PDS Limited (NSE: PDSL) Q1 2026 Earnings Call dated Aug. 01, 2025
Corporate Participants:
Unidentified Speaker
Pallak Set — Executive Vice Chairman
Reenah Joseph — Deputy CFO
Sanjay Jain — Group Chief Executive Officer
Rahul Ahuja — Chief Financial Officer
Analysts:
Unidentified Participant
Deepak Ajmera — Analyst
Dhwanil Desai — Analyst
Bhavya Gandhi — Analyst
Rohit from — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the PDS Limited Q1FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing Star then zero on a Touchstone phone. Please note that this call is being recorded with this. I now hand the conference over to Ms. Reena Zozav, Deputy Group CFO. Thank you. And over to you, Ma’.
Reenah Joseph — Deputy CFO
Am. Hi. A warm welcome to all participants to PDS Ltd. Q1FY26 earnings call. Our presentation and financial results are available on the company’s website and the stock exchanges. Please note that anything said on this call which reflects our outlook for the future or which may be construed as a forward looking statement must be viewed in conjunction with the risks that the company faces. The conference call has been recorded and the transcript along with the audio of the same will be available on the website of the company as well as the top exchanges. Today we have with us the management which includes Mr.
Palak Seth, Executive Vice Chairman, Mr. Sanjay Jain Group CEO Mr. Rahul Ahuja Group CFO I now hand over the call to Mr. Sanjay Jain to take the discussion forward.
Sanjay Jain — Group Chief Executive Officer
Thank you Veena. Greetings everyone and thank you so much for joining us as we walk you through performance for the first quarter of FY26 the first quarter has been one of measured progress, delivered against the backdrop of a challenging and evolving global macroeconomic environment. Across key markets, we witnessed a cautious demand environment, elongated buying cycles and continued recalibration of sourcing strategies. While headline inflation has moderated from the earlier peaks, the residual cost pressures persist, particularly in services, logistics and wage linked categories. Central banks have maintained a cautious stance and current volatility continues to influence both sourcing decisions and margin structures.
The US tariff environment remains fluid. Of course this morning one has seen some clarity is coming out. But while in Europe customers are adopting a more measured approach, raising greater emphasis on flexibility and supply chain resilience. These external headwinds though are likely to ease over time, have led to a greater caution in global retail and sourcing. Despite all of this, EDS has remained agile and responsive, leveraging our asset light model, diversified sourcing footprint and deep customer relationships to stay relevant and create value in the US Shifting tariffs and driving sourcing realignment among several of the other customers.
On the other hand, the India UK FTA is opening up tremendous new opportunities for India based manufacturing. We plan on capitalizing on this with our increased sourcing hubs in Mexico, Egypt and Turkey which are expected to play a critical role in supporting near shoring strategies for US clients In the uk we are seeing early traction post FTA particularly with our key strategic accounts. In such a dynamic scenario we continue to support our customers and drive growth. While there is pressure on margins in the near term for servicing our said customers, it is our endeavor that we continue to participate with our customers because the global scenario is affecting our retail customers and we have have been and want to be seen as their strategic partners and if in the near term there is any margin pressure we want to be on board with them and there would be opportunities in the coming few quarters to make the most of it.
This participative approach with our customers have helped us with a gross merchandise value of 4634 crores reflecting a 19% increase year over year. And I’m also happy to mention here that some of the very prominent and blue chip customers who are among the top 10 for example with Primark in quarter one our sales have grown 23%. With Next of UK our sales have grown 46%. With Tefco of UK our sales have grown 20%. So with Very relevant important and blue chip customers we have made sure that we participate with them and maintain a healthy growth momentum in terms of our sales to them.
Looking ahead while short term headwinds persist, we remain focused on delivering sustained profitable growth. Our current order book stands at close to 5,200 crore reflecting 8% year on year growth. The customers in today’s environment are taking a little bit longer than normal course to close their orders. So therefore we believe that the growth that we have achieved in Q1 for the entire year that momentum should be maintained. In the UK demand has strengthened post FTA and we are actively working with clients to grow wallet share and onboarded the new accounts. I already shared with you the growth momentum with some of the large UK based customers.
The US at present remains cautious due to the ongoing tariff concerns, but we are adapting very quickly supporting customers with flexible duty optimized sourcing solutions. That’s where our asset light model also becomes handy. In fact we believe that whatever has happened is actually unfolding into a lot of tremendous opportunities for pds. That is where our acquisition recently in India and also the sourcing hubs as I mentioned earlier in Latin America, in Egypt and have a strong presence in Turkey would actually enable fulfilled Two objectives cater to the optimized sourcing solutions both in terms of the near shoring as well as the duty optimization.
Our acquisition of Knit Gallery therefore has been timely and strategic. It enhances our ability to deliver scale from India and align with UK and EU customers. Internally we continue to be very execution focused and traveling a transformation journey focusing on building a leaner, more agile and future ready organization. We have made tangible progress on cost optimization, agenda organization, streamlining and a portfolio realignment all geared towards long term value creation. As we have shared with you earlier that we have taken help of Boston Consulting Group and almost all of these initiatives are being taken with their help we are working on a profitability augmentation agenda.
Losses from the new verticals which were about 160 crore last year we had pursued an agenda to bring them down at least by 25 to 30 crore. The first quarter has been a step in this direction and with a stringent focus on execution we believe that we should be able to meet our target and at least cut down these losses by about 25 to 30% and keep moving ahead in terms of making these initiatives profitable. In fact, while our focus is to on one hand make these new investments convert into the sales and profitability that we had foreseen at the same time within our own portfolio, if there are some verticals that have been lagging behind, they are actually being either shut down or merged with other large existing verticals to get the benefit of synergies.
New Lobster which was into our portfolio about two years back, as you’re aware it got impacted by the partner bankruptcies on the agency business front but we got our act together in terms of realigning the front end approach and therefore today we are very successfully leading a very lean and B2B wholesale LED model and our customer relationships are very strong. We are feeling very positive that this should be a good growth year for New Lobster on the entire 2526 and at the bare minimum we should be PDP positive this year with respect to new lobster.
And as I mentioned earlier, you know our cost transformation agenda with help of BCB is continuing very well and the initiatives across manpower, you know and curtaining the non essential spends are already spanning out. In fact BCG is also along with our internal IT teams are also helping us with adoption of AI tech across the value chain from design, pricing, costing, sourcing, quality check and cutting and swing and then finally on the reporting systems. The first two priorities that we have chosen in this AI tech driven value chain is number one pricing and costing and number two sourcing on pricing and costing the AI based pricing model considering the macroeconomic trends for example the Cotton Index inflation are being put in place to predict optimum price for each of the Tech tech orders.
In addition, we are also in dialogue with Blue Cactus for AI driven costing and planning. We believe this is going to tremendously help our efforts to synergize on the cost when it comes to fabric and trims. Secondly, on the sourcing, we are working on adoption of E auction platforms with AI capabilities to predict supplier scorecard, financial health and also take into account the regional and global prices. Therefore improve the efficiency of our procurement decisions and also the agility of it. So these two AI based initiatives across pricing and costing and sourcing would further help our efforts to combat any impact on the gross margin from the external front and try and maintain steady momentum going forward.
Maintaining a strong balance sheet and cash discipline have been a priority for us. Our net working capital days have improved. They were about 17 days at the end of quarter four and they have come down to close to 10 days at the end of quarter one. We continue to optimize our CapEx spend which we believe should be half of what it was last year and we are also aiming at at least 25 to 30% reduction in the working capital that was deployed last year. We believe curtailing spend capex working capital all should generate good amount of cash.
Therefore as a first step try and arrest any increase in finance costs and then bring it down. To summarize, we believe that the macroeconomic conditions now should slowly stabilize our well diversified sourcing model, well entrenched relationship with the customers. We believe that we are well placed to make the most of it. Yes, in the near term as we have been mentioning there have been disruptions but the medium to long term outlook remain very strong and backed up by the Solid Financial foundation and the trust of our partners and customers. With this I would like to invite our group CFO Mr.
Rahul Hauja to make you walk through the financial highlights of the quarter.
Rahul Ahuja — Chief Financial Officer
Thank you Sandhya. Good evening everyone. Let me now take you through the key financial highlights. For the first quarter of FY26 we reported a top line of 200999 crores, almost 3000 crores registering a growth of 14% year on year. Existing businesses grew by 7% and new verticals delivered 85% growth year on year. In spite of challenges faced due to US tariffs, sales to Americas increased by 26% year over year and the recently acquired mid gallery contributed approximately 1% to the total revenue during this quarter. That said, the gross margins declined by 139 basis points from 20.8% in QI FY25 to 19.4% this quarter.
This was primarily due to the impact of market disruptions and implications thereof on customers. Further impact of Ted Baker business and decline in high margin business of Gary Weber which declined from $18 million revenue in the same quarter last year to 9 million in this quarter and Matalan which declined from 24 million to 17 million. As far as top line is concerned and these are high margin businesses for us impacted our margins as well. In spite of various retailers facing bankruptcies and challenges, our credit recovery continues to remain robust and our strategy of doing largely insurance backed business has held us in good stead in these difficult times.
EBITDA for the quarter stood at 51 crore translating into an EBITDA margin of 1.7%. Other income increased to 40 crores compared to 20 crores in the same period last year largely on account of foreign exchange gains given the volatility we have seen wherein US dollar has depreciated against other prime currencies like GDP and Euro at an unprecedented level in the last three to four months. The other income also includes a significant portion of non current assets, money realized or funds realized from sale of non current assets and interest on TIP funds which are lying with us.
Finance costs increased primarily due to interest expenses related to large amount of factoring shifting from March to April given ease was in the last week of March and debt consolidated following mid gallery acquisition. However, on apples to apples comparison, after adjusting for bank charges that were regrouped in Q4 FY25, the interest cost has actually declined by 4% sequentially compared to the 14% increase on a reported basis. Profit after tax came in at 20 crores with a PAT margin of 0.7% compared to 1.2% in Q1FY25. The decline is largely attributed to a higher effective tax rate this quarter due to the implementation of Global Minimum Tax and that the same is applicable to most of the geographies where we operate including Hong Kong and Dubai which came into effect.
Dubai came into effect this year. Our effective tax rate increased from 13% in Q1 FY25 to close to 25% in Q1 reflecting the impact of Global Minimum Tax. We continue to work on optimizing tax to the best possible for our business. On the balance sheet side we are pleased to report good progress. Like Sanjay mentioned, net working capital days have improved from 10 days from 17 in the previous quarter. This is largely on account of very focused approach on working capital governance across our group and also the fact that Q1 is a relatively lower quarter in terms of volumes as compared to Q4.
Our gross debt reduced by 252 crores compared to March 2025. However, due to consolidation of Knit Gallery, it increased by about 96 crores. Given the working capital Knit Gallery needs as a business. Overall, it’s the reduction in net Debt was about 156 crores net of mid gallery which is lower by about 14% compared to March 25 levels. As part of our QRP proceeds utilization, 278 crores was deployed towards debt repayment and 24 crores was used for mid gallery acquisition. The remaining funds are earmarked for strategic growth opportunities and general corporate purpose. While we expect gross margin pressure to continue in FY26, particularly in H1, we expect that with our various initiatives underway, we believe we would still be on track to achieve our outlook for the year.
With that, we now open the floor for your questions. Thank you.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. The first question comes from the line of Deepak Ajmera from IGE India. Please go ahead.
Deepak Ajmera
Hello sir. Yeah, hi. Thank you for the opportunity. My first question to you is regarding market disruption. As you have highlighted in your opening remark about shrinking your gross margin. Can you provide more color from the same.
Reenah Joseph
Yeah, I think as later, Rahul was covering two of our customers, one in uk, one in Germany, for example, Gary Weber in Germany, which was nearly half of the top line of German subsidiary Techno, that customer went into administration and as a result the sales have significantly declined from that customer. So that’s the impact of market disruption. And Maclean, another UK based retailer, they had a lot of debt and the debt holder converted that to equity and that led to a change in management. And the current management is highly, highly price driven when it comes to procurement.
So therefore, you know, since they have been hammering too much on pricing, our sales to them have nearly halved. We are sustaining at that half level. So therefore these are some kind of disruption in Germany and in UK on the customer front that led to this. But what is Most important is that notwithstanding what happened with customer, our credit controls have led to a situation that all the dues have been fully recovered or are regular when it comes to ongoing business with Netland. So that’s very well ongoing with respect to them. And I think other than that there have been uncertain times in terms of the duties that have been, you know, there’s some lack of clarity as a result, there have been slowness in terms of order release by the customers and they have been from our customers in US and ask on that while they grapple with the duty impact on their procurement decisions, can we to a limited extent participate, which we have done as well.
So I think these two, three factors with respect specifically to customers and specific to the US situation have led to, while our growth has been steady, about 14% order will be strong, but have led to some pressure on margins in the short term.
Deepak Ajmera
Got it. And for the full year basis or in the medium term perspective, how should. We see the margins shaping up?
Sanjay Jain
See, as Rahul mentioned, I think for Q1, Q2 this pressure could be there. Hopefully with the recent developments around stability of tariffs, that’s one thing. But I think what is important for us is to pursue two things. Number one, that the value added businesses that we kind of included in our offerings, sourcing as a service and selectively the branch piece that we want to be carefully doing these margin accretive businesses as they keep shaping up. Thirdly, and very, very importantly, our internal efforts on the sourcing front. I think when I talk about gross margin level with the help of bcg, we are very confident that now we are into a stage wherein the impact of the effort on our fabric price procurements, on our trim price procurement.
I touched upon the usage of AI based enabled initiatives that are unfolding very well. That is on the gross margin front. So we feel in the H2 we should start benefiting from that on our EBITDA margin front. Between Gross margin and EBITDA, lot of the fixed cost in OPEC’s related initiatives that we have taken not only at the corporate level across the organization, they should also start benefiting from H2. So therefore the H1 could be impacted. But I think we should bounce back on H2 front with respect to especially the bigger margins.
Deepak Ajmera
Got it. And since now FTA with UK has been officially signed, so any kind of green shoots or any kind of commentary from your customer over there or excitement is coming up or how do you see that?
Sanjay Jain
Yes, we are I think super excited about it. You know, I just covered how Our sales have grown, you know, with respect to the three leading UK based retailers while these growth numbers are ahead of the FTA unfolding, but that only reflects the strong relationship and growing relationship with all these customers. We are in active dialogue with respect to on one hand, having Knit Gallery as an anchor factory, but at the same time, you know, hastening the process of bringing the contractually taken factories on board as well. In fact, one of the three companies that I mentioned, the, the CEO of one of the firms is also visiting in the next two months and we are taking them around to the parties that we have contracted.
So we are very positive to the unfolding of FTA and internally there is a lot of optimism, but given the overall situation, one is extremely cautious at present, but it’s unfolding very well.
Deepak Ajmera
Okay, thank you for. Thank you.
operator
Thank you. The next question comes from the nine of Duanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai
Hi, good afternoon everyone. Am I audible?
operator
Yes sir, Please go ahead.
Dhwanil Desai
Yeah, so my first question is, you know, we saw this contraction in gross margin. So I do understand some of the customers, you know, some, some events happen there. But if you can help us understand more in terms of this disruption, how it has translated into gross margin impact, that is one. And second, you know, we talked about BCG initiatives, you know, helping us improve gross margin. So this, you know, 25 crore saving that we are expecting in H2, is it more we should consider on the gross margin side or it is below gross margin.
Sanjay Jain
So let’s bucket a response to your question in three parts. I think on the first one, the declining gross margin is not attributable to an overall pressure on average selling price. No, that’s not the case. I think more or less we have been there. With respect to ASPs to customers. Yes. With respect to a bit of North American sales, which in any case are about 14, 15% of our portfolio and when we break that up into FOB and QTPA delivered. So to that extent we did participate with the customer to enable them offset it. That’s the first bucket of it. The second bucket, which I think is relevant in our case, which cannot be generalized is 2 relatively high margin portfolio high margin customers, Madeline and you know we mentioned about Gary Weber. So sales from them reducing in the relative proportion. So that’s, it’s more a question of mix there in relatively high margin customer sales reduced in Q1.
That’s the second bucket, the third bucket. To respond to your question on BCG, I think we’ve tried to split up the potential impact in two parts. I think the first part is on the opex which is about 25 crore. You know that’s something which is already measures taken on the opex part. The second part which is about 30 crore this year in H2 and minimum 60 crore next year is largely COGS driven. You know and you know this is this cogs driven saving. You know, we don’t want to it to be in a way an ad hoc measure that we try and go and negotiate the prices.
We want it to be institutionalized process e auction based, costing tool based whereby we have taken on board fabric trims and yarn experts. These people are able to see the huge volumes that PDS verticals are securing all across use the technology to try and drive healthy kind of competition among the suppliers. So that’s where we are. And processes have been identified, they are being under implementations. Therefore 30 crore this year, 60 crore next year is a benefit of COGS. That’s about the BCG part of Cox Savings.
Dhwanil Desai
Got it very clear. Second question Sanjay, is that there are a lot of things happening on the trade side of things and one of the key driver for growth for us was US market. So in the context of whatever tariff things are happening, do we see our scale up in US either getting delayed by few quarters and do we again need to revisit the number that we were targeting based on whatever is happening? What are you hearing from customers? What is your internal assessment if you can talk about that. In fact our vice chairman Palak Seth is in Turkey at present and en route to us as well. So why don’t I request him to take this one, you know. So Palak, would you like to please address it?
Sanjay Jain
Can you repeat the question again? So I can.
Reenah Joseph
I think the question was with respect to. Sorry, you go ahead, why don’t you repeat it?
Dhwanil Desai
Yeah. So the question is that, you know, a lot of things are happening on the trade side, you know, across the across geographies. Especially in US now given all that, you know, we had one of the key growth driver for us, for the US market. So in the context of changing scenario, how do we see the US business for next three years? Do we need to recalibrate either the timeline or the quantum of the business that we were anticipating?
Sanjay Jain
Yeah. So I think my answer would have been different if you asked the question day before versus today. Because yesterday now Trump has finally come, I cannot say ever finally. But he’s come with a final view which is the first deadline on tariffs. So tariffs is where the Whole global industry will start shifting because, you know, the rates of tariffs, not 2, 3, 5%, they’re quite high. So what had initially started as a China US Issue quickly became a global issue with us. You know, the way Trump came up with the tariffs three, four months ago.
So based on what has been declared yesterday, you know, we were quite concerned till day before that Bangladesh, which is a big production country for us, the US market was going up to 35% tariffs. Right. Which was going to make it unviable. And we started getting a lot of customer inquiries to ship the Bangladesh business out to other countries like Central America and Africa, where we have established strong presence. Now, finally, the tariff announcement that came is showing Bangladesh in line with other countries of like Vietnam is 20, Bangladesh is 20, Indonesia is 19, Pakistan is 19, India 25.
So they’re all. Sri Lanka is 20. So they’re all within the 5% difference from each other. Right. Honestly, we were expecting India to be much less. It is quite shocking that Trump immediately moved from India being one of the most favored trading partners to trying to do the India trade at 25%. And if anything further, they do with the whole Russia side of trade. That could impact the tariffs rate from India as well, which is not really good news, to be honest, for India trade with the US but saying that PBS’s big business with the US is centered around Central America, Africa and Vietnam and Bangladesh.
So the flow of territories which have been announced there, the tariffs are quite favorable as far as PBS is concerned. And we see a big positive trajectory for our growth of business there. In the last three, four months, we’ve added, actually have added a lot of good customers because as I said in my previous conference call, it takes time, six months, nine months, 12 months to onboard a customer. So once a US customer gets onboarded, they’re going to do hundreds of millions of business. When I say it can grow to that in the next three to five years, it’s not going to be small account.
So From a Walmart US to a Target US, American Eagle, PBH, Ralph Lauren, Ross Stores, TJ Maxx, all the biggest. Out of the top 10 biggest clothing retailers in the US almost seven, eight of them have opened a PBS account. So obviously they saw value in what he did, either in design or a global kind of offer or the kind of services we offer, the retailers have opened the account in a scenario where they are not really adding new vendors. So it’s been a very positive outcome based on the investment we started not more than 18 months ago to have so many big retailers opened accounts.
So now sampling is going on, costing is going on, the vendor account is open. So it’s moving the right trajectory. So we feel very confident based on our production country customer account open that we are in the right direction and you know, us business should pick up for us in the right way. So I think overall is better than what you’d expect it to be honest based on the traction we got and also the kind of offer we’re getting.
Deepak Ajmera
Yeah, thank you. I have more questions. I’ll come back.
operator
Thank you. Before we proceed with the next part, a reminder to all participants, you may press star and one to ask a question. Thank you. The next question comes from the line of Bhavya Gandhi from Dalal and Brocha. Stop smoking. Please. Go ahead.
Bhavya Gandhi
Yeah, thanks for the opportunity. My first question was regarding the tax rate. You mentioned that the tax rate is going to be higher going forward. Could you just elaborate something on that front as well? Because historically it has been in the range of 10 odd percent.
Sanjay Jain
So. Yeah. The new tariffs, right. So for Bangladesh they’ve done 20 tariffs. Right. For Vietnam is 20, for India it’s 25, for China 55. So more or less what is announced now is basically, you know, what is they’re expecting to continue for the future.
Bhavya Gandhi
So I’m talking about the effective tax rate. I understand.
Reenah Joseph
Yeah. So basically, you know, you would be. Aware that the whole world is moving towards what we call pillar two, which is a global tax regime where the minimum tax in any geography would be 15%. Lot of countries till last year were evaluating adoption of this. However, the geographies where we operate in two main countries, Hong Kong and uae, where a large part of our business is booked, adopted this. Hong Kong adopted this from the start of this year and UAE also has adopted the same global taxation now going forward we will be subject to a minimum 15%. UAE earlier was close to zero.
Hong Kong, depending on whether you are onshore or offshore. The tax rates were pegged accordingly. Onshore was 16 and a half, offshore was again zero. So we have been saying in the quarterly calls in the past one year that we also are making our projections in line with the global tax regime which is coming particularly in the geographies. And this impact that you see of an additional almost like two, two and a half crores in this quarter is largely on account of tax being levied in geographies where we make money. While that said, we continue to optimize tax within the rule books as much as possible.
But this is Something that was always factored in our projections.
Bhavya Gandhi
Okay, so can we expect like effective tax rate to be around 24, 25% going forward forever?
Reenah Joseph
So I think, you know, like I said, there will be measures that we will take as time unfolds to optimize tax to its best possible. And we expect, you know, it to be anywhere around 15 to 18% range, depending on where we make profits, you know, because as I said, we operate in high tax jurisdictions like Germany and UK as well, which have adopted the global tax regime much earlier. And it all depends on the mix of profits, which geography is coming from.
Bhavya Gandhi
Okay, is it possible to say the effective tax rate maybe for next couple of years?
Sanjay Jain
So as I said, it will be in the range of, you know, let’s say 15 to 18% is what, you know, we have, we are projecting in our financials. But there could be a variance to that, depending the assumptions we have taken on with geography, how much business and profit will come. If there’s a variance to that, maybe it will move by let’s say 50 basis points to a percent, but broadly it will be in this range.
Bhavya Gandhi
Fair enough. And my second question was regarding, although I understand that India signed an FTA with uk, but obviously the demand shifts from one region, manufacturing or sourcing changes from one region to another. So I don’t understand where will the incremental demand come from or why so much positivity around maybe India, uk, fta? Because we are any which we are sourcing largely from Bangladesh and maybe we shift the base to India hypothetically. But on the overall revenue, how does it really impact, right? I mean the demand overall 100. Suppose if the demand is 100, that is not going to incrementally change.
Right. So if you can throw some light.
Reenah Joseph
On that as well. So I think it’s been sourcing shift. You know, people are trying to cap Bangladesh to a certain level. If a retail already 45, 50% of the sources is Bangladesh, they’ve been told to reduce it to 35% right. So they don’t have any complete dependency. So because of this now a lot of details are coming to pds and can we set up India operation like Primark? We’re talking about a joint venture, it could do 100 million with Primark next three years. You know, based on the specific team we have set up for them and 10 factories we have added.
That’s basically movement of business from Bangladesh and China to India to de risk their geographical presence.
Sanjay Jain
So you have to see the FTA India signed with uk, not in isolation, but what’s happening in the world as well, because there is this China plus one which started happening, you know, years back then, unfortunately things happened in Bangladesh. If you see all of this put together, the big retailer, the discussion in their boardroom is that they need to diversify their sourcing or mitigate their risk. And hence India is one of the countries which will stand to benefit. And UK FDA comes at the very right time, which gives us an advantage as far as costing is concerned for the manufacturing entities and hence it, India could win in a big way.
Bhavya Gandhi
Just one more question if I can just on the US tariff, understand, how are the retailers and brands approaching you? Are they asking you to share some burden or how is it like? Or you are also asking your manufacturers to share the burden. How is it like? If you can just throw some light. On the tariff sharing, at least between. The retailers and the manufacturers, how is it like.
Reenah Joseph
You know, so the recent announcement 25% has come, you know, barely 24, 36 hours back. So we are in dialogue with our customers. Given that we have a finite number that we can discuss now. But just to give you a flavor, when across the board, 10% additional tariff was levied, we would, we discussed this with our customers and broadly on a broad average basis across a wide spectrum of customers. The distribution was that, let’s say if the increase was $10, around 6 to $7, the customer was willing to absorb our factories, we could discuss and negotiate with the factories around anywhere between three dollars to three and a half dollars and maybe a small impact to us, which also over a period of time we would extract from the yarn suppliers, fabric suppliers.
So given that we are a sourcing company, the impact on our P and L is almost negligible. And we expect the same conversation to happen in the next couple of weeks now that tariffs for each and every country have been announced. So that’s broadly the mix. We don’t expect RNL to be hit in any significant way because of tariffs coming in because of customer absorbing and our supply chain absorbing the balance.
Bhavya Gandhi
Right. And just one more thing, overall competitive intensity when it comes to the European markets and the UK market because I believe a lot of players have now shifted their base and started looking at Europe seriously versus us, considering the challenges of tariff and supply issues, demand impact as well. So are we seeing any competitive intensity scaling up in the Albion region or the UK region?
Sanjay Jain
So as I mentioned, you know, it differentiates from one customer to another. There was one customer, Matalan, which has been highly priced Sensitive and price driven. And there let it be. We have allowed sales to go down because our motto is strategic relationships. And in such strategic relationships, you know, therefore we are part of their global sourcing strategy. For example, in Primark, you know, wherein we do about $260 million of annual business, we are part of your strategic vendor council. And there, if they are looking beyond say Bangladesh, then we are well entrenched, well in place to discuss with them about their sourcing from India.
As Palat mentioned earlier, we are exploring a joint discussion with them. Tesco, another customer, they wanted to increase sourcing from Turkey. We are well placed. So therefore PDS model and PDS approach number one of strategic relationship and the model of having a global sourcing base allows us to make the most of it. But if there’s any customer who’s only approaching it from a price perspective, I think then let it be. Yeah, fair enough.
Bhavya Gandhi
Yeah, great. Thank you.
Sanjay Jain
Can we move to the next one? Thank you.
operator
Thank you. The next question comes from the line of Rohit from iPod PMS. Please go ahead.
Rohit from
Hello, Good afternoon sir. Am I audible?
operator
Yes, sir, you’re audible. Please go ahead.
Rohit from
Sir. Just a couple of questions. I think some of those questions were answered. So sir, you outlined around 150 crores of cost saving in FY26 in terms of the initiatives you mentioned. And some of it is related to gross margin which you outlined. But the ones below the gross margin like given there is so much of uncertainty and in terms of growth as well. So how confident you are to sort of bake those in this financial year? That was my first question.
Sanjay Jain
So these, if I understood it correctly, you’re talking about cost benefits below the cogs level. So they are largely OPEX related. And I think if we go in the order of what we have covered in our investor release, our new business initiatives, we have their budgets for this year with us. We have intensified our engagement with them to make sure that the budgets are delivered. So that gives us the confidence that there would at least be a 25 to 30% reduction versus the investment through P and L we made last year. That is number one and number two, the ball is rolling.
So therefore in Q1 we are already 13% better 13 and I think add more quarters come by. This percentage would only improve, that is number one on the manpower 25 for benefit in Q3 and Q4. All of this has been executed. You know, we’ve kind of taken measures but you know these things, there is always a cost of getting rid of a cost you know, there is whether if it is taking journal, any human, any employee, it’s a notice period, etc. So all of that in compliance with laws of land have been initiated. And you know, so therefore in H2 the benefits will come.
This has been done at corporate level and this has been done at vertical levels as well. And so therefore these are underway. You know, new lobster. We have, you know, done three rounds of internal restructuring, the manpower to align to a B2B kind of organization. So that I think SAP has stabilized. So therefore more efficiency. So that is something that is going to unfold. And lastly, you know, while your question was more below the cogs, I think even on cogs as well, as I mentioned earlier, with the help of bcg, a lot of homework has been done and as the practices are being put into place.
So we are confident in fact on the new, on the existing. But loss making verticals, the shutdown of one of them merging one small one with a large one, merging a large one with another large one, all of that is already under execution. So there is nothing that is futuristic here.
Rohit from
That’s good to hear, sir. So sir, on the gross margin side, so you mentioned that couple of high margin accounts went away because of their own issues. So how do you see that recovery now given that they have now or they are struggling? So how do you see that recovery in terms of the gross margin for this year and probably going forward in the near term, let’s say FY 26, 27.
Sanjay Jain
So for a vertical, for example, like I think firstly the recovery let us see in twofold in gross margin and EBITDA margin. I think eventually, yes, gross margin is important, but eventually our aim is to maximize EBITDA margin. So the trajectory of the two that should unfold, I think the impact of Gary Weber should be neutralized. We have already started contracting new customers, but the benefits would only flow in H2. More specifically in quarter four in case of business techno, you know, our model has been entrepreneurial. So therefore Techno Germany realized that one of the last customer has gone.
As a result, they have actually taken immediate measures to get rid of fixed cost. On one hand, that is immediate benefit, but then started contracting new customers. So that should therefore start benefiting gross margin and more specifically EBITDA margin, that is number one. New Lobster I think has been under pressure, but the measures that have been taken should start unfolding. So therefore customer level inclusion into the overall sales mix should benefit our new verticals. I think we are very closely working on them. We see them ramping up their sales in H2. That should be gross margin and more specifically EBITDA margin accretive and thirdly the initiatives on cogs supported by bcb.
So therefore these three things are giving us a lot of positivity in terms of being able to see a good trajectory. And in fact I mentioned about techno vertical getting impacted by Gary Weber. They have already got TCP as a new customer on board and customer has the documents have been signed and therefore gearing up, ramping up sale will all start becoming an H2. So that’s where we are on the margin trajectory.
Bhavya Gandhi
Sure. Sir, just two more questions. One was so, I mean last year we grew quite well in terms of top line. This year also top line looks very good given the challenges that we are generally witnessing across the world. How do you see the growth this year? I mean given that, the uncertainty of course right now it seems that at least we have some semblance of clarity. But given that it’s always shifting. So how do you see the growth this year? And in the context of the targets that you have outlined, I think the 333 and 555, what is your sense? In the last call I think you were sort of saying that probably we’ll have some shift in that, but would love to hear that.
And I have one more question after this, please.
Sanjay Jain
We had foreseen mid teens as the growth for the entire year. We’ve been closer to that in quarter one at about 14 plus percentage. I think we continue to maintain that notwithstanding that their customers are taking a little longer time. But I think we are well trenched to get a mid teens kind of growth for the entire year. Yes. So that’s where we stand on the growth front.
Bhavya Gandhi
Got it. And very good improvement on the cash flows and working capital, Sir. Congratulations to the team. So going forward, more can we expect this trend to continue or this is like the sort of reach the optimum level here.
Rahul Ahuja
So you know, to answer your question, the efforts obviously will continue through the year. We remain very, very focused on containing our balance sheet and working towards reducing working capital. But that said, it’s also a factor of, you know, the top line growth because for us the facilities are largely working capital in nature. But yes, we will continue to make efforts to ensure that our working capital moves to a single digit from let’s say 1670 days level. It was at the end of last financial year.
Bhavya Gandhi
Okay. And so just on the finance process then so do we see that like the finance cost at an absolute level probably will be around with the growth will probably be lower than what it was last year.
Sanjay Jain
I wouldn’t say it will be lower than last year. Like I said, our facilities are not term loans or overdrafts. It’s all linked to trade finance, the flows and the order book that we have. But that said the increase in if any in our finance cost will be marginal over the last year because we are like Sanjay said projecting a growth of almost mid teens for the current financial year. Our order book tells us that that should be possible. So there will be a marginal increase in our finance cost. But that said if there is a rate cut and all that could counterbalance that as well.
Bhavya Gandhi
Thank you. I’ll join back Question all the very best. Thank you.
operator
Thank you. The next question comes from the line of Rudra from I thought Financial Consulting. Please go ahead.
Unidentified Participant
Yeah, thanks for the opportunity. Sir, congrats on thanks for incorporating even more descriptive slide this. It was very helpful for us. For us. I think my question was briefly touched upon by you in the previous by the previous call itself I wanted to double check on the sourcing as a service business segment. You said we won a few more contracts on that to counter what we would lost on the Yeriweber contract but. Would we be able to neutralize it. Completely or will we be seeing a possible hit in that segment for this year?
Sanjay Jain
So our sourcing as a service business has grown while we getty members firstly was not a sourcing and a service contract for us. It the whole revenue, full revenue was booked through our counters. We the business that we lost was that of Haynes of USA which was about 35 to 40 million dollars and we have been able to largely replace it with the few contracts we have signed with ASDA or even in our Turkey business there have been some additions so we expect a growth of closer to 20% year over year in our sourcing overservice business.
Unidentified Participant
Understood. And sir, we would be going ahead with that outlook in the future as well if my understanding is correct.
Sanjay Jain
Yes, that does that. So we are having some conversations and like Sanjay mentioned, these are difficult times across the globe. Hence the customer is taking much longer to make a decision or shift their business from one counterparty to the other or accept a new way of doing business. But that said there are many conversations on and we are hopeful that a few of them should convert hence enabling us to deliver 18 to 20%.
Unidentified Participant
Understood sir. And sir with given that it is a very challenging environment, are we seeing any more cost saving actions from any other prominent accounts like you have hinted about Marty Lannan last fall or maybe even before that. So are we seeing any signs from any bigger clients of ours? Something like that.
Sanjay Jain
So see nothing that is of similar nature as the two customers that we talked about. I think the retail sector in general has been under tremendous pressure for the reasons we all know. So therefore the customers expect us to strategically play a role with them in their price expectations and we try and do that through on one hand, an optimum sourcing strategy and B increasingly now driving efficiency out of the cogs procurement processes. So these are in the normal course of business at this stage as we are discussing with you, we are not expecting any such disruptions that happened across Gary Weber.
So I think the rest is all in normal course.
Unidentified Participant
Got it, sir. Answer. Any updates on establishing new sourcing locations? Last call you mentioned you were working on Latam and Africa, something on that front.
Sanjay Jain
We already have a team now in Egypt. You know, there is already a senior seasoned gentleman there helping us enter into partnership with local factories. And we already are also in Mexico as well trying to, you know, feed into us from Latin America sourcing. And Turkey, you know, has been our presence for many years now. We in fact are putting a lot of, a lot of our customers, you know, I mentioned what Tesco as well are wanting to increase their sourcing from Turkey. Near shoring has been on cards to mitigate the impacts of inventory. So therefore we are trying, we are A leveraging the presence and B trying to go even more broader to reach out to more factories.
So these three plus of course we have talked about India, you know, Net Gallery acquisition we believe has been very timely for us and therefore should enable us get the benefits.
Unidentified Participant
Understood sir, understood. Thank you.
operator
Thank you. The next question, the next follow up question comes from the line of Dwanil Desai from Turtle Capital. Please go ahead.
Dhwanil Desai
One question. If I look at the investment in new initiatives, brand management still takes a lion’s share and given that, you know, kind of experience that we have had in, you know, 10 packer, you know how you guys are looking at brand management business key scale up, you know, are we recalibrating? Will this number significantly go down over this year, next year, you know, if you can.
Rahul Ahuja
So I think the design led sourcing relatively speaking is a low gestation business, you know, wherein you have an existing identified customer and you set up a proper supply chain sourcing base and therefore the time to make money is far lesser brands relatively difficult, relatively longer gestation and therefore you see more money getting invested into it. But I think what is important to note here is that we are not trying to do a B2C here. We are trying to leverage on our B2B relationships and see how, how in our existing distribution with our large retailers we can try and push through brands.
So to that extent we feel positive. It’s taking time but we feel positive. New Lobster has been a learning. I think somewhere New Lobster is the Ted Baker brand wherein one of the leading IPR ownership companies went ahead with Ted Baker brand. We counted on their diligence because at the end of the day the franchisee partners that they had in UK and us are appointed by them. And we counted on their diligence and therefore went ahead and you know, their own appointed partners went to administration. That has been a learning. But quickly, you know, we have tried to turn that from a B2C store based model to more B2B so they are learning alongside.
So to that extent, you know, we will implement them in the future. But having said that, I think, you know, we are cautious, we are focused on balance sheet but we are keeping an eye on the unfolding of opportunities. There is a similar franchisee brand based model, very active in the Middle east, you know, having a license of some US originated brands, profitable company, you know, for example, just to talk about that, there is an existing licensing companies focused on Middle east sales, good blue chip set of customers, profitable. So we’re keeping an eye and as we look ahead carefully to get some stake into them, all the learnings of New Lobster, all internal learnings would be put to practice.
Dhwanil Desai
Okay, thank you.
operator
Thank you ladies and gentlemen. We’ll take this as the last question for today. I would now like to hand the conference over to the management for closing comments.
Sanjay Jain
Thank you so much everyone for taking time out to be part of our call. And we wish everybody a good evening and a good weekend ahead. Thank you.
operator
Thank you very much on behalf of PDS limited. That concludes the this conference. Thank you all for joining us and you may now disconnect your lines. It.