Release Date: October 30, 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 strong growth momentum with a 20% increase in order book for the quarter ended September, compared to the same period last year.
- The company achieved a 39% increase in gross merchandise value in the first half of FY25, reaching $1.1 billion.
- Sales from North American customers grew by 62%, highlighting the company's successful expansion in this region.
- PDS Ltd's top eight business verticals delivered a 33% year-over-year growth in the first half, with profit margins improving from 4.9% to 5.1%.
- The company successfully raised 430 crores through a qualified institutional placement, strengthening its financial position and enabling debt repayment in the UK entity.
Negative Points
- PDS Ltd experienced pressure on gross margins despite a 19% increase in gross profit in Q2 FY25 compared to Q1.
- The company faced challenges with some retail partners in the UK, Europe, and the US entering administration, impacting the Ted Baker wholesale business.
- There was a negative cash flow from operations, attributed to changes in other assets and trade payables.
- The company is heavily reliant on sourcing from Bangladesh, which poses a risk due to potential geopolitical and economic disruptions.
- Some business segments, such as Nor Lanka and Spring, experienced negative profit before tax growth due to internal supply chain issues and cost pressures.
Q & A Highlights
Q: Can you explain the reasons for the 300 basis point decline in gross margins over the last eight quarters and the future trajectory for cost protection?
A: Sanjay Jain, Group CEO, explained that the decline in gross margins is due to strategic decisions to support customer growth, particularly with cost-competitive accounts like Primark. He emphasized that while short-term pressures exist, the medium to long-term trajectory should see margins improve as high-margin businesses gain traction and cost optimization initiatives take effect.
Q: What is the current status and future outlook for the sourcing as a service business?
A: Sanjay Jain noted that the sourcing as a service business achieved $400 million in GMV with 100% growth over the same period last year, contributing $9 million in revenue and $3 million in EBITDA. The company expects sustainable growth of 30-40% over the next two years, with potential for higher growth if large retail customers engage further.
Q: Can you clarify the negative cash flow from operations, particularly the changes in other assets and trade payables?
A: Rahul Ahuja, Group CFO, explained that the negative cash flow is due to increased inventory, receivables, and advances to vendors, reflecting robust order book growth. Additionally, direct taxes paid contributed to the cash flow changes.
Q: How will the discontinuation of the Hanes contract affect PDS's plans, particularly in the design-led sourcing business?
A: Sanjay Jain clarified that the discontinuation is due to Hanes' strategic shift to fill their own factories and is not related to PDS's design-led sourcing business. The relationship remains profitable, and PDS expects continued traction in sourcing as a service despite the contract's end.
Q: What is the strategy for brand management, and how does it align with PDS's B2B focus?
A: Diwakar Pingle explained that PDS remains committed to a B2B strategy, acquiring brands with a wholesale focus and no inventory risk. The company partners with creditworthy retailers to offer branded solutions, enhancing strategic relationships without diverging from its core business model.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
