Release Date: February 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PDS Ltd (BOM:538730, Financial) reported a significant growth in GMV for its sourcing as a service and agency businesses, with 260% and 90% growth respectively.
- The company has successfully onboarded major clients like Target in the U.S. and Myntra in India, indicating strong future growth potential.
- Gross margins improved from 16.8% last year to 20.6% in the first 9 months of FY '24, driven by higher-margin ventures like sourcing as a service and Ted Baker.
- PDS Ltd (BOM:538730) has made strategic investments in senior talent to expand its U.S. and Indian markets, which are expected to yield significant returns in the next 4 to 6 quarters.
- The company has maintained a robust balance sheet with strong leverage ratios, including a net debt-to-EBITDA ratio of 0.61 and net debt to equity ratio of 0.22.
Negative Points
- Despite the positive outlook, the company's performance in Q3 was below expectations, with flat sales compared to the same period last year.
- Employee and other expenses have shown a year-over-year increase of 22% and 18% respectively, impacting overall profitability.
- Interest costs have risen due to an increase in the average base rate, affecting the company's net income.
- The net debt has increased from INR 27 crores to INR 253 crores year-over-year, primarily due to the Ted Baker acquisition.
- The company has faced demand pressures in its core business, leading to a cautious outlook for immediate growth.
Q & A Highlights
Highlights of PDS Ltd (BOM:538730) Q3 FY '24 Earnings Call:
Q: Can you provide more details on the expected growth in the second half of the year?
A: Sanjay Jain, Group CEO: We anticipated growth to bounce back in the second half, and we are witnessing traction. Sales were flat in Q3 after a decline in the first two quarters, and we are confident of growth in Q4. Pallak Seth, Executive Vice Chairman, added that customer inventory issues have been resolved, and Christmas sales were positive, indicating an uptick in consumption.
Q: What are the plans for the American market, and are there any acquisitions planned?
A: Pallak Seth, Executive Vice Chairman: We expect the U.S. market share to increase to almost 20% next year. We have onboarded Target U.S., which could lead to significant business. Our approach is currently organic, leveraging available talent, but we are open to small acquisitions if they align with our strategy.
Q: What is the impact of ultra-fast fashion companies like Shein and Temu on your business?
A: Pallak Seth, Executive Vice Chairman: While Shein's business model is fascinating and impacts other online retailers, PDS does not play in that segment. Our customer base consists of large volume retailers, and we have not seen a significant impact from Shein or Temu. Additionally, Shein has reached out to PDS for potential collaboration.
Q: Can you elaborate on the financial performance and integration of Ted Baker?
A: Rahul Ahuja, Group CFO: Ted Baker has been profitable from day one, with a 9-month top line of INR 345 crores and a PAT margin of 7.1%. The business is split between wholesale and agency, with a 10% fee on agency business. The capital employed is expected to reduce with non-recourse factoring.
Q: What is the outlook for the new deals with Myntra, Target, and the Indian retailer?
A: Pallak Seth, Executive Vice Chairman: Myntra is expected to generate $15 million in the first year, with potential for growth. Target U.S. could become one of our top 10 accounts in the next 2-3 years. Discussions with the Indian retailer are ongoing, and details will be shared once finalized.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
