realization price that was done last year.
From there onwards, what we are seeing is that as the market improves and the premium segments is definitely going up, then there will be a minor change in the overall business of this value realization that you're talking about. Depending on the kind of customers and what is the split across all these geographies, we have not been publishing so far. Sanjay, do we give some visibility in terms of individual market-wise FOBs?
See, we have been mentioning about that our average realization should be around INR 600, and that's where our strategic plan has been built up. Now, this will, of course, have a range where in markets like Vietnam and Indonesia our FOB price can go anywhere between the range of $20-$25. And the rest, we are Bangladesh and India, of course, will be on the lower side.
On an average blended basis, we'll be looking at $7-$7.1. That's how the blended average is. We have been discussing largely.
Thank you, sir. Thank you.
The next question is from the line of Pulkit Singhal from Dalmus Capital Management. Please go ahead.
Thank you for the opportunity and congrats to the team for a good experience. My first question is on Bangladesh itself. The apparel that you have seen and the kind of operations that you're running in Bangladesh, is it reflective of the local industry experience, or is it something different that all might have been benefiting versus other players in Bangladesh?
So if you say Bangladesh, Bangladesh is a very big market, and there are many major players out there.
What we have seen in these last few months is that certain big players have decreased, started scaling down their operations as they are being investigated for financial irregularities in terms of their leverage and in terms of their loans and all. So I don't know if that's due to politically motivated or because they had the support of the earlier political regime that was there in Bangladesh. So whatever is the reason, as a result, what we are seeing is a different kind of consolidation or shift that is happening in Bangladesh. It's not that only Pearl is gaining, but there are many other players in Bangladesh who are definitely gaining a lot of traction at this point of time.
We're also seeing the players, the external players like the Chinese and the Koreans and the Taiwanese are also moving into that market and acquiring business and business facilities out there. So yes, it's an interesting change that is going through in Bangladesh at this point in time. If you ask me, overall exports may fluctuate a little bit, may not grow as aggressively as it was growing earlier, but it's not going to grow aggressively also, or you will not see a very big difference in terms of garment volume in terms of Bangladesh. If you see, this particular year, they have been gaining market share in the U.S. significantly. Europe overall has been going slow compared to the last year. So that's definitely being compensated by the U.S. business that has been growing in Bangladesh.
So overall, I think the market will continue to go through many major changes. But yes, the players might change. Some of the players have gone out of business or are going really, really from a big player to becoming a mid-size or a smaller player. So that's kind of internal change and consolidation is definitely happening in Bangladesh.
That is an interesting change, right? When existing big players I mean, there's a change of hands between who's running operations. And you've been in Bangladesh for a long time. I mean, rather than Chinese and Koreans acquiring capacities there, shouldn't it be our strategy to go to acquire capacities there and capitalize on the opportunity?
Yes, that definitely is on the cards. So definitely, we are continuously evaluating the situation. So whether to acquire some kind of business or to go for Greenfield to have some kind of growth, yes.
Now, what we have been talking about, you have been with us for some time, as you have seen, we have the growth that we forecast to be 20%. So much of additional capacity or partnership capacity is always we have. So what we are witnessing now is that the capacity is getting completely full, and the demand is even more. So it's a good time to invest. So we are evaluating it. There were a little bit of the turmoil or unrest that we all have been reading in the newspapers and also, I think now we are seeing much more speediness, both in terms of government and in terms of the business environment in Bangladesh. So we'll continue to watch that.
In terms of acquisition, the complexities that always there is a history, what kind of finance they have taken, which bank, how much was clean, or how much was not a political investment, and also know that. So that's something is a little bit more complex, I would say. So we are evaluating both. We had some opportunities of acquisition earlier, which we held back due to this unrest. At the same time, some Greenfield opportunities are coming up, which we are evaluating very, very seriously, and we'll take some steps within the next period, as just mentioned by Sanjay.
Certainly, I mean, having presented in the interview, Sanjay, I mean, since you mentioned that some of these players are looking to diversify, are you getting some people being that player who can offer to Bangladesh or India, whichever they choose and based on whatever situation arises in the future? Are you able to capitalize on that as a player right now? Are you?
Yes, I mentioned that. I see what's happening is that we have a significant kind of capacity both sides of the border, like if you talk of India and Bangladesh. The difference is that we have factories that are in the metro cities at this point of time where the cost difference still is significant.
But if I go to these tier two cities and tier three cities, especially in the eastern zone like Bihar and Odisha, these are focused at this point of time, and that also gives a lot of comfort. The people who had a little bit of overexposure, for example, the Australian market, which had a great benefit earlier with Bangladesh, and there was a huge exposure of Australian customers in Bangladesh, we see some kind of diversification for them. And if we can offer capacities both in Bangladesh and India, that is definitely very attractive. Same thing what we are seeing in the European market.
So people who don't want to spend time to take that financially, giving a higher price in India or in Vietnam or other countries, but who have backing from us that, okay, yes, if there is any problem, we can always shift the business to India with the same fabrics. Immediately, it can be sourced and can be shifted. So that kind of [support] is giving a lot of confidence to these players. There are a few categories like knits and wovens which can really leverage the strength of Bangladesh. So that's something some of our U.S. customers also have said that, okay, they are asking us to diversify production in India and build up the capability for those products as well, which we are looking at and building up those kind of capabilities in our factories as well. The same is the case that we're finding from our Japanese customer.
So what they are finding is that the advantage that these brands have, especially in China and also China and Bangladesh, they still have a China-India. That's something also being capitalized by keeping the same program, let's say, to other markets from India, but to China is a lot of context. So those kind of leverage is definitely playing our advantage at this point of time quite well, and that has been the strategy that has been our footprint for our strategy and our company in the last five years as we have been talking recently about it, so we are seeing the benefit. Thank you. Thank you for highlighting it. Yes, definitely, it is working in our favor at this point of time. Yes.
Lastly, on the tier two cities, I mean, given your current experience, are you able to clearly see that these can be big centers manufacturing in the future, or you still need certain amounts of experience to be able to call it out?
Yeah. Whether Bihar will become a Karnataka overnight, no, it will not because Karnataka has been having this industry for a very long period of time, but if you look at the workforce, especially in Bangalore or in Chennai or in Gurgaon, you will find a significant amount, a significant portion of it is coming from Bihar. So our experience so far in Muzaffarpur has been quite good, so we are just starting at this point of time. The interest that we're seeing from the workforce is encouraging, and we do plan to shift operation out.
Similarly, from Odisha also, we find a lot of workforce, which is coming from our Chennai plants. Again, like we are in Odisha, we are finding the workforce to be quite stable. But yes, in these places, what we find is that the new population that's coming into the workstream, we need to train them up. We old people who have been already in the industry and have worked in Bangalore or in Gurgaon and all, certain things the metro gives is definitely more overtime because when these workers come to these centers, they tend to find this call opportunity to earn more, which is a good and bad practice, I would say. So as we go into these tier two cities and tier three cities, we would like industry much more disciplined rather than this overtime culture or this only working for money kind of.
That's something that has to happen, I would say, the discipline of working without, I would say, uninformed absenteeism and other things. So we need to discipline them and train them up for a higher productivity, high productivity culture that we have already in Bangladesh. So these are some of the things that we are working on as of now. So far, experience has been good, both in Odisha and Bihar. Whether it can be scaled up immediately, it might take a few years to get to that level of Karnataka or Gurgaon or Tamil Nadu specifically. But then I think we're on the right path. I'm not meaning Pearl Global only, but as a country, I think we're on the right path.
Thank you and all the best.
Thank you.
Thank you.
The next question is from the line of Srinjana Mittal from RatnaTraya . Please go ahead.
Hi, thank you for the opportunity and congrats on the good execution. A couple of questions. One is on the India business. You mentioned that the gross margins are a little bit on the lower side because we added new customers. So I just wanted to understand if that's the newer customers that you've added, the major customers and the orders are a little bit lower realization and lower margins, or is it just because currently it's in a trial phase.
It's a combination of two certainly. As you see, we are going, we intend to grow in these tier two and tier three cities where we are starting our operations. So that operation is not fully established as of yet. It's just starting.
And we had or we have opportunities at this point of time from certain customers who are migrating a part of the business, let's say, from Bangladesh and all, and need that very price-sensitive customers I'm talking about. So those kind of customers can be developed in these tier two, tier three cities. So as these particular quarters are normally being low quarters, so we restrict ourselves from booking the business and executing it, getting the teams ready, both in the tier two cities and some of these quantities were also executed from our metro cities factories as well. Thus, hitting that margin. I think this is more of a ramp-up period, what we will see, which both in terms of getting a new customer, understanding their requirements, and executing it, and then executing it to match them to the right factory where the cost would be low.
So both these are under the process at this point of time. So that's the reason for which we said that maybe what you can see there is a separation of the margin because of these facts. As we make it much more well-oiled and much more experienced at this point of time, with the movement of time, the next couple of quarters, you'll see a significant improvement.
Understood. Understood. That's very clear.
I hope that answers the question.
Yeah. Yeah, it does. My second question is, it's going to be a little bit nice question, but I wanted to understand the seasonality of the business. As you mentioned, for India business, those Q1 and Q2 are slower quarters. Likewise, for other regions like Vietnam, Bangladesh, which quarters are weaker and which are relatively slower quarters, if you can just get some color on that?
Yeah.
See, India typically, Pearl has been making a lot of woven tops and blouses, the fashion segment. So that was very much focused on the spring-summer. So naturally, for fall and holiday seasons for the western regions, these numbers used to be down comparatively to lower. So that's the reason for which we have been focusing on places like Australia and all, which could come, but not to the extent the size of the U.S. market versus the size of the Australian market, as you can understand, the big difference. So those are challenges that we had in India. So of what we talked about, as we see this opportunity of both tier two as well as the new categories, so we are diversifying our product. So we are growing our capacity in the knits area as well as in the bottoms area.
Pearl was not manufacturing in India to a great extent, which was more, I would say, these knits and wovens were more in Bangladesh with the knits. Typically, what we do in the outerwear, we have been focusing this in the outerwear. Majority of it was coming from Vietnam and Indonesia. Now, the seasonality, if we're talking about, so definitely for the western markets and the northern hemisphere market, the outerwear seasons is more towards the Q1 and Q2. That's where the maximum shipping is actually produced and shipped. Q2 is, I would say, would be the maximum shipping margin. Q1 is the shipping. Whereas for the Q2, it would be more of Q3 and Q4. So that's how the seasonality matters.
But if you see, like Pearl, we have been taking or talking in seven different categories as the verticals in which we would design, we would see the market, we have identified the customers, and we are marketing them. So that up and down of the seasonality, we would try to cover up. I think we have made good progress in that direction. And that's something, as you can see, the difference between the seasons would continue to be lesser and lesser.
Right. Thank you. That's very clear. Just one last question. So on the tax rate, you have mentioned some details on the presentation. That also helps. Business classification. So are India business effective tax rates around 20%? I just think for the dividend income coming from the subsidiaries. And for the subsidiaries for entities that are outside, what would be the tax rate there?
Every geography entity has a different tax rate applicability. In Hong Kong, there are two entities, onshore and offshore, as a structure where it is 16.5%, and then in one entity, there is no corporate tax proper tax there. In Vietnam, it is 10%. In Bangladesh, it comes effectively anywhere between 15%-18%. Indonesia is 22%. That's how the tax structure is there across geographies. Our blended tax rate, on normal basis, we say that takes around 13%-15%. Now, it will vary quarter to quarter. We can think about which origin is making the highest shipment, which geography is making the highest shipment, and which geography is making what kind of a style as a combination of that. On a blended basis, we say we can presume somewhere around 15% for us to be effective rate.
Great. Makes sense.
India would be around 20%, 20%.
India rate is 25.15%. This quarter, particularly, because there is some when you look at a book profit and the tax profit, there's certain calculation which has to be done. So on the book base of it, it is coming around 22%, yes.
Got it. Thank you. Thank you so much for taking my questions and all that.
Thank you.
Thank you. Next question is from the line of Monish Ghodke from HDFC Mutual Fund. Please go ahead.
Hello, sir. Thank you for the opportunity. So the 50% volume growth which we have in H1 of this year as compared to last year, has this been broadly similar for our factory locations, particularly Bangladesh, or is it higher for some geographies?
It is largely for Bangladesh, higher for Bangladesh, and then accordingly, slightly lower than Bangladesh for other geographies.
What is driving the growth? I mean, if you see the volume growth is outpacing the revenue growth now. First of all, 32% volume growth, what were the key drivers? Is it new company, new customers? And at the same time, what is the reason for lower realization as compared to last year?
So if I have to answer that, am I audible?
Yeah. Yeah.
See, in terms of the customers, as I said, across the seven categories, we have things like outerwear, which is at a higher FOBs. And if you talk of the knits, which is being supplied to the big box retailers or the major mass retailers, that would be at the lowest price range. So the average would be because of that. So season to season, maybe you might see a little bit of a fluctuation.
You may see that average across all the categories and all the locations. But we're not seeing a significant trend in that.
Okay. So has Outerwear what would be the growth in Outerwear category as compared to last year?
So we are seeing general attraction from our customers, the wallet shares. What we do is that for every customer, we track whether it's an uptrending customer. First of all, are they doing good in the market? Will they be existing in five to 10 years' time profitably or not? And if we find that customer is going on the right path and will be very or getting stronger every year, so we try to invest more in that particular customer. We try to deepen our relationship and grow our market through that kind of customers.
So far, the kind of mix that we have in the top five, all of them are doing quite well in the market, and if you look at the top 20-25 customers that we have been focusing upon across all our geographies, we don't see any risky customer at this point of time, so that's why one of the policies that we also have been talking about is that all our customers are properly risk mitigated, so either we have some kind of factoring or some kind of insurance against each one of them. That gives us a measure. Now, in terms of whether each having a particular price point or particular product, we try to get maximum wallet share of each of these customers if they're being dealt across all these seven categories of products. That's been our strategy so far.
So when you are asking, just keeping this in mind, can you just narrow down your question and see what you want to know from us?
I see. I mean, 33% volume growth. I mean, what were the key drivers for it? I mean, is it a particular category like outerwear, or is it a new customer which we added, so just wanted to understand some granular details.
We are growing. In fact, if you see, most of these customers across all the geographies have been very positive at working with us, and we are experiencing growth in most of them. There are a few customers which used to be in the top five, Macy's and all, who have not been doing so well in the market, so definitely, we have decreased our exposure as well as the business.
But yeah, we are just keeping our watch and maintaining the relationship. That continues. In terms of growth in a particular category, I think what we have seen is that wovens have been working quite well in the last few quarters. We think that there could be an opportunity that knits might come back, just depending on the customers' end as well, what goods they are selling and what they are buying more and more. Certain categories that we have not been doing, let's say, in India, like bottoms category, we have grown significantly, which would give a slightly higher FOB value. We have grown this sleepwear category quite significantly. That's not a high FOB value compared to an outerwear or a bottoms. Otherwise, it's a very steady business because sleepwear is always needed across the year.
Similarly, knits also, if any particular region is getting a little bit more orders, then you'll see a little bit of dip in the FOBs if I'm doing it with the mass retailers, but at the same time, we have got customers at the higher end, like Sea Chico's, PVH, Tommy Hilfiger and all, so those knit prices are also significantly good, so yes, we are not tracking exactly which particular category is going up or down season by season, but yes, we have a strategy for each of our categories over a longer period of time, and that helps us to gain the market wallet share of each of our customers, so I'm sorry, I may not be exactly specifically able to reply to your question about which particular category has stepped up in this particular season.
But we can come back to you and give some more details on that.
No, no, no, sir. This will give a detailed idea as to where we are standing. So one quick question. So in our early P&L, so there is purchase of stock in trade, one thing you can do. So does it mean is it our purchase from our partner factories?
Hello? It's not. Yeah, it is inclusive of that. Hello? Am I audible?
Hello. Yeah.
Yeah, yeah.
So yeah, the partnership factory is included in this also. The job work, what we do, is definitely a part of it.
Okay. Thank you, sir.
Thank you.
Thank you. Next question is from the line of Bhavya Gandhi from Dalal & Broacha Stock Broking Limited. Please go ahead.
Yeah. I thank you for the opportunity. A couple of questions from my end.
So first thing on the subsidiary structure, because we have a couple of step-down subsidiaries, so is it not possible to consolidate it and maybe have a regional subsidiary altogether so that it becomes a simple structure altogether on the corporate front? Any thoughts on this?
So structurally, if you look at it, every entity is catering to a certain geography or a certain customer. Specifically, if you look at the Vietnam entity or Bangladesh entity, there are certain tax benefits which are available for setting up the manufacturing unit there. And therefore, they become the entity has to be incorporated in those particular geographies there. Within Hong Kong, there are three entities which are onshore entity and the three entities which are offshore entity. Now, offshore entities are largely driven from the requirement coming from consolidated supplier from our retailer, that's the one.
Secondly, the other subsidiary which we have in Hong Kong was largely to consolidate the procurement from, let's say, China or elsewhere and catering to the needs for Bangladesh and Vietnam. So there is a specific purpose for which these entities got created so that the value can be captured there. Now, when we have all these consolidated entities in Hong Kong, our banking limit also takes cognizance of all this requirement, and hence, the bankers are comfortable in terms of looking at overall position rather than looking at a piece basis, and they also want to have specific limits which are attributable to the specific segment which we are operating. If you go further down, Dubai, it's a different geography altogether. We got to have a separate legal entity there.
In Dubai also, there is a free trade zone where you have to incorporate the entity if you want to avail certain tax benefits which are given by the country as per the rules and regulation of that law of the country. So I mean, what I'm saying is that in terms of the structuring which has happened is largely to really keeping in mind the requirement which is there from our retailer side perspective, keeping in mind the requirement from the banking limit consolidation, and also to really see the optimize our tax incidence so that the maximum valuation can be there for the shareholder.
Got it. Got it. With respect to INR 125 crore CapEx commitment that you said for H2, can you just provide what is the asset turnover? Because historically, we've been telling that our decision would be based on ROC.
I'm looking at, for region-wise, ROC and asset turnover for the future CapEx.
So I mean, when we look at a net fixed asset basis, the fixed asset turnover, we like to target around 3.5-4, which is our direction. And in terms of the return on capital employed, we are looking at a threshold of 18%-20% as the factories, as the CapEx stabilizes it. These are the threshold level for us to really look at an opportunity and for any non-CapEx decision or even for the things for that matter. In the interim, there can be a situation where the ROC can maybe suppress. But eventually, with all the plans, the strategy plan, this is what the direction we are really looking at.
Okay. And also the consolidated capacity utilization, what is the consolidated capacity utilization for the current quarter?
Because we said that our order books are already full. So just wanted to understand.
So when we looked at H1, the shipment number of pieces which has been shipped, we are looking at 80% utilization around 80%. And then, as we highlighted in our earlier commentary, that there are opportunities for getting partnership factory associated with us because of the consolidation or the wallets that are going to be shifted within Bangladesh with the manufacturing facility. That's another one which will also enhance our capacity without incurring immediate CapEx. However, we do have a plan of committing the CapEx in H2 of this financial year where the capacity will be added in India and Bangladesh.
For the current quarter, if you can throw how much is the blended capacity utilization and where can it peak out along with partnership factories that we are planning for?
If the capacity utilization on a quarterly becomes a little bit, we will not be able to track it and we will not be able to make a meaningful conclusion out of it. What happens is that every style is a different. Every style will have a different minutes which is required to produce that. If the product style changes, the number of pieces which can be produced from the same factory also changes. So that's why I mentioned the H1. We are looking at a blended capacity utilization as for the H1 of this financial year, around 80%. I think we have a sufficient space. Even the order book is full. We should be able to meet and grow for the rest of the year without falling on the capacity without facing any capacity constraint for the rest of the year as well.
Okay.
What would be the order book number if you can throw some light on it? And when can it be? What is the timeline to fulfill that order book? Is it like three, four months or even throw some light on that as well?
Pallab, please go ahead.
Yeah, I can give a general answer on that because see, in our industry, most of the orders are booked with about for the next three to four months. Of course, when we are talking about category-wise, categories like bottoms or the outerwear where the lead times are generally slightly longer. So that goes up to about five to six months or seven months also in some cases. So that's where the kind of booking that we get.
At the same time, the advantage that we can provide to our customers is a faster timeline, so we have some customers like Inditex, Zara, and others of the world, so they try to reduce it to even lesser, so they try to work with about 60 days or 70 days kind of turnaround time as well, so depending on which customers, our best customer that we would see is the Japanese customers or certain other working customers that we have, so those are the ones who give a longer lead time, and fashion customers, specifically there they talk about Zara or Mango and all, they give the least of the turnovers, so if I have to talk on average, I would say about four months, three to four months is an average that we see as an industry.
Got it.
Can you throw some light on the absolute order book number if that's possible?
This particular year, we had told that we will be increasing our top line. We have been talking about a CAGR of at least about 12%-14%. If you talk of the current order book, I think it's going to be higher that compared to last year. This year would be a better year to go to 12%-14%. We already saw that in India, we have talked about 31% growth in this particular quarter. Overall, you are seeing the 31.6% growth we have seen for ship quantity. In our industry, what happens is there's a lot of WIP also is there.
So that means either goods which are partly manufactured and partly yet to be manufactured, and there are goods which have been manufactured but not yet accounted for in terms of sales, which we call it as in transit or let's say handed over, not yet shipped. So those kind of all these numbers, if you look at the annual level, lastly, Sanjay was saying that talking the quarter level would be a little difficult. So we talk about only the revenue. That means what the sales that we can talk about in our books. So that number, you are seeing this growth. I think overall, this particular year, we will be definitely moving toward which many healthy number. Sanjay, any forecast that we can give in these calls?
So Pallab, as a practice, we don't go quarter on quarter order booking. We look at full year.
And as you rightly mentioned, that we have given a guidance of 12%-14% growth in the next three-year time period. Some year will show a higher growth than 12%-14%. Compounded annual is what we are looking at to grow with that business. And our capacity is being built up in line with that. This is how we look at the numbers.
And if you can just throw some light on the CapEx for FY 2026 because INR 125 crore, you mentioned for the second half. But if you can throw some light for the future capacity for FY 2026.
So FY 2026, so we keep looking at opportunities. It's a there are two, three processes which happens around that. While we are looking for a CapEx, there is a customer expansion, there is a vertical expansion, there is a product design, something marketing.
And then based on that you keep on adding the capacity, right? At least some section has to be there. In any case, if we look at our three-year plan, which we have shared and which we keep working internally on a rolling basis, there is a plan which we see that if, as the market develops, FY 2026 will be the year where the balance of the CapEx which we plan to do toward FY 2028 should get committed.
Okay. Let me just ask you in another way. So what would be the customer addition for the quarter? I believe because we add the customers first and then we add the capacity. That's the right thinking or it's the other way around?
So what we do in that, in this particular one, is we have our pipeline of customers, new customers, and the existing customers, what kind of wallet share that we would be gaining from them year on year. So that's the intelligence we continue to do on a daily basis, I would say. So on that, if you look at it, the traction is happening. And we have certain new customers which we have acquired this particular year whose business will also significantly grow over the next two years or next three years. And the ones that we have been working in the last five years, we can forecast what kind of growth that would be there.
So when we talk about this 2028 forecast, so this is something that these are the numbers that we have calculated, and these are the numbers that we have forecasted, which have been in detail. It has been worked out. So both your questions in terms of getting the customers and in getting the capacity. So capacity, we told very specifically to get to that number of 2028, we would be adding equivalent to 10 factories, 1,000 machines each, which would be approximately around INR 500 crore of total investment. So as you can see, most of it has already been a significant amount has been done already or being committed within this next quarter or so. And similar, I think, would be the numbers for the 2024-2026 also, you will see.
Okay.
So just last thing on the U.S. tariffs and Japan FTA, if you can throw some light on that, because are we seeing any increased traction from Chinese markets to any of our regions? Because the U.S. is about to put in tariffs on China. That is the broad narrative out there. So are we seeing any increased traction from our customers who are already wanting to shift, or is it just a hoax?
That's a very deep question. Long answer. I can try to answer it as much as I know. The president was talking about 60% additional. Let me just repeat. So the 60% increase that I was talking about that Trump has spoken about may not be legally possible, but there will be a significant jump, I think.
The team that he's talking about that we are hearing in the news today, definitely, I think this is the direction that this team, the new government, will follow. So whatever it is, most of the big retailers have significantly moved away from China. What has happened is that that particular hole that got created in terms of the capacity that China had for U.S. market is getting filled in two different manners. One, the Shein and the Temu and the way they were doing direct to customers. So I think, again, for that, they are going to come back with a law which will direct to customer will be definitely affected. The de minimis rule will be definitely revised very soon. And the second part that was happening from China is the importer business. So there were people who were the Chinese big players.
They were importing the goods and stuff in the U.S. and then supplying to the big box retailers, and while importing into the U.S., they were definitely manipulating the prices. As a result, you see that the average import cost of an item had gone significantly down, so as U.S. is way lower than even a Venezuela import that comes compared to what is coming from China. Those are the things I think is known to all of us, but there was not much action that had happened in this last one and a half year, so which I think we will see some good movement maybe within the next few months. That means opportunity will be opened up for migrating further business from China, the importer from the business.
Also, it will put into the pressure in terms of the cost, even after the manipulating the cost that some of these players have been doing. These two both are positive results. Both these should give some benefits to a real benefit to the China Plus One. Countries like India should benefit along with Bangladesh and Vietnam and Indonesia. That's something definitely on the card it looks like. Specifically, sorry, you had a second part to your question, or this is exactly what answers your question?
If one were to export directly from China, let's take a INR 500 good realization, FOB price, INR 500, I'm guessing. And one were to export from Bangladesh, assuming everything is constant, what would be the landed cost after applying duties? One exporting from Bangladesh, one exporting from China?
Yeah.
As of now, let's say a typical transport charge would land about 25-26% is the cost of transportation and duty. Duty about 17%, and then transportation, another transportation insurance and everything, another 10%. So that additional cost, China is at this point in time, an additional of another 10%. So as we import from China, the difference is about 10%. Now, Trump has been talking about increasing that to maybe 60%. So I don't know what will happen. It may not be 60%, but some other percentage might happen. At the same time, Trump also spoke about that any other country from where the goods are getting imported, including Bangladesh, Cambodia, Vietnam, and all these. He's talking about an additional 10%-20% of duty. Again, whether it will happen or not, we don't know.
But significantly, in his talks, he didn't mention India, or the Indian name was a little less prominent in terms of this penalization. So let's see what happens. These are things that are completely gray, I would say. Now, one thing, if you look at the theme that he's talking about, definitely there will be impact on China to a certain extent. Now, how this INR 500 goods that you example that you spoke about, how the importers used to do is that they didn't declare it as 500. So they would declare it as, let's say, 200 or 300 and pay a lesser amount of duty, which a big retailer who is taking an FOB shipment from India or Bangladesh or Vietnam would never do. But an importer, China's proxy importer made in the US, would have done that.
So definitely, there was a little bit of tug of war going on. So the U.S. were continuously blacklisting some of these companies, but it still continues. So that's where the game was being played. If this additional duty comes, even that manipulation activity also will slow down. That's what I assume. Got it. Does that make sense?
Yeah, yeah. Perfect.
Thank you very much, Bhavya. Due to time constraints, we'll take this as the last question.
Sure, sure. Just last second part on the Japanese FTA because I think that's a great opportunity for us. If you can throw light on the India and Japan FTA, what is the FTA agreement between India and Japan?
So India and Japan FTA has been existing, yeah.
So it has been existing for some time. And Japanese customers are very process-oriented, very different kind of process.
The processes are very different compared to how a U.S. market would operate. The Japanese people, or Japanese and Koreans and all, so they are within the community, the trust is very high. So outside the community, it takes time to build up that trust level. And second is the quality. So they don't see most of the other U.S. retailers, they have a typical method of doing the quality inspection and taking the goods, which they call it AQL. So that thing doesn't apply for Japan. So they go most of the customers like Muji or Uniqlo and all, they believe in zero defect kind of policy. So we have a significant business with Muji where they talk of almost zero defect. That means 180 defects are allowed for a million garments. So that particular practice for Indian exporters has not been so successful.
Somehow, we have been working with them for more than five years now, and we are seeing a significant growth as one after the other, our factories are getting trained in that way of operations of Japan, so we believe that we will continue to grow in the Japanese market. So far, we have been focused on only one customer, and it's almost a significant amount of our business, almost like 78% of our total turnover is trending towards this market and this customer, so in general, for India, it has been a struggle for us as well, it has been one of our focus areas, so we are seeing good success. After India, we have started with Bangladesh, and we're talking of starting in Indonesia and other places as well, so yes, there is definitely a good opportunity.
Thank you, Bhavya, for your time.
And Australia is another, sorry, just one small extension to your answer. Australia is the other country where the FTA happened. So earlier, Bangladesh had that advantage, but now India is also on equal footing. So we are seeing an interest from Australia as well. The U.K. FTA has been more like a mirage. It has been both at government level, politics, ministry level, and all. We have been hearing about it, but we don't know when and how it will get done. So yeah, these are the three major ones. The other treaties that we have at this point of time with Kuwait and other markets and all, they're very insignificant, so we don't see much impact in there.
Thank you. Ladies and gentlemen, we'll take these as the last question. I now hand the conference over to the management for closing comments. Thank you very much.
In case of any further queries, kindly reach out to us or Strategic Growth Advisors or Investor Relations Advisor. Thank you.
Thank you. On behalf of Pearl Global Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.