Everything You Need to Know About PDS Limited(NSE:PDSL)| Stock up 300% in 3 years.

PDS Limited (NSE: PDSL) is a design-driven plug-and-play platform that provides customized manufacturing and sourcing solutions to the world’s leading textile retailers and brands. The company has created an integrated platform focused on design, sourcing and manufacturing. 

The platform is enabled by PDSL’s expertise in robust risk management, social, environmental and ethical compliance and value-added services. The platform facilitates sustainable and responsible sourcing, with its foundations based on an entrepreneurial business model. 

The company is able to identify the right product for the right market and the right factory, further supported by a strong compliant supply chain and core knowledge of different geographies and markets. 

The PDS platform capabilities enable multi-country sourcing from countries such as India, Bangladesh, China, Pakistan, Sri Lanka, Myanmar, Turkey and Vietnam. Similarly, sourcing more products across all apparel, fashion and home furnishing categories is well established.

Supported by creative input from their market intelligence, PDS has continually refined the product development aspect of their business through innovative fabrics, extensive trend research, graphics and sampling. The PDSL platform enables rapid time-to-market and last but not least cost efficiency along with margin improvement through strategic sourcing / favorable credit terms for retailers and suppliers.

Promoted by Mr. Deepak Seth and his two sons: Mr. Palak Seth and Mr. Pulkit Seth, the company entered the secondary market in 2007. Until 2014, PGIL (through its subsidiaries) operated with two distinct business segments:

1.Manufacturing and Merchant Trade Manufacturing – through facilities in Bangladesh, India and Indonesia. Merchant Trade – India office receives orders from customers and places them in their own factories or third party factories in Bangladesh and Indonesia.

2. Sourcing Marketing and Distribution (SDM) An extensive marketing network spread across Hong Kong, the United States and the United Kingdom that secures orders from customers and outsources them exclusively to third-party manufacturers. It also has clothing processing and distribution facilities in the US and UK.

Almost all of PDSL’s sales were to customers in the UK, Europe and the US. To de-risk its model and fuel its growth, PDSL is expanding into newer markets. It is deepening its presence in the USA, which is among the five largest clothing companies.

According to management, the contribution of North American sales is likely to exceed 20% in the near future (~16% in FY22). To serve the US markets, PDSL is evaluating sourcing locations in Central and South America with the goal of achieving shorter lead times from design to market.

In addition to the USA, the company is also focusing on Australia and New Zealand, and is entering Scandinavia as a prospective market. On the resource front, PDSL is currently mostly concentrated in Bangladesh. It is also strengthening its capacities in Turkey and surrounding regions, including Jordan and Egypt.

Having already established a presence in the apparel industry, PDSL plans to implement its learnings by expanding into other categories including home fashion, accessories and footwear. Each of these categories offers a multi-billion dollar opportunity, not to mention the potential to scale the garments themselves.

PDSL is a unique player and one of the few worldwide that could take advantage of the outsourcing trend. It also operates a super-efficient and low-risk model in terms of inventory, currency and credit risk.

In Q2FY23, PDSL acquired DBS Lifestyle, a design company focused on the fashion and home categories. DBS owns over 20,000 original textile designs and patterns and adds nearly 2,500 works of art. DBS serves the needs of over 200 fashion clients and 150+ households worldwide in 15 countries on three continents.

Operating income rose 33% to Rs 2,921 crore from Rs 2,195 crore in Q2FY22. Reported gross profit of 495 rupees compared to 360 rupees, an increase of 37%. Gross margins rose 55 bps to 17.0% from 16.4%.

EBITDA grew 41% to Rs 119 from Rs 84 in Q2FY22. EBITDA margin increased to 4.1% versus 3.8%. Finance costs increased due to increased borrowing costs over the past year; the impact was partially mitigated by an increase in early payment discounts captured in gross margins.

Other income stood at Rs 39 crore (up 260% year-on-year) and includes profit from property sales. This led to a sharp jump in APAT of 70% year-on-year. The manufacturing segment saw a growth of 13% with a top line of Rs 147 cr.

The segment turned profitable in Q4FY22 and continued its journey of profitability. The sourcing segment achieved a topline of Rs 2,835 crore in Q2FY23, accounting for 95% of the company’s topline with an increase of 35% YoY. The segment reported EBIT of 3.3% with ROCE of 44%.

The company has been able to build a strong foundation on which it can now capitalize on several growth opportunities due to its innovative operating model and inherent strengths. Going forward, the company is working to expand its geographic presence, increase margins, engage new partnerships and collaborations, use sourcing as a service, and deploy digital technologies to support efficient operations.

Investments made through the Venture Tech portfolio further enable PDSL to sense the pulse of the market and proactively offer new solutions to stay ahead. The collaboration expands the “sustainable fashion” offering and helps it expand its presence in the fashion value chain.

After the initial success of the partnership with HanesBrands and s.Oliver, PDSL is entering into agreements with other leading retailers and brands to provide them with similar and customized solutions. Partnerships will be both exclusive and non-exclusive and diverse in terms of geographies and brand associations. These arrangements can generate an annual value of USD 1 billion worth of goods in the next 4-5 years.

PDSL has ambitions to cross the USD 2.5 Billion cap in the next five years (~double from current levels) through geographic expansion, operational excellence, strategic investments, collaborative partnerships and a high-margin, asset-light business model.

It continues to implement various cost optimization measures (such as choosing the right partner manufacturer for the right order) and efficient logistics to maximize returns. With the help of its asset-light model, maturing of new business verticals over the next 2-3 years and production turnover, it is set to generate higher returns.