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Pearl Global Industries Ltd
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Ladies and gentlemen, good day, and welcome to Pearl Global Industries Limited Q3 and 9 months FY '24 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 are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. 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. Hello. Good evening, everyone. I welcome you all to our Q3 and 9 months of financial year '24 earnings conference call. Along with me, we have the group CFO, Mr. Sanjay Gandhi and SGA, our Investor Relations advisers. I hope all of you have gone through the investor presentation uploaded on the exchange and our company website. We are happy to report highest ever 9 months performance since the inception, demonstrating a promising growth.
This growth is primarily driven by 20% increase in our overseas revenue, particularly from the sales in Bangladesh and Vietnam. However, the revenue from India was negatively affected. This was due to an overall less order, and we could relocate some of our production to competitive locations like Bangladesh while maintaining our market share with our customers in a conservative environment.
Now with the holiday sales in the U.S. being over, all retailers and brands have successfully recovered from the over-inventory situation of last year. Looking again, we anticipate a gradual improvement in the consumer sentiment showcasing a resilience and strength of the U.S. and other economies. There are some concerns in the U.S. with uncertainties of election this year and the ongoing wars. However, on the positive side, we are looking forward to interest cuts by Fed and also across other developed economies.
With the expected decrease in the inflationary pressure, we anticipate an overall improvement in textile and manufacturing trade. Despite the challenges, our multinational presence in manufacturing and sales, diversified product offerings, robust design, and strong customer relationships have solidified our positions globally, making us the preferred vendor for increasing number of customers. While amongst all of our export business to the reputed Western customers, this is regarding the Red Sea situation, I must say that -- while all the export business of the reported Western customers is done on freight on board terms. Increase of freight costs does not affect us. All our customers have long-term rates negotiated with the carriers, so it is not even affecting them. However, this increases the transit time for goods going to Europe and U.S. from India and Bangladesh by one week.
Some U.S. retailers are cautious of their inventory and their books and asking the factories to prepone their shipments by one week. Our manufacturing setup in Guatemala where transit time is just over a week is getting more queries and lots of interest from these customers. However, capacity in Central America is limited and would be just a fraction of that of Asia. So in terms of Vietnam and Indonesia, what we are seeing is the vessels they transit through the Pacific Ocean for the waste cost of U.S. So there is no effect at all. Pearl's diverse location is a huge strength to tackle such a global logistics challenges that comes up time to time. In terms of global textiles and apparel exports, China's share has been on the decline. And due to various geopolitical factors and rising manufacturing costs, business from Myanmar also shifted to the geopolitics.
I'm sorry to interpret you. There's a disturbance from your end Pallab sir.
Yes, can you hear me?
There's a cracking sound.
Is it still persisting?
Is it fine. You can go ahead.
Okay. So should I repeat my last paragraph?
Yes, yes.
What I was talking about Yes. So I will speak once again from the logistics point of view. This is regarding the -- some disturbance that happened in the Red Sea for shipping. So in that regard, while most of our export business to all the reputed Western customers is done on freight onboard or FOB terms. That is why the increase of freight cost does not affect the business. And for the customers, who are paying for this freight, but they also have long-term rates negotiated with the carriers. So it is not even affecting them either. However, this increases the transit time for goods going to Europe and U.S. from India and Bangladesh by 1 week. And some of the U.S. retailers and Europe retailers are cautious of their inventory. And they're -- what they're asking the factories is to prepone by 1 week. That's at most the effect that we are seeing because of this Red Sea situation.
Our manufacturing setup in Guatemala from where to U.S., the transit time is just over a week is getting more queries and lots of interest from these customers. However, as you know, the capacity all across Central America is limited and would just be a fraction of that of the Asia as on date. Vietnam and Indonesia is not affected as their vessels travels through the Pacific motion for the West Coast of U.S. And Pearl as a company is a huge strength tackling kind of challenge that comes up time again. In terms of global textile exports.
Hello, everyone, once again. Apologies for the technical inconvenience that we had. As I was speaking, like in terms of global textiles and apparel exports, China's share has been on decline due to various geopolitical factors, and also the rising manufacturing costs. Apart from that, business from Myanmar shifted out due to the geopolitics again. For us, our presence in Bangladesh and Vietnam has become more advantageous so is Indonesia. These countries have seen a boost in their global apparel trade share. Bangladesh, in particular, has become a leader in the garment factories. Thanks to substantial investments in green growth, meeting the demands of the consumers of the West. This shift has greatly benefited us, allowing us for more effective factory utilization and improved efficiencies.
In regards to the Bangladesh wage revision, as we have discussed in our last quarter's call that increase in Bangladesh wages would create an impact between 12% to 15% in our wage base. And overall, if I look at Bangladesh's P&L perspective, it changes by approximately 1% to 1.5% compared to the top line. If we continue to operate as is. However, if we have strategies in place to mitigate this increase, which entails more automation, bringing in more efficiency with increase in business and by adding better profile of customers.
Yes. Okay. As I'm mentioning, like we have a solid connection with our top 5, 6 customers for over a decade now. These partnerships have really thrived over the years while we have expanded and welcome new customers on board. With offices, staff and design teams in U.S.A., U.K. and Spain, we are able to serve our customers even more effectively and keep our supply chain running smoothly. Our asset-light model approach continues to help us to enhance their performance metrics.
Looking ahead, we are focused on further boosting our metrics in a similar way. Our primary objective is to elevate our success to even greater heights by surpassing our previous revenue growth records, which will directly impact our bottom line. We are committed to achieving this goal through manifested approach. This includes the introduction of new product categories, fortifying our existing customer relationships and expanding their share of wallet.
Moreover, our objective extends to drawing the fresh clientele while mastering a dynamic, adaptable and inventive workforce committed to bringing Pearl Global's vision to success. We are pleased to announce we are strengthening the Pearl Global leadership team at the Board level with introduction of Dr. Rajeev Kumar, Mr. Sanjay Kapoor and Mr. Ashwini Agarwal. The profiles and a portion of the deck has been uploaded into the exchange. Their arrival promises to introduce unmatched experience, driving both innovation and success.
With their vast expertise, they are set to strengthen the company's strategic objectives, guaranteeing ongoing success in this sector. Their forward-thinking leadership harmonizes effortlessly with our dedication to innovation, bolstering our preparedness for the continued growth within our ecosystem. Furthermore, we wish to inform that Pearl Global will be hosting an Investor Analyst Meet on 26th of February in Mumbai at Jio Convention Center to discuss various growth opportunities and way forward of the company over the next 3 to 5 years.
The formal invitation consisting of all details will be uploaded on the stock exchange soon, and we would be happy to meet everyone and discuss our strategy for the future growth.
Now I would like to hand over the call to Mr. Sanjay Gandhi, our Group CFO, who will provide you with the insights of financial performance. Sanjay, over to you.
Thank you, Pallab. Good evening, everybody, and welcome to our Q3 and 9-month FY '21 Earnings Conference call. Coming to the financial and operational performance of the company, we have recorded the highest ever 9-month performance. On a consolidated basis, 9-month FY '24 revenue increased by 5.4% year-over-year to INR 2,558.8 crores on account of improved capacity utilization from Bangladesh and Vietnam factories and our multi vessels. Our India revenue saw an adverse impact due to shifting of sales from turnover to competitive location like Bangladesh.
On a consolidated basis, adjusted EBITDA, excluding the ESOP expenses stood at INR 232.5 crores for 9 months FY '24 as compared to INR 192.7 crores for 9 months FY '23, a growth of 21% year-on-year, while margin improved by 10 bps year-on-year from 7.9% in 9 months FY '23 to 9.1% in 9 months FY '24. ESOP expenses for 9 months FY '24 stood at INR 6.1 crores, 9 months FY '23 had no ease of expenses. The factor contributing to the margin enhancement was enhanced operational efficiency and increased profitability due to improving efficiency in Bangladesh and Vietnam unit.
Finance costs increased from INR 48.9 crore in 9 months FY '23 to INR 60.9 crores in 9 months FY '24 on account of increase in factoring costs for receivable financing, increase in interest cost on short-term and long-term borrowings and interest for lease amortization. Our return on capital employed improved from 21.9% in 9 months FY '23 to 26.3% in 9 months FY '24 due to improved asset turn and improvement in profitability. This is calculated on a 12-month trailing basis. Reported PBT for 9 months FY '24 was INR 137.7 crores and was INR 199.9 crores for 9 months FY '23, a growth of 15% on year-on-year basis.
PAT stood at INR 120.1 crores, a growth of 20.5% year-on-year basis. Revenue for the quarter stood at INR 704 crores, adjusted EBITDA for quarter 3 FY'24, stood at INR 68.6 crores compared to INR 73.2 crores in quarter 3 FY '23. Quarter 3 FY '24 margin stood at 9.7% versus 10.2% in quarter 3 FY '23. Effective tax rate was lower on a group basis due to high concentration of profit and overseas entity. PAT for quarter 3 FY '24 stood at INR 33.8 crores compared to INR 37.4 crores in quarter 3 FY '23.
Coming to stand-alone performance. Revenue for 9 months FY or 24% year-on-year to INR 633.6 crores our adjusted EBITDA saw a dip of 40% year-on-year for 9 months FY '24 from INR 48.2 crores to INR 28.7 crores in 9 months FY '24. PAT for 9 months FY '24 stood at INR 16.3 crores, a drop of 37% year-on-year basis. Quarter 3 FY '24 revenue stood at INR 157.6 crores, adjusted EBITDA stood at minus INR 0.8 crore PAT grew by 52% to INR 3.5 crores. This was because the tax rate has decreased due to nontaxable pass-through dividend income. Sorry, because the tax rate has decreased due to nontaxable pass through dividend income.
The stand-alone business shine impact do shifting of order to BD and slag in demand. However, we believe the worst quarter is behind us. And going ahead, we are confident on the industry growth and we believe that our company is best placed to capture the largest pie of this opportunity.
Regarding Bangladesh wage increase impact on earnings, which we have already mentioned by Pallab, that it is approximately 1% to 1.5% of Bangladesh top line in their P&L. However, from the risk mitigation perspective, there are many measures which have been taken as such, we don't see any adverse impact on earnings on coming quarters.
Furthermore, KPMG has been designated as our statutory auditor in Bangladesh as a strategic step towards fostering good corporate governance practices in overseas operation. At this moment, Overseas operation contributed more than 80% of our profit. This commitment reinforces our dedication to fortify our corporate governance framework.
Thank you. We shall now open the floor for questions and answers.
[Operator Instructions] We have our first question from the line of [ Prana Junjunwala ] from Elara Capital.
Detailed presentation and outlook. I would still want to understand how was your order book stacking up, given that you're saying that your -- we should expect gradual improvement in demand scenario. So could you just help us understand what kind of growth should we expect? Or how muted the scenario is for the next 2 to 3 quarters?
Yes. Thank you. So the -- what I -- when I spoke about the conservative approach in terms of the demand -- that's because of the macro factor that is prevailing all over the world, whether the elections across so many democracies of the world and also especially USA and in the war situation that we are seeing.
In terms of order book, yes, we have experiencing all our strategies that we are in place. So on the launch short term, like for the next 2 quarters, we are not seeing any top orders at this point of time to fill up our order book. So -- but yes, in the long term, like these are the risks that the market still has, I would say, like as we are seeing the U.S. the terms presidency option is becoming more and more clear. So there are certain companies who want to go conservative at this point of time. So those ups and downs will continue to be there in the market.
And that's why we said, like on the other hand, if the interest rates start going down, that should definitely help the market to go up in terms of their consumer behavior.
Okay. Understood. So sir, what kind of capacity utilization should we be operating in for the next 2 quarters? I am still not very clear on the near term scenario that I mean.
So you see like what we had in the last 3 quarters, 2 to 3 quarters where most of the manufacturers had to take a slow approach because the demand in U.S.A. has especially gone down because most of the retailers had a lot of our inventory. And they bought earlier, but we were selling till this holiday season of this year.
Sir, your voice is not clear, I am so sorry.
Mr. Pallab?
Is it better now?
No, sir.
Is it better?
It is much better than -- in between it goes, it cracks in between.
I'm sorry for that. What I'm saying is the problem that we had over the last 3 quarters were not only us, I think you must have heard from others as well, like the order book scenario was not so good because they had a lot of inventory, especially in the U.S. market. So order books that was coming from the U.S. market was slow and muted because they had -- most of the retailers had inventory from the earlier year. So that particular problem is now behind us. In their holiday season, which ended in December, most of this inventory or over inventory position that we had, has been cleared.
So now it is that how robust they become -- they see the market or consume and -- so when I speak of a conservative approach in terms of consumer demand, that's being more of a normal term compared to at situation that we are facing. So yes, compared to last year, the order books are much better. Our capacities are filled. Our order book is full at this point of time for the next couple of quarters. So we don't see any problem in order books in the short term. But yes, whether the market would go gung ho or full force at this point of time, there, I feel when I speak to our customers in all the -- especially in the U.S. and all, we see that there is still a conservative approach for them.
But remember one thing, like when they had an inventory situation, they were buying almost 30% to 40% less, compared to any conservative approach that they would be doing, they might be buying only 5%, 7% less. So as a market, we do have a play of more than 25% from year-on-year in terms of U.S. market especially. Other markets continue to be normal, and we are not seeing a big change at a negative or positive at this point of time.
This is very helpful.
Did I answer your question?
Yes. And sir, second, how are the margins now given that demand is picking up. So are we in a better position to command some pricing and improve our margins further? Or is pricing pressure prevails in current scenario?
So the pricing pressure that happens because of raw material prices and the capacity, like open capacities or unfilled capacities across the globe. So that situation is definitely getting better, which was there. earlier. So that is definitely getting better. But it is not to that extent as of now that you can see a huge rise in the raw material prices or any other things. So as of now, I would say, it's much better than last year. But if you talk of 2021, '22, when really like the raw material prices went through the roof because suddenly, there was a huge demand, that situation is not foreseen as of now.
[Operator Instructions] The next question is from the line of [ Dhruv Shah from Ambica Fincap].
My first question, Pallab, is on your current quarter. So will you attribute the de-growth mainly due to Bangladesh problems the industry is facing in Bangladesh?
No. As we mentioned, what would happened in this particular quarter, we had faced a situation in which our order books were less and because the U.S. market was not placing their business. Like I'm sure like you have heard it in earlier calls as well, like when the U.S. had an over-inventory situation, they were placing almost 25%, 30%, 40% of when certain customers were placing less compared to what they normally buy. So that resulted in the preference of the country that goes in is Vietnam and Bangladesh for us because their capacity and the cost competitiveness that we could get there is much better than what we had in India. So as a result, some of the orders that we prefer to service from Bangladesh compared to India in that last quarter.
So our dip, if you can see, is more in India compared to the other places like Bangladesh and Vietnam, where our order books actually went up. That's a strategic decision that we took to make sure that we hold on to the wallet share of our customers. Does that answer your question?
So can you answer [indiscernible] current quarter, are we seeing business as usual in Bangladesh?
Yes, yes. Bangladesh, we don't see any disruption. So before the election, there were some kind of disturbance, I think, which you must have read in the media. But for example, our factories, we have 4 big large factories out there and some other partner factories. So only one of the factories was affected for about 2.5 or 3 days. Apart from that, we never had any kind of problem. So as a result, Bangladesh, before election, there were a lot of, what you call, stoppages and all that we could see in the media was to make sure that they -- the opposition or maybe the workforce was trying to make sure that the wage increase happens in time. So once that had happened, after that, work has been quite normal. We haven't seen any kind of disruptions.
Right now, we have 44% of our capacity in Bangladesh. So in 3 years down the line, what kind of percentage will Bangladesh contribute to your top line? I just wanted to have a rough figure of Bangladesh in your overall scheme of things.
So we -- our strategy is to have in any location, we are not going like overboard. So we should continue to see about anywhere between 30% to 40% from Bangladesh. Let's say, 30%, 35% is our goal. But in that range, we'll continue. So you will see similar kind of growth would be happening in India and Vietnam and other places also. But yes, there are a lot of opportunities at this point of time in Bangladesh because we had recently had a wage increase. So naturally, the factories which were inefficient or which are not fully not well managed, there are some people like who will be slowing down or getting out of business. So there is definitely a lot of shake will happen in Bangladesh, which is happening as we speak. And that is an advantage that will be having.
Right, right. And on the growth per se, can we expect U.S. to clock in 15% to 20% what you have been guiding for next year? -- on the current year base?
Situation as of now that we think in the world yes, we should be clocking that, challenges comes up I think both the wars that is happening in Ukraine and a lot of effort is being done to continue those words and put back the economy of the world economy on track. So as with what we are seeing as of now, we don't see any challenge to get to our target.
Right, right. And one bookkeeping question for Sanjay. What kind of tax rate should we model in our -- should we model because it's been up and down?
Yes, the tax rate should be taken in anywhere including 16% to 18% on a steady state basis. And this year, the India contribution to the profit pool is less. So larger part of the profit is in overseas entity, which has a lower tax rate. And therefore, we're seeing this fluctuation coming up. But on a steady state basis, we believe that between 16% to 18% should be our effective tax rate.
The next question is from the line of [ Deya from Nivesh Investment Advisors. ]
Congratulations on the good side of number I wanted to ask that in one of the previous calls, you mentioned that the U.S. market has started procuring from the near area only? And that is the reason why we set up a Central America plant. So is this change a long-term thing? Or would we the U.S. procuring material from other markets as well. So like India, Vietnam, et cetera.
See, the sourcing ability that is there in the Central American market is only a small fraction of compared to when you compare to the U.S.A. -- sorry, the Asia. Asia sourcing. That means like Asian countries like Vietnam, Bangladesh, India, Sri Lanka, Pakistan. So all these countries, the kind of large capacities that we have, the numbers. So I can give you an example, like even India, like our export is about $18 billion or $16 billion, between 16 and 18, we are moving, I think, hopefully, we'll touch 18 very soon. So that -- compared to that, Guatemala ships only $2 billion as a country. So naturally, it's a very small fraction of what Bangladesh and Vietnam and India and Indonesia can do.
So there are some investment that is going on there. The costs are high. There, the minimum wage and everything, like you have to plan for at least about $400 to $500, that kind of wage is there. So even like some of the players like us and some of our other colleagues have definitely opened up some kind of production unit there. Also, the limitation would be in terms of raw material. They don't have as many mills or as much of cotton or other growth that is happening in this part of Asia is not there. So yes, for the U.S. retailers, they want to mitigate risk.
They might move about whatever, 3%, 4%, 5% kind of sourcing into Central America, some people might go a little higher percentage, maybe going up to 10% to 12%. But they cannot shift a very large chunk of their manufacturing into that market. So Asia will continue to be important. And as we are seeing geopolitically as China and Myanmar is going -- like is reducing in terms of apparel manufacturing and trading internationally. So that's a very huge chunk of business that will be flowing into the other countries of Asia. So for now, it's not a big concern. But yes, we went strategically to the central market -- Central America market because our key customers where we are very closely working with. So they wanted that we have a presence there, and they were guaranteeing a certain amount of business. It will not be a large. It will be a much smaller fraction of our total business. But yes, it definitely helps in terms of our presence in that area and customer servicing that we want to do. And it's not that it's not profitable. So it's definitely something smart to do.
So like right now, the Guatemala plant is sourcing just to North America, right?
Yes, Guatemala plant would be supplying to only North American market.
And I also wanted to understand that geographical EBITDA are very [indiscernible] in nature. So why?
Can you speak close to mic?
So the geographical EBITDA, which we have is very fluctuating in nature. So can you please explain why is that sir?
Sanjay, will you take the geographical EBITDA?
Sorry, I just repeat the question. I mean, if I get it correctly,
Fluctuation in geographic EBITDA?
Fluctuation in EBITDA for the group level, the group level, I think we are consistently improving EBITDA. There is fluctuation in EBITDA in the stand-alone entity. For the reason the top line has really gone down in this quarter, which has impacted adversely because our fixed costs remaining the same, that could not be leveraged with a lower turnover, which we hope that in the coming quarters, it will get address.
Otherwise, if you look at our EBITDA trajectory, I think it has been in upward direction, plus/minus 0.5 bps only, and we believe that we should continue to improve EBITDA as we go into the next financial year as well.
Correct sir. Sir, I also wanted to understand this thing that if we get an order from a particular geography, so just for example, let's say, we got an order from North America. And -- is it any correlation between the plants, which will supply from like the Bangladesh plant or the Indian plant? Or it can go from any of the plants?
So normally, for every location, we have certain products which we develop from each of these locations, which are like as per, we do about 6 different categories of product. So that means like pants, T-shirts, woven tops, outerwear, swimwear, sleepwear. So every plant is like have got some kind of specialization, which we utilize. For this particular quarter, Q3, which might be like giving rise to this question that you're asking is where we have product, which was originally made in India, and we took decision because of the pressure that we could get still better margin out of Bangladesh, which was quite an extraordinary situation, I would say, that was happening because of the less -- or over-inventory situation in U.S.A., which resulted in much lesser order. And the market was super competitive and the margins were hit all across. So in that period, we took some smart decision, which -- so that we can maximize our return to all of you.
So that's something like it was an exceptional situation that Pearl as a company is ready to execute like that. But in general, like our strategy and our infrastructure exists in a way so that each category is being serviced from a location which has got its specialty. I hope it explains or should I explain more just let me know.
[Operator Instructions] The next question is from the line of Rohit Mehra from SK Securities.
So my first question is, what are we doing to improve our Indian operations and performance?
So India, I think we are in a strong wicket. Like we are seeing definitely a lot of demand. Like if you see like India, we had specialized. For example, Pearl specializes in the items like women's blouses, shirts, sleepwear and those kind of products, which are lighter weight fabrics. So we are seeing good demand and good order book situation on that.
So there was a situation, as I mentioned, in the last quarter, which was the fag end of our over inventory situation of U.S. And we could see and we could foresee that situation that was coming up. So we had worked with our customers to ensure that we can give them a better price or hold on to their better wallet share and also generate better return for our investors. So that's something was a decision that we have taken. But in general, India is in a strong decade, and we are experiencing growth in the coming year as we are seeing the demand and the responses from our customers.
We would be exploring more options in India like to expand into other states as a lot of initiatives are coming from the government of India. So that growth plan and that strategy is, we will continue to update you about how we plan it out over the next few years. So we -- I think we on track from...
Okay. Understood. Understood. And can you share the expected top line and bottom line based on the targets of FY '25? And what is our CapEx plan for same that is FY '25?
So I just want to say that we have already stated that we are looking at a 15% to 20% top line growth in -- for the next 3 years, and that guidance still remains there. With kind of capacity what we have, we are in the customer relationship, which is getting developed and the demand scenario, which is changing, we are confident of achieving 15% to 20% top line growth in the next 3 to 4 years time. As far as the CapEx is concerned, this year, we have done INR 120 crores of CapEx. Out of -- we have committed a CapEx of INR 120 crores, out of which INR 90 crores has been incurred, which is a mix of automation, which is a mix of capacity enhancement and certain replacement.
I had given the percentage last -- in my last earnings call. I can mention that out of INR 90 crores, INR 50 crores has gone in capacity enhancement and INR 30 crores has gone in automation and modern laundry equipment, which we wanted to have in Bangladesh and INR 10 crores is towards replacement of machinery. Going forward, in next financial year, I think every geography will have their CapEx requirement. We are Compiling the capacity requirement, I think we should be in the range of a similar range of INR 80 crores to INR 100 crores CapEx across geography. But at the same time, every CapEx is looked at it's a merit of return on capital employed. But looking at the opportunity which lies ahead, I think we should be having this kind of CapEx as a first step number to start with.
[Operator Instructions] The next question is from the line of Anurag Agarwal from Agarwal Analytical Investments.
It was very heartening to listen that we've hired KPMG as an auditor in Bangladesh. Could you throw some light if like are we going to hire big 4 auditors for Vietnam and other locations as well?
Okay. I just would like to update, I think, in the previous call, we did that. So in Vietnam, we have a Deloitte as secretory auditor. In Hong Kong, we have Ernst & Young as a statutory auditor -- in Indonesia, there is a Tier 2 firm, which is software in Tier 2, -- that's an auditor. And Bangladesh, we have now KPMG. So overseas location, we already have the big 4 working as at audited. The reason is our profit and the revenue and the capacity is also overseas maximum at this point in time. So the need of felting the governance framework was felt in those overseas location, and that's how we have been making a change and the change of the auditor once the items are getting over to strengthen our governance framework.
Got it. Another one, you mentioned that in Bangladesh, the wage hike will have an impact of about 1%, 1.5% on our EBITDA, but you're planning to negate them through automation or through getting more premium clients. So are we close to adding any new client out there?
Sorry, I just want to clarify before Pallab can go ahead. It is 1% to 1.5% of top line of Bangladesh country. It's not a group turnover, only Bangladesh. Yes, the Pallab, please go ahead.
Yes. So yes, like we are going through all the 3 strategies. That means like better efficiency and dedicated production lines. Second would be to increase the top line to have more volume so that our overheads can be distributed over more. And the third would be to have customers like who are with better margins or better service level that we provide and get better margins as well. So all these strategies in play. Yes, we are in close with new customers, which we are starting soon.
Sorry, I didn't get the last part. Could you repeat the last part?
Yes, I said like your question specifically was that addition of new customers happening or not. So yes, we are close to that definitely.
Okay. That's great to hear. And the last question is..
I'm sorry to interrupt quest you return to the question, too.
It's a very small question. Last one, if you may allow like there's going to be a Bharat Tech Expo in Feb only. So is your company going to participate in that?
Yes, sure. Definitely.
The next question is from the line of [ Pulkit Single ] from Dallas Capital Management.
At the outset, we would like to congratulate the management for significantly turning around the operations in the last 2 years despite challenging times and also particularly for strengthening the corporate governance initiatives when it comes to independent directors as well as having big 4 auditors in the subsidiaries. We hope you will also consider the big 4 auditors for the stand-alone entity and India entity as well in the future. Secondly, just given -- I mean, you sound more optimistic now in terms of the potential demand going ahead. How do we understand what would be the peak, say, revenue potential from your current capacities, assuming the current level of raw material prices and some reasonable mix, whatever you think is right, what would be that figure?
So as we mentioned that our goal or what we are working for definitely in that 15% to 20% range of growth and compared to what happened 2 years back where there were a lot of inflation in the raw material prices, which was also increasing or inflating the top line. So compared to that, like even in our current price range, we are talking about this kind of growth that we have targeted for ourselves. So that we continue and we are confident of achieving that.
What I meant Pallab was when does the capacities get over? So if you achieve 15%, 20% growth for the next year, does that mean you're operating at 90% utilization at that point? Or do you still have room to grow....
Yes. Definitely, we have room to grow. If you had seen like originally, the kind of infrastructure that we have across all the regions, we have minimum capital expenditure, we can grow to almost up to about another about 10 million pieces plus. We are currently, I think, in the range of about 60 million pieces -- and with some investor example, certain growth that we are having in our factories where we are increasing a number of machines and number of lines with that kind of minimal capital expenditure, we can grow up to about 80 million, 84 million pieces annually. So that's the current infrastructure that we have. But that doesn't mean that we are not looking for more opportunities and options. So that we continue to have.
We may start a couple of additional factories over this year or so, both in the countries where we are present very strongly. So that will continue to happen as we see like -- in fact, if we go more than that, this current 15%, I think should be workable, but even if you see that, okay, there is a more portion bringing in additional customers and they come out strong with us. So we can quickly go and have additional factors also with us. Today, we have that plan and option steady for us.
Right. I mean, currently, you're closer to 50 million pieces, I think, in terms of shipped capacity so that 50 can kind of total INR 80, INR 84 with smaller CapEx?
Yes. So last year, you saw that we were around INR 54 million compared to that, I think we should be -- because the raw material prices have really gone down compared to the year before. So even the kind of growth that we will be achieving this particular year. You'll see that a number of pieces have definitely gone up. And I think that will continue to go up again in the coming year. So yes, currently, what we're sort of talking about is on the current raw material prices, which we don't see immediately to go either way down or up. So with that thing, assuming that contains -- that remains constant, we're still on path to the regular growth that we are promising here.
Okay. And are you looking at any M&A in the future? Is that something you're working on?
So we took that to raise capital as we took that option approval from our Board. So we are ready for that. So if some good opportunity comes up, why not? But as of now, I would say, like more of the kind of infrastructure that we have. We are planning more on that basis. But yes, we are always on the lookout for good options.
Understood. And in terms of the margin profile, which is the potential margin profile, let's say, as you scale up 2 years, 3 years, 4 years out. I understand there's an element of product mix as well, we are already at closer to 9% kind of margins and you had guided to double digit. But I'm just trying to understand, is this business and given Pearl Global model, which is different from other governmenting companies in India. I mean -- is this -- is the brand more like a 13% to 15% kind of perspective margin business that is possible? Or is it more on the lower end in terms of double digits that is there?
Would you like to answer that? Or...
Let me just take this question. Yes, -- so in terms of the margin trajectory. I think one is that we -- your question was whether 3 years down the line when we achieve those kind of growth in top line as to where the margin can go. So let's say that we are achieving that 15% to 20% growth, I think we should be looking at definitely 3% to 4% improvement from where we are right now. Given the leverage it will play out over a period of time, given that the infrastructure, which is already built in terms of design, marketing and the group structure we have to facilitate that growth.
Now going to 13%, 14%, 15%, I think it's -- I mean, some of our factory overseas are already generating that kind of a margin. So as you mentioned in your question itself, it's a question of product mix, which prevails. I think it is always a combination of which product prevails and how do you really capture the wallet share. So once you try to balance sheet out, maybe there is some averaging happens. But yes, there are certain style, which we already generate 13% to 15% and a few factories, a couple of factories are already just working on that parameter. So I hope I'm able to give you. So there is no clear direction in the sense that 13% to 15%. But yes, there is an opportunity exist in certain pockets in the given segment where you can achieve that number.
And on a blended one, 12%, 13% can be achievable if 3 years down the line when we are looking at the -- or when we keep on achieving 15% to 20% growth year-on-year basis.
[Operator Instructions] The next question is from the line of [ Pulavarthi Saikiran, ] an Individual Investor.
Sir, just one quick question. Your business seems to have a very high fixed set turnovers probably in the range of 6 currently. But even if I look at in the last 10 years, they hovered between 4 to 6x, looks like reasonably higher when compared with other peers more so in the textile industry. What explains this? And how do you see this going forward so that we can get a handle on what kind of CapEx you might be needing.
Thank you for your question. So asset turn in our business normally is 4 to 4.5 when the factories are operating at their peak level. It means the operation has stabilized post the start of the new operation. And as the operation keeps on going, let's say 5, 7 down the line, the asset turns start increasing naturally because the depreciation that will keep on generating.
The life of the asset is already 10 years, 12 years plus, so which means that your asset turn goes on a higher side as the assets keep on aging in that sense. And there is a very nominal repair and maintenance expenses one incurs towards that. Now the second asset turn component is the combination of own CapEx plus the partnership factory. To give you an example that if we have our own factory in Bangladesh, 1 in Vietnam, we have a similar amount -- similar number of factories which are working on a partnership model. which means that with the same amount of infrastructure, you are able to actually enhance your turnover. So that's why the asset turn will always be -- with our focus on asset-light business model, the asset turn will be sustainable in between 5 to 6 level in years to come also.
And in India also, our strategy is to work in a model where the investment in not very heavy in the pet, where we are able to generate easily 4 to 5 kind of an asset turns. So on a steady-state basis, I think when the operations start in the initial period on the new operation stabilizes, anywhere between 4 to 5 should be the norm we expect our factory to generate...
Just one thing. If you can just elaborate further, you said regarding the partnership model. Is my understanding right that they will put in -- or they will share the CapEx and hence, asset terms will be higher. That's what you were suggesting?
Yes. So currently, the structure is that there are many factories which are already operating, but lag marketing design capabilities. So that's where the Pearl joins hands with them, use their infrastructure and get the marketing order to them to provide the quality inspection and everything. . And we also provide a working capital arrangement in terms of sourcing of fabric to control the quality of raw material which goes into government. And that helps us in terms of improving an overall asset utilization.
You find this more scalable sir, so you would -- if you have to think for the next few years, you will be in a position to identify more opportunities like this since you will be able to scale it up further across the geographies? Or is it in this model is not specific to any specific geography as such?
Yes. So wherever the market -- the production manufacturing market is more mature. This particular model exists more cohesively out there. In India, it's still less -- but if I look at Bangladesh and Vietnam, where who does a subside contribution to the world trade or on manufacturing of -- so there, this model is much more brilliant. So Pearl you will see that almost about 10%, 15%, 20% of our business would always be in this model, where capital expenditure may not be asked fully.
[Operator Instructions] As there are no further questions from the participants. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
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 Adviser. Thank you once again for taking the time to join us on the call.
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.