PDS

PDS Limited reported robust financial results for Q2 FY25, with revenue reaching ₹3,306 crores, marking a 34% year-over-year and 26% quarter-over-quarter growth. For the first half of FY25, income from operations stood at ₹5,927 crores, a 29% increase from the previous year. The company's order book for the quarter ended September 2024 was approximately $620 million, reflecting a 20% year-over-year increase and indicating continued growth momentum.

EBITDA margins expanded significantly from 2.8% in Q1 to 4.5% in Q2, driven by robust top-line growth and effective cost optimization measures. Employee expenses, as a percentage of income from operations, declined to 8.8% from 10.4% in Q1, and other expenses also decreased to 6.3% from 7.6%. Normalized EBITDA margin, excluding new vertical investments, reached 6% in Q2 FY25 and 5.5% for H1 FY25, demonstrating strong operating leverage.

Investments in new verticals, which were $5.8 million (~₹48 crores) in Q1, decreased to $4.3 million (~₹36 crores) in Q2, showing a downward trend. The design-led sourcing business initiatives, which were loss-making in Q1, turned profitable in Q2, primarily driven by a newly launched knitwear business. Management anticipates these new investments will positively contribute to the bottom line in coming quarters, with investment expenses expected to become negligible by the end of Q3 FY25 or early FY26.

The Sourcing as a Service (SaaS) business demonstrated strong traction, achieving a Gross Merchandise Value (GMV) of approximately $400 million in H1, representing 100% year-over-year growth. This translated into $9 million in revenue and $3 million in PBT contribution for the first half. The company projects a sustainable growth rate of 35-40% for this segment over the next two years. Brand initiatives, including the Ted Baker business, are expected to achieve over 10% growth this year and maintain similar growth in the medium term.

The Ted Baker business, despite initial challenges with retail partners entering administration, is expected to achieve over 10% growth this year and maintain profitability, with a new partnership for US/Canada operations providing an upside. The Gerry Weber contract is performing well, with H1 sales of $33 million (~₹270 crores), and is on track to reach an annual run rate of $100 million within two years, with FY25 sales projected to exceed $70 million.

PDS is actively pursuing diversification of its sourcing base beyond Bangladesh, which currently accounts for 55-60% of sourcing, by evaluating manufacturing units in India and exploring Latin America and Egypt. In the US market, PDS is seeing significant traction with major retailers like Fashion Nova, Target, and Walmart, with expectations of generating hundreds of millions of dollars in business over the next few years, leveraging its top-down relationship approach.

PDS has revised its FY25 PAT growth guidance upwards to 25-30% from the earlier 15-20%, reflecting better-than-expected top-line performance. For FY26, the company anticipates mid-teens sustainable top-line growth and even faster PAT growth, driven by the realization of benefits from current investments and economies of scale. Employee costs are expected to stabilize by Q4 FY25, following the completion of strategic hiring.