Pearl Global Industries Ltd

NSE:PGIL

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day and welcome to Pearl Global Industries Limited Q4 and 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.

[Pallab Banerjee, executive]

Thank you. Hello. This is Pallab Banerjee. Hello, everyone. Good morning. Welcome to our Q4 and Financial Year '24 Earnings Conference Call. Along with me, we have our Group CFO, Sanjay Gandhi; and SGA, our Investor Relationship advisers. I hope all of you have had a chance to go through our annual results and the investor presentation is uploaded on the exchange and our company website.

Our outstanding performance for fiscal year 2024 is a proof that our strategies are working and a testament to our competitive advantage as a global manufacturer. Our sustained growth, despite being one of the difficult year, is driven by leveraging our core strengths of multi-country [Technical Difficulty] products in market design expertise and strategic customer relationships. This growth primarily stemmed from increased orders from our existing customers, yielding better relationships as well as value-added sales from the customers, which we acquired over the last 5 years.

Let me start with an overview of the industry. The global textile and the apparel market is projected to be relatively flat this coming year due to various macro factors, uncertainties and volatile geopolitical reasons. Western country major players are being cautious due to the various elections, which are scheduled this particular year, while the Asian economies continues to march ahead a little bit more sustainably. However, these developing Asian economies are also confronted with challenges such as escalating labor and production expenses in major manufacturing nations, prompting companies to relocate their production to more cost-effective locations.

Additionally, the volatility in raw material prices poses some certainty challenges for us. But nonetheless, there are enough opportunities in meeting and overcoming -- and with this evolving consumer preferences for eco-friendly, sustainable and organic materials as well as in capitalizing on the rapid expansion of e-commerce, which broadens the accessible marketplaces for apparel brands and the retailers.

Now the Asia Pacific region dominates the global textile and the apparel market, primarily due to the significant presence of key manufacturing nations, among these, China remains the largest textile producer and consumer, while India is emerging as a rapidly growing economy for both export as well as consumption. Other notable performance -- performers includes Vietnam, Bangladesh and Indonesia, where our operations are very well established. Throughout the previous year, the industry encountered several challenges. These included persistent geopolitical tensions globally, which impacted industry operations, particularly in global trades, where demand saw fluctuations, significant fluctuations and this disrupted the international trade as well. These circumstances have been notable -- have had a notable influence on the Indian textile sector as well, particularly those segments, which are heavily dependent on the exports.

Now if I talk about U.S., all the retailers and brands have effectively bounced back from the excess inventory situation, which they experienced last year. Moving forward, we expect to see a gradual enhancement in the consumer confidence as well, highlighting the resilience and the robustness of not only the U.S. economy but also other worldwide economies as well. However, the industry captains are playing very cautiously optimistic approach due to the upcoming elections end of this particular year. They want to be close -- they actually want to buy close to the selling season to avoid over-inventory situation once again. Thus, they are preferring the nearshore and the faster transit options.

For us, now, faster transit options from the manufacturing countries, right? Now the Red Sea adverse situation is not in favor of this particular strategy. However, for us, there is no effect of cost for the Red Sea situation that we're affecting since last 1 year because all our shipping are in FOB terms. As long as we can deploy the goods faster, they need actually 1 week early so that the extra time that is needed if they have to go through around the African continent. So that 1 week is definitely expected from us that we deliver faster.

Now our manufacturing setup in Guatemala, where transit time to U.S.A. is just about 1 week is getting more and more queries and lots of interest from these customers. However, the capacity in Central America is limited and would be just a fraction of what we have in Asia till date. Other markets like United Kingdom and European Union are still going conservative. However, I must say that the successful retailers and the strong players are strategizing themselves to achieve better results than the forecasted macros.

If I talk about Australia, Asia and Japan, these markets are relatively upbeat. Most of them have come out of the COVID lockdowns only in 2023, especially like if you talk of China. And the Australia and Japan market also, we saw the momentum started coming up only in 2023. And this may be relatively distanced from the geopolitical tensions that we see causing a direct impact on the Western economies.

Now if we continue -- for us, we will continue to increase our Bangladesh operations, looking at several advantages that we have there. It has readily available, a very stable, skilled workforce, experienced middle management and a very strong ecosystem of banking support, improving logistical infrastructure that is happening in that country and above all, we have some favorable trade agreements. This enables us and our manufacturing operations to uphold the high production standards and meeting of the service levels that is demanded by our customers internationally. And we can do it with ease.

With regards to the wage hike in Bangladesh that we experienced end of last year, which we discussed also in our last quarter call, the increase in Bangladesh wages, if you remember, would create an impact between 12% to 15% of our wage bills. Overall, from a profit and loss perspective, it changes by approximately 1% to 1.5% when we compare it to the top line. Now we had already planned to overcome this challenge through automation and efficiency improvements. The current devaluation that happened in the Bangladeshi taka, which took place recently is an additional help to us.

In Vietnam, we will continue to grow. However, at a relatively steadier pace like whatever you have seen in the last 3 to 4 years the kind of pace that we had, we will continue to grow there but with a relatively steadier pace and continue to service our higher-end customers. Indonesia will gain back its numbers. These were down over the last 2 years when we were building and shifting to our new facility away from the seashore. If you remember, like we had -- because of global warming it was definitely the seashore is not a safe place to run a factory.

In India, we enhanced our existing capacities in the states of Haryana, Karnataka and Tamil Nadu over the last year. And going forward, you will see us investing and starting production in other states as well, where we find the availability of trained labor force and is relatively less expensive than our existing production locations. We will plan to further automate all our facilities and all our processes, maximize the use of existing capacities and expanding them. We will continue to invest in improving our operations, implementing stronger governance processes, digitization of all our factories and improving our financial rating.

You are already aware of our dividend and capital allocation policies. We already have announced our strategic plans and objectives for 2028 and we feel that we are marching solidly on track. We will continue to add and grow with customers who are getting stronger in the world market. We will stay away and decrease our exposure for anyone which is becoming financially weak or we feel they are risky. You will see us continuing to enhance our achievements by exceeding our past records of revenue, capacity, efficiencies and thereby, directly enhancing our bottom line profits. We are dedicated to each of these objectives through the strategies that we shared with you in February meeting in Mumbai, which involves expansion plans, marketing and designing focused product categories, strengthening our strategies with the current customer relationships and increasing the wallet share how much they're spending with us.

So in a nutshell, this is what we have for you. Now I would like to hand over the call to Mr. Sanjay Gandhi, our Group CFO, who will provide you with the insights on the financial performance. Sanjay, over to you.

[Sanjay Gandhi, executive]

Thank you, Pallab. Good morning, everyone. I am delighted to announce yet another strong year for our company, marked by remarkable financial and operational achievements at the group level. Starting with consolidated financial highlights, I'm pleased to announce that for financial year '24, on a consolidated basis, our revenue has increased by 8.8% year-on-year to INR 3,436.2 crores versus INR 3,158.4 crores in FY '23. This growth was achieved on the back of our overseas revenues, which witnessed a growth of 21% year-on-year.

For quarter 4 FY '24, revenue grew by 22 -- 20.2% year-on-year and stood at INR 877.4 crores. For FY '24, we are happy to share that we have crossed INR 300 crore mark with respect to consolidated adjusted EBITDA and reached INR 316.4 crores, which is a growth of 22.5% year-on-year compared to INR 258.2 crores in FY '23. Please note that adjusted EBITDA excludes ESOP expenses of INR 8.6 crores in FY '24 and INR 2.7 crores in FY '23.

Going ahead, considering same assortment, ESOP expenses for next year will be in the range of INR 4.5 crores to INR 5 crores. For quarter 4 FY '24, adjusted EBITDA witnessed a growth of 30.8% year-on-year and stood at INR 83.9 crores compared to INR 64.2 crores in quarter 4 FY '23. This excludes ESOP expenses of INR 2.5 crores and INR 1.4 crores in quarter 4 FY '24, and quarter 4 FY '23, respectively.

Furthermore, our adjusted EBITDA margin saw a year-on-year improvement of 100 basis points, rising from 8.2% in FY '23 to 9.2% in FY '24. efficiency notably contributed to increased revenue in Bangladesh fostering economies of scale and subsequently boosting the EBITDA margin for our international operations. For quarter 4 FY '24, we have witnessed 80 bps improvement in adjusted EBITDA margin, which grew from 8.8% in quarter 4 FY '23 to 9.6% in quarter 4 FY '24.

PAT for the year stood at INR 169.1 crores versus INR 153 crores in FY '23, which is a growth of 10.5% year-on-year. However, if you look after PAT, after minority interest, it stood at INR 174.8 crores in FY '24 compared to INR 149.3 crores in FY '23. For quarter 4 FY '24 PAT after minority interest stood at INR 51.3 crores in quarter 4 compared to INR 51.9 crore in quarter 4 FY '23, which shows a degrowth of 1%. However, there was an exceptional gain of INR 17.8 crores in quarter 4 FY '23 and INR 13.5 crores in FY '23. Excluding that, we have seen a good profitability both for quarter 4 FY '24 as well as financial year '24. EPS for FY '24 grew to INR 40.26 per share in FY '24 versus INR 34.45 per share in FY '23.

Coming to stand-alone financials, revenue for the year stood at INR 953.7 crores versus INR 1,103.8 crores in FY '23, a degrowth of 13.6% year-on-year. The decline is mainly because of low sale volume in knit business. One major reason for such decline is the business transition to Bangladesh. For quarter 4 FY '24 revenue stood at INR 320 crores, which is a growth of 16.6% year-on-year compared to INR 274.6 in quarter 4 FY '23. The growth witnessed was due to increase in the woven business.

Adjusted EBITDA stood at INR 49.3 crores, adjusted EBITDA margin stood at 5.2% in FY '24 compared to 6.4% in FY '23. The margin pressure was due to employee expenses and other expenses being fixed in nature, thus negatively affecting EBITDA with decline in revenue. For quarter 4 FY '24, adjusted EBITDA stood at INR 20.6 crores, with adjusted EBITDA margin at 6.4%. PAT for FY '23 stood at INR 28.2 crores, whereas quarter 4 FY '24 PAT stood at INR 11.9 crores. While numbers for current financial year '23/'24 for stand-alone have shown degrowth and drop in profitability, we continue to work on capacity expansion in existing factories and also look for suitable opportunities in other states in India on the backdrop of customer acquisition, increase in wallet share, the strategy which put in place in financial year '23/'24.

We are confident of improved performance on a stand-alone basis as we start financial year '24/'25. Our strong performance at a group level is reflected with our strengthening balance sheet. On a consolidated basis, our gross debt is similar to last year level of INR 445 crores in FY '24 versus INR 448 crores in FY '23. Net debt-to-EBITDA stands at 0.25x for FY '24. Return on capital employed improved from 24.2% in FY '23 to 28.2% in FY '24, which is a growth of 400 basis points year-on-year. The return on capital employed has improved due to profitability in overseas market, prudent capital allocation policy and efficient working capital management. Margin money earmarked at LC payment is excluded from capital employed calculation. We have used net debt to arrive at above stated return on capital employed.

Net working capital days decreased from 38 days in FY '23 to 30 days in FY '24. Debtor increased to 28 days in FY '24 from 24 days in FY '23. Inventory dates decreased to FY '23 -- in FY '24 from 59 days in FY '23. Creditor days increased to 52 days in FY '24 to -- from 45 days in FY '23. On a steady-state basis, with the growth in the business and the customer mix, we believe that net working capital days around 35 days should be a stable state for us going forward.

To add to point of BD wages, Bangladesh wages and its impact on profitability, to update the recent development in the month of May, Bangladesh Bank has unveiled the crawling peg exchange rate system and allowed them to buy and sell U.S. dollar freely nearly taka 117. A crawling peg system with a method of exchange rate adjustment that allows the currency with a fixed exchange rate to fluctuate within a band of rates. It's a hybrid of fixed and floating exchange rate system. Central Bank in Bangladesh has also disbanded the smart formula to make interest rates in the banking system, fully market-based linked thereafter. Central Bank's announcement were in light of the conditions set by the IMF.

During the year, we have incurred a property, plant and equipment CapEx of INR 115 crores and additional INR 1.25 crore approximately towards other IT-related CapEx. CapEx of PPE, property, plant and equipment, was incurred across geographies for growth, upgradation, automation and leasehold improvements and also replacement. In India, we have incurred a CapEx of INR 42 crores, where 50% was towards the growth CapEx and 50% towards maintenance and leasehold improvement. In Bangladesh, the total CapEx was incurred INR 40 crores, where 55% was towards upgradation and automation and 45% towards maintenance and leasehold improvement. In Indonesia, we have incurred a total CapEx of INR 16 crores towards capitalization of the building from CWIP. And so in effect, this is also a growth CapEx. In Vietnam, we have incurred a total CapEx of INR 13 crores, of which INR 5 crores was automation and INR 8 crore was building improvement. In Guatemala, we have incurred INR 4 crores towards growth CapEx.

As you are all aware, we have a dividend policy in place wherein the company will declare dividend of at least 20% of consolidated profit after tax in a given year to the shareholders. We are happy to share that in the fiscal year FY '24, we distributed a dividend amounting to INR 38.1 crores, which is 22.5% of our consolidated profit after tax.

Going ahead, with a robust performance in FY '24, coupled with a strong and diverse customer base and 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 financial year '28. Thank you. We shall now open the floor for questions and answers.

[Operator]

[Operator Instructions] The first question is from the line of Hemant Shah from Seven Islands PMS.

[Hemant Shah, analyst]

Congratulations, Pallab and team, for fantastic numbers. I have 2 broad questions, Pallab. I think February FY '24 presentation says that we are on track to achieve almost INR 6,000 crores to INR 6,200 crores of top line by FY '28, as even the CFO reiterated in his comments. So just wanted to check, I mean, considering the slowdown we face this year and some futuristic, inorganic or organic growth is in mind, or I'm just trying to gauge how we are planning to achieve this INR 6,000 crores top line by FY '28? And are we on the track to achieve it and how? Just a broad overview about it.

[Pallab Banerjee, executive]

Thank you. Thank you, Mr. Hemant Shah, very valid question. And I was just mentioning in my speech that we are solidly on track on this strategy that we presented to all of you in the month of February. The strategy remains exactly the same. We are focusing on the customers who will give us -- the top tier customers like who will give us the maximum revenues and the second tier customers who will continue to grow with us and then the other tiers like where we are adding -- continues to add new customers and executing the business of the current that we have.

Of course, like with all the things that is happening in the world, we continue to always very closely watch the performance of our customers as well. Like anywhere we find risks then we start decreasing the volume there. And wherever like we find the strength, our focus on energy is more towards those guys who are performing well.

In terms of the numbers that we have talked about, we are, as I mentioned, on track. We were confident that this particular year 2024, we will be ending up with the growth. May not be like the 15% or 20% that we talk about at the CAGR level but this was an exceptional year. That's why there was a little bit of drop. But still, we have closed around 9%. And I think, if you can see, do some comparison with some of the other industry peers, we are definitely can't say that we are going weak. We are becoming stronger only. And naturally, the play that we have in terms of both growing the capacity, growing the wallet share with the customers, I think all of the strategies that we have discussed and highlighted in February, we are -- on each one of them, I would say, we are solidly on track.

[Hemant Shah, analyst]

Great, great to hear that Pallab. So basically, barring FY '24, I mean, we can comfortably expect at least 15% to 18% CAGR growth, right? So with that, I mean, for FY '27, we can definitely expect almost over INR 5,500 crores of sales. And as you mentioned, the EBITDA should be in the region of 10% or so, correct?

[Pallab Banerjee, executive]

Yes. Because you see, like as the number goes up, we are not -- in this whole plan, we have not talked about any acquisition of a new business. This is the organic growth that we are doing with the kind of infrastructure that we have. Only thing that we are adding are the new facilities to this plan. Of course like we will always be open if some other opportunity comes up, we will look into that. But this particular plan that we have, we are, I think, solidly on track. And as the number goes up, always there are operational efficiency that builds up. So that gives us the confidence also in terms of the bottom line performance that we have been promising all of you. So that number continues to improve.

[Hemant Shah, analyst]

Great. Great, Pallab. Fantastic to hear that. And lastly, with this -- respect to this only, with this existing infrastructure, what kind of revenues -- optimum revenues we can generate as of today, barring the expansion, which we are planning in the next 2, 3 years or so to reach almost INR 6,000 crores, I think we need to invest something. But with the existing infrastructure, what kind of revenues and what kind of sales you can generate?

[Pallab Banerjee, executive]

Yes. So if you see like -- if you go back 1 year or 1.5 year, we had, the current infrastructure that we had, we could maximize it towards 80 million pieces of production. Now as I speak to you today, this has enhanced already to about 84 million pieces approximately. So this number -- so even the year was tough but we didn't change the plan because we feel like we are continuously in touch with our strategic customers, how they are thinking, what are they planning for the next 2 to 3 years. So that conversation is always solidly on. So with that, we have not stopped in the background, our enhancement capacities with the existing infrastructure that we have had.

And then this particular year, as I mentioned, like in India, wherever we had the factories, so we are definitely maximizing those capacities and building up to be ready if the business -- as the business goes up, we should be able to service it well. Because in India, we don't have so much of partner factories. But yes, like we are continuing to try and get some partnerships as well. So that is happening in India. Now going forward, we are seeing a good opportunity because of the government initiatives and all, we can open up some facilities in the other states where the availability of the workforce as well as the cost is better.

Similarly, like if you talk of all other regions, in Bangladesh, we have strengthened the current capacity utilization and also the partnerships that we have already out there. At the same time, we continue to look for opportunities to grow and acquire more factories. So that will continue to happen. Vietnam, we already have a good capacity because of our own factory as well as the partnership factories. We continue to grow that number on basis of the capacity already we have as we utilize more and more.

In Indonesia, we had the change, in fact, we had shut down one of the factory and we built up a new factory more inland. So that has now completed. Numbers will just go up there, so that capacity is no change out there. But Guatemala, the capacity has added in this last 2 years. So if you see like that's how like we have got from 80 million to 84 million already towards our path to become 120 million to 140 million kind of capacity that we should be having for 2028, how we have planned.

[Hemant Shah, analyst]

Wonderful. Wonderful. And lastly, with respect to this only, will there be any per unit improvement in realizations going forward? Because I think we are adding good value-added products in Vietnam and I think in Indonesia, right, the high value, high margin products.

[Pallab Banerjee, executive]

Low volume, is that that something -- yes, always our endeavor would be to get to a better EV/R. But when we do the projections, like what we have shared with you in February in Mumbai, that's something that we are not even adding those benefits. If that comes -- if those benefit comes, it will be additional. So we are still taking like because you see in our industry, always there is a variability in terms of raw material cost, in terms of other fluctuating macro factors. So yes, our endeavor always, always at every moment is to get to a better EV/R, get to a better efficiency and better realization, better bottom line.

So EV/R is an important part in that. We'll definitely will continue to try to get more and more better EV/Rs but that's something which is, to some extent, we have a control. If we are exposing ourselves more to the customers who are giving us a higher value and decreasing our sales with the customers who are very competitive. So I don't want to restrict that to us. So that is why all our strategy we have made is on the basis of a similar kind of AVR. But yes, if that comes in as we clock better and better, you'll see a better advantage from our side.

[Hemant Shah, analyst]

Right. Fair enough. And secondly, lastly, just one more question. I mean, the company, the Pearl Group has done fantastic over the last 3 years once it started all this expansion. I think FY '22 EBITDA is now even more -- the PAT level is even more today, actually the FY '22 EBITDA was INR 150 crores odd and today the PAT is INR 170 crores in FY '24. And that's a fantastic growth. The ROCE, ROE is amazingly strong. So my question with respect to this is the peer comparison, if I compare Pearl Global with, directly with the Gokaldas because this is the largest company actually, in fact, in terms of -- I mean the size of Pearl is even bigger than Gokaldas per se but as a valuation-wise, Gokaldas is the largest peer comparison. I mean, I'll be very honest to compare directly with one-on-one. What is the difference between us and Gokaldas in terms of the products as well as what do you think where we are lagging in terms of valuation?

Because we have -- I mean -- as per my view, we are present across the globe where the garment industry is penetrated quite well. We have also penetrated in Vietnam, Indonesia, Sri Lanka, including India. Gokaldas has just started. I mean, they are more focused on India. We are also almost now INR 3,500 crore company. Gokaldas is also talking of 15% CAGR and today, they are almost INR 2,300 crore company. So by '28 they will be almost, say, almost INR 4,500 crore company, we will be almost INR 6,000 crore company. So what is there, what we are missing in terms of valuation according to you?

[Pallab Banerjee, executive]

And that's a difficult one. I would say -- see, what -- when we took over in 2019, the way that we have stabilized ourselves in terms of the governance, in terms of all the parameters, all the ratios that we are coming back to you quarter after quarter, telling that, okay, this is our plan, and we are achieving that. So I think that journey, maybe Gokaldas started before us. Somehow like today, Gokaldas has got a much better confidence of the -- I would say, the Street compared to us. But I think we have also started our communication and conversation with all of you since 2021. And I can only think of that like sort of maybe like most of the investors are still watching us, have seen us.

But I don't see, in terms of our performance, in terms of our parameters that we have defined ourselves and the kind of EBITDA that we are targeting. We have already improved quite a lot. We have already said that between -- by 2028, we should be anywhere between 10% to 12%, even if we talk of 11%, then we should be very, very close. And yes, our numbers are -- would be more. And so far, we are only talking about organic growth. We have not done any acquisition of business. That doesn't mean that we don't want to do it. But that is not the way that we are trying to increasing the value at this point of time of Pearl.

So there is enough opportunity and the -- I would say, the kind of infrastructure that we had in Pearl, I want to maximize that definitely. And I think you are seeing it. I think all of you are noticing that, okay, this is the infrastructure that we had and this is the kind of result that we can deliver. And today, we are INR 300 crore plus in terms of EBITDA. And if we do 10% to 11% that we are talking about easily, as we grow our revenue top line, so that number will continue to grow. And I think it's easy calculation for all of you to see that. And I think that's something the market has to realize and give a proper valuation to Pearl as well.

And any other thing, I am very, very open. We are open to listen. We will adapt ourselves to -- if anything that we are doing wrong or if we think that something has to be corrected in our approach. So that's something like I think we are very, very open and communicative at this point of time with the market. So we are listening whatever you're telling us. We will be talking to you. We'll be communicating with you, we'll be understanding the needs and we definitely want to increase the valuation because a proper valuation is something that all of us would like to have.

[Hemant Shah, analyst]

Yes, yes. No, no, I understand. And I appreciate your thought process also because even now the dividend payout is also amazingly investor-friendly. EBITDA is now stabilizing. And what you said INR 300 crore EBITDA maybe in FY '25 with 15% CAGR growth. The INR 400 crore EBITDA will become INR 400 crore PAT. The way it has become -- '22 EBITDA has become PAT of '24, I think '25 EBITDA can become PAT of '28. So that's a amazing journey, Pallab. I think, yes, market will take its own course. I'm sure and all the best, Pallab. All the best.

[Operator]

[Operator Instructions] The next question is from the line of [ Ashya Jain from Jain Capital ].

[Unknown Analyst]

A couple of questions from my end. So firstly, how does Q1 FY '20 (sic) [ Q1 FY '25 ] shape up so far. So how do you see the demand going forward as well, so globally, many players are bullish on the demand outlook. So how are we looking at it? And do we anticipate any slowdown at an industry level?

[Pallab Banerjee, executive]

Mr. Jain, thank you for your question. I think the demand is, at this point of time, healthy. I think the biggest factor that we had in 2023 was the over-inventory situation that we are facing in the U.S. retailers. So that, I think now we are completely over with. So naturally, the numbers, I think we have discussed this enough in the last few quarters. The numbers I were expecting it to jump up by that kind of the depth -- whatever the decrease that happened because of the [ over investigation ], that I think is back. So that definitely you will see playing in the market. So I don't think anybody will complain in terms of order book at this point of time.

But if you talk about the U.S. market specifically, what I find is, most of the industry captains are still a little conservative and they're very cautious. I would say they are doing a very cautiously optimistic kind of approach towards the business. And that's mainly because of the elections because of some of the geopolitics that is going on at this point of time. And the inflation and interest rates are still -- continues to be high. These are the things I think is still affecting the decision making of some of these big retailers and all.

Now -- but at the same time, they have plans and they are planning for the expansion, maybe like low single-digit number for this particular financial year. If you talk of Europe and U.K. definitely went into some kind of official recession as they said. And Europe also some of the countries are very slow. But still, I think most of the retailers have been very conservative for some time. But the better ones, like you talk, think people like Inditex, some of them, they continue to be aggressive. They continue to grow despite any kind of challenges that is thrown by the market to them. So that's something, there are players who have a strong strategy, will continue to grow. And they will be against the macro factors, even if it is slowing them down. They would have some means or ways or strategies to overcome that.

If you talk of the Australia market, that's relatively much more bullish. Japanese market is much more confident at this point of time compared to the last couple of years. If you talk of China market, they had just come out of the pandemic restrictions in 2023, end of that particular year. So they are quite bullish. So I think, overall, global and that's why, as a company, Pearl Global, we are not only in terms of global in terms of manufacturing but also we want to supply our customers globally. So for example, a brand, which could be an American brand but may have been retailing in Asia in some of these countries like China and other places, or like a Japanese brand, which could be globally supplying. So we do supply to them globally from all our manufacturing hubs. So that's the objective, that's the intention that Pearl continues to march upon and we think we are solidly on track on that.

So yes, a long answer to your small question of how the demand would be. I think demand is back on track at this point of time. Although it will be conservative, it will be low single-digit growth globally that I personally foresee. But, yes, if I'm with the right partners, if I am with -- if I have the attention of the right players who are definitely going to meet the market macro factors, so then I can do the same with that. That's the approach that we have.

[Unknown Analyst]

Understood. So lastly, just provide some information on our company's CapEx plan for this financial year, FY '25?

[Pallab Banerjee, executive]

Sanjay, you want to take that?

[Sanjay Gandhi, executive]

Sure, Pallab. I think you have covered. So I'd just like to add here on the CapEx plan for the FY '25 and going forward. So as a part of our 4-year plan, we said we'll be investing anywhere between INR 500 crores to INR 550 crores in the next 4 years. Coming specific to FY '24/'25, in India, we are looking at a CapEx between -- commitment to the CapEx around INR 70 crores to INR 90 crores of CapEx in India for the capacity expansion in other states, which we just mentioned in our earlier commentary. Plus, there will be IT-related CapEx, which be incurred, which is towards automation and digitization across factories, newly factory and also the -- some of the existing factory. That's the India CapEx plan.

And then in Bangladesh, we will be looking for some kind of an opportunity of capacity expansion. The amount as such is not really confirmed but yes, we will be looking to add maybe 1,000 to 1,500 machine capacity in our overall journey as we have mentioned very clearly that how do we want to build on the capacity. I think that's the plan. So we'll be -- we are evaluating, we continue to evaluate the existing facility. And as and when the opportunity is there, we'll be definitely looking at that.

In Vietnam and Indonesia, we have -- we don't have any plan of CapEx as of now. Indonesia, already we have done this year, last year. Vietnamese also there is not much CapEx. Guatemala, we have already completed the capitalization on 31st of March. So this is a broad CapEx bifurcation, which is primarily towards the growth. In addition, there may be maintenance CapEx, which may be there in India and Bangladesh, considering the factories have been operating for a number of years, which can be around INR 8 crores to INR 10 crores in India and likewise, same number for Bangladesh.

[Pallab Banerjee, executive]

Sorry, I have a little bit of throat issue today. But again, very clear, there are opportunities at this point of time, especially in countries like India and Bangladesh, I think there's significant growth that can happen. So we do have an eye continuously in terms of any opportunity that is coming our way. So in India, like, as you said, like we will be opening up some factories in the other states. So that might need some CapEx that we will be incurring and Bangladesh also the same. Bangladesh maybe will not go for any kind of a new facility to build up in the short run. There are very good infrastructure that is available in Bangladesh. And because of all these ups and downs that happens in the market, there are some; good infrastructure always available for us to look at seriously. So that's something that we continue to look at. If something is good, we will go for it. So those are the things like, as Sanjay mentioned, number-wise in our direction. And this is a thought behind it, as I said.

[Operator]

[Operator Instructions] The next question is from the line of [ Sanchit Chawla from Subhkam Ventures ].

[Unknown Analyst]

So a couple of questions from my side. Am I audible?

[Operator]

Yes, sir, you are audible.

[Pallab Banerjee, executive]

Yes, you are audible.

[Unknown Analyst]

So I wanted to understand, could you just help me understand what -- how has the margin journey happened from 4% to 9% over the last few years? What were the low hanging fruits that you've been able to capture? And Part B of the same question is, now that you've guided for 300 to 400 bps margin expansion over the next 3, 4 years, wanted to understand how those margins will come?

[Sanjay Gandhi, executive]

So -- Pallab, you want -- shall I take it?

[Pallab Banerjee, executive]

You start, you start first.

[Sanjay Gandhi, executive]

So in terms of the margin improvement, first, we said there were combination of 3 things we have highlighted in our earning calls and we mentioned in the report also, basically the expansion in margins is 3 or 4 factors. One is the operating leverage, which was there in some of the factories, which we commenced operation but were in the stage of getting stabilized, that really helped in terms of improvement in margin. The second is the change in the customer mix, then third is the product, along with them comes a higher margin product. And that is the second reason for us to really bring an improvement in the margin. Third is the leveraging of our overseas infrastructure. So we have marketing design offices in U.S., U.K., Spain. Now this infrastructure is capable of handling -- generating a, let's say, x number of volume, earlier, it was x by 2. So that helps in overall leveraging of the situation. And still, we believe there is an opportunity for us to leverage it even further, this international infrastructure, what we already have.

We stated our journey is from 10% to 12% of EBITDA in next 3 to 4 years. And Pallab also mentioned in his commentary that with the scale what we are targeting to really grow our number of pieces as we mentioned in February from 50 million -- 51 million pieces of FY '23 base to somewhere close to 90 million to 100 million pieces. I think those scales will give us enough room to really expand our margin and reach that band, which we just mentioned on the EBITDA side. Pallab, you may please add in case I missed something.

[Pallab Banerjee, executive]

Yes. I think this is exactly what you mentioned, these -- all the 3 points. So yes, first is that now we have a very robust governance in terms of how we are investing, what kind of capital allocation, which new factory that is coming up, by how soon it can breakeven? So those are the strategies that we have a very, very strong robust governance on that. So that's something is definitely helping us. Before that, if you look at my history and whatever I studied, was a problem that was restricting this margin was this kind of very rigor, may not have been done before the expansion because, yes, the company was in a very, very high exclusive rate of expansion earlier also. But yes, it was not synchronized, the top line and the other expansion that was happening. So that I think we have plugged that one problem. That definitely helped us in a big way.

And the infrastructure that has -- always Pearl had been in the international market and have some kind of representation in the countries like England or Spain or the U.S., like we built it up much more on it, much more professionalized it, had the right team, right people who can interact with the customers very well. So definitely, it was -- and initially, our cost was definitely hitting our bottom line because the volumes were still low.

Now as this volume continues to grow up, we'll continue to see that advantage, that any kind of overhead that you built up in the organization because if the number goes up then definitely, it helps. So there are 2 or 3 things. And any expansion that now we are doing, as Sanjay just mentioned, it's very, very well planned. What kind of ROI, how soon we can hit it, where is the customer lined up for it, what kind of volume will start with, what kind of product that we'll be making? So those kind of things are much more well [indiscernible]. And I think we've seen broadly the 3 reasons because of which we are seeing this change.

[Unknown Analyst]

Perfect. Perfect. Got that. And my second question was on how is the pricing of the garment decided? So if you give the design to the retailer, can the retailer in turn give those designs to other manufacturers? Just wanted to understand what percentage of overall garments you apply have your designs?

[Pallab Banerjee, executive]

So there are 2 things. Normally, for a retailer, they have to work always through the retail price points. There's a certain product at a certain location in the store, if you walk in on day 1 or day 360 of the year, you'll see that the price point is very similar at that same location. So it's very difficult for a retailer to change the price. If you're selling a certain product on a particular hanger, on a particular location of the store, let's say, of $19, that will not change. If you go back after maybe a couple of years also you might find that the price point remains same. So naturally, what they do is always design into that price point, what can -- what is the new thing that the customer is looking for, what the fashion trends are so that they can still give attractive, interesting product to the consumer but at the same kind of price points. This is the retailer's challenge. Now for us, manufacturer, we also have to take care of other things to get to that what should be the buying price of that.

Now when we are designing something or when we are talking together with the customer to create a product and then do it, we have a better control because we know it from beginning. Okay, this is a price point for which this product is getting designed and this is how this product will be sold at this particular price point. So whatever I do, I can plan much, much better. And then there is the other option is that the certain retailers, they have designed something in-house and then they go to maybe 10 different manufacturers and say, like who gives me the best price, get the order. So in that case, definitely, it's a competitive price in that place.

So it doesn't mean that we -- in the first option, when I'm creating a design that I will be getting maybe a couple of dollars extra, maybe like the $0.10, $0.15, $0.20, $0.30, $0.40 better than the other one. But yes, we get a better control. We get a better visibility. So that's what is important and matters to us.

[Unknown Analyst]

Okay. So I'm not very clear with this. I just wanted to try to understand what is your pricing power here. So if you could just help me with 1 data point, what percentage of your overall garments you supply where you have your own design?

[Pallab Banerjee, executive]

So when we are supplying to the customers today, where we have some kind of design input, maybe a partial one or a complete one, so that number today off hand, from top of my head, I would say, close to about 50%, in which we had a certain role to play. So that means like I get an assurance, again, this is the kind of product that we will be booking at the end of the day.

[Unknown Analyst]

50%, right?

[Pallab Banerjee, executive]

Of our total, yes.

[Operator]

The next question is from the line of Pulkit Singhal from Dalmus Capital Management.

[Pulkit Singhal, analyst]

Congrats to the management team for an exceptional performance during tough times with good return on capital metrics as well. My first question is on the debtor days. When I look at it, like 4, 5 years ago, it used to be in the 45, 50 days range. And I think last year FY '24, you got it down to 25 days. So can you help us understand what has driven that? Has there been some substitution of margins to be able to bring down debtor days? And also whether this 25% is sustainable as you scale up in the next few years?

[Pallab Banerjee, executive]

So I can start and then, Sanjay, you can add. Definitely -- thank you, first of all, Mr. Singhal, for the question. And I think very good inputs always I get from you. Now this particular one, we had done certain policies and strategies at our end in terms of both risk mitigation as well as to ease the working capital. So that particular factoring part it's continuing to bring down the number of days that you are seeing. And yes, like going forward, if I have to look at it, as I expose myself more in terms of other geographies, like, let's say, to Japan market or to Australia market and all.

Now certain like U.S. market or European market, they work more in terms of buy is much more shorter and much more frequent compared to some of the retailers in other -- these markets, which could be they do at longer lead time or maybe like they buy twice a year, most or some of them. So those are things will alter a little bit, I would say. But we don't see a huge variation. I really like if I look at it, if you ask me, I think the best would be around 35 to 40 in that range. 30 to 40 range, maybe maximum 45.But I think that's where we will continue to retain -- contain it in the 30s. Sanjay, why don't you detail it much better?

[Sanjay Gandhi, executive]

Yes, yes. Sure. Okay. Yes. Thanks. So basically, the total working capital days we are -- I mean, as we keep growing and the scale of what we have envisage or vision to reach by FY '28 with a mix of the customer from Japan, Australia, U.K. and U.S.A. I think overall net working capital days could be around 35 to 40 days. However, for the debtors days, our target will remain to be hovering around 30 days' time period, plus/minus 2, 3 days, that's what the target is. And I think with all the nonrecourse financing we have in place for existing one and the focus to bring that same kind of a method of realization or mechanics of realization for the new customer, we should be continuing to maintain on debtor days. What Pallab just mentioned about the longer period, a little bit inventory, that may have elongate the inventory days by 4 to 5 days' time period. But overall, we are looking at net working capital days anywhere between 35 days, 37 days.

[Pulkit Singhal, analyst]

This is compared to 35 for FY '24, is what you are saying?

[Sanjay Gandhi, executive]

Yes. So FY '23, we have 38, FY '24, we have 30. So I'm saying we can be anywhere in the range of 35 to 40 days on a net working capital days.

[Pulkit Singhal, analyst]

Understood. Secondly, on the capacity front, I mean, you had 84 million capacity, you're doing 57 million sales, I mean, your capacity addition is going ahead of the utilization. So I'm just trying to understand that why is that necessarily the case that we have to constantly add capacities to utilize rather than increase the utilization in the existing. I understand different factories have different utilization but what is the challenge you're facing there? Because India, I know that some of your factories are not very efficiently utilized. But can we not like relocate some of them or utilize them better?

[Pallab Banerjee, executive]

Now in terms of -- in our industry, like when we are supplying to some of these international clients, to get a factory approved or later a region approved is the biggest hurdle. The entry hurdle is the biggest hurdle, if you look at it. So the compliance norms, the confidence that the teams of the customers would like to have on a factory, it takes time. It takes anywhere between 6 months to 18 months, if you look at it, to certain customers. So that's something is, I would say, a reality of our industry. So wherever we are finding that to build an infrastructure and be ready because the good thing is that our factory or the cost that goes on into the factory is something that we can control very well.

One is the workers' cost, like that is something, in India especially we're talking about, like India has a particular challenge, I think. I'm sure like all other manufacturers must be also facing, at least, it cannot be only us. But we find the attrition and absenteeism rate is a little out of control in India, whereas globally, we find -- globally means like if I talk about very other strong regions like Indonesia, Bangladesh and Vietnam and all, we are able to control below 4%. Whereas India, we are still not able to bring down to that level at all. We are more than -- we are almost like double than that number at this point of time.

So that's -- that also is one good thing, like if we need to -- if we're seeing that the demand is going soft, then it doesn't -- we don't have to lay off people because already there is an attrition every month, we see that this kind of average 7 to 8 people are -- the churning is happening in some of these places where we have the factories. So definitely, 2 ways we are trying to tackle that. We are going more into the interiors where the -- we don't have to depend on the migratory labor but on the local level there are at least this attrition factor will come down. Absenteeism, we will be experiencing as we start the facilities in these locations. But in terms of capacity, the good thing that Pearl has is a combination of our own facilities as well as partnership facilities.

Now if you look at the kind of existing capacity that I had in 2024 and the adjustment that I could do very easily without any cost and still utilize that, it's a very healthy number. So that doesn't worry me at all. Same thing is for the other locations as well. So that is why we don't see this as a big concern. But yes, to be ready, to develop a facility, to make sure that it is of the highest global standards and some of the retailers like to go through their rigorous process of evaluation and be ready with them, so that is something that we continue to be always upfront about.

[Pulkit Singhal, analyst]

Understood. My -- the third question is just on the guidance itself. I know you've talked about the 4-year guidance. Can you, just very specifically, quantify for FY '25, what is the kind of revenue growth band and margin band that you're expecting because I think you have visibility at least for the first half or next 4, 5 months of growth. So if you could give some sense.

[Pallab Banerjee, executive]

Thank you, Mr. Singhal. That's a question that you always are very direct about in all our calls. So yes, definitely, the market is -- has come out of that U.S. inventory issue that we had earlier. So definitely, we are back on track in terms of what we have always said that all our strategies are towards having a CAGR of 15% to 18% to even as high as 20%. But we'll continue to thrive on that direction. So if you're asking me for this particular year, I'm seeing that, okay, we are solidly on track at least in the direction as of now.

[Pulkit Singhal, analyst]

Okay. And for the margin?

[Pallab Banerjee, executive]

Margins, yes, the international locations that we have, we have definitely a very solid control. And we have -- as you can see in our results, that is coming through. In India, the challenges that we are doing, like we are definitely learning every day and we are also having a lot of solutions that digital solutions, the digitization of our factory, the processes, the governance. So it is always evolving and we are getting more and more confident on that. So we'll see a good margin from all the locations going forward. So in general, in our -- internally, like we -- every location has to generate that margin. So that's something like we internally always strive for. But yes, one place may have a bit of more challenges compared to the others. So that's something that we have to always overcome.

[Pulkit Singhal, analyst]

Understood. Just last quick question is on finance cost. It has gone up from INR 47 crores to INR 83 crores in 2 years whereas your gross debt has actually come down a bit and I understand there's some element of leasing aspect as well. But still, the cost has gone up quite sizably. I mean how should we look at this line item over the next 2, 3 years because you are generating quite a big -- good amount of cash flows, although you are not really paying down the debt for some reason.

[Pallab Banerjee, executive]

But yes, definitely, this is high on our list as well. So we are working on this. So Sanjay, maybe that you can add?

[Sanjay Gandhi, executive]

Yes. So finance costs, as you mentioned, there is a interest on lease liability, almost INR 13.6 crores and that has risen from INR 8 crores. So you see the almost INR 5 crore to INR 6 crore increase is on account of interest on lease liability. Otherwise, if you look at there is increase also. But in terms of INR 83 crores of total finance cost, the interest on term loan and the working capital is around INR 46.8 crores. The rest, we have the other borrowing cost, which we have a factoring and plus the LC charges, bank guarantee -- LC charges largely and other processing fees, which is to be paid to the bank for renewal of all our facility across the location.

With the reduction in the interest rate, there will be definitely optimization. And with the cash accrual also, there is definitely an opportunity to keep the interest costs under control. Also, we are looking at -- we'll keep looking at some of the prepayment of long-term loan, where the cost is -- interest cost is high at this point in time. Having said that, the leverage is something which we are very conscious of it and leverage will go in line with the growth strategy. Keeping a optimum combination, we, as a company, have been conservative in terms of taking a -- have too much loan. But at the same time, when there will be some growth opportunity, growth CapEx will be incurred, there will be some loan which also be taken. But at the same time, we are conscious of this high interest cost, we are monitoring it and taking all steps which are required to control it. I think our rating improvement has also helped us in keeping the interest cost under control as far as India operation is concerned. And overseas also, we are looking at improvement -- reduction in the cost and also using internal accrual to bring it down wherever there is an opportunity to do that.

[Operator]

The next question is from the line of Varun Gajaria from Omkara Capital.

[Varun Gajaria, analyst]

Hi sir, congratulations on a good set of numbers...

[Operator]

Sorry for the interrupt, sir. May I request that you use your handset, your audio is not clear, sir.

[Varun Gajaria, analyst]

Now?

[Operator]

No, sir, we are unable to hear you.

[Varun Gajaria, analyst]

Okay, I will get back to you. Okay.

[Operator]

If you could use your handset, sir.

[Varun Gajaria, analyst]

Yes, I am using my handset actually. I think there is some problem at my end. I'll take it offline.

[Operator]

Okay sir. Thank you. Ladies and gentlemen, as there are no further questions, I now hand the conference over to the management for closing comments.

[Pallab Banerjee, executive]

So is Varun able to speak? Mr. Varun, can you...

[Operator]

Sir, he said he'll take it offline, sir. He has an audio issue from his end.

[Pallab Banerjee, executive]

Okay.

[Sanjay Gandhi, executive]

Thank you, everyone, for joining on the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Strategic Growth Advisors, our Investor Relations adviser.

[Pallab Banerjee, executive]

Thank you.

[Operator]

Thank you. On behalf of Pearl Global Industries Limited, that concludes this conference. Thanks for joining us and you may now disconnect your lines.