PDS Limited (NSE: PDSL) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Sanjay Jain — Chief Executive Officer
Rahul Ahuja — Chief Financial Officer
Unidentified Speaker
Pallak Seth — Vice Chairman & Director
Reenah Joseph — Deputy Chief Financial Officer
Analysts:
Diwakar Pingle — Analyst
Pritesh — Analyst
Ashutosh Somani — Analyst
Rahul Bhansali — Analyst
Shrinjana Mittal — Analyst
Mohammed Patel — Analyst
Unidentified Participant
Aditya — Analyst
Deven Kulkarni — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the PDS Limited Q2 and H1 FY 2025 Investor Conference Call. [Operator Instructions] Please note that, this conference call is being recorded. I now hand the conference over to Mr. Diwakar Pingle from E&Y. Thank you, and over to you, sir.
Diwakar Pingle — Analyst
Thank you, Siddhant. A very warm welcome to all the participants for the PDS Limited Q2 FY ’25 Earnings Call. Our investor presentation and the financial results that are available on the company’s website and the stock exchanges. Please note retains call, which reflects our outlets of the future, which can be considered in the forward-looking statements be viewed in connection the risk of the company faces.
This conference call is being recorded and a transcript along with audio will be made available investor of the content capital changes. Please note that the audio this conference call to copyright PDS Limited, and should not be copied or rebroadcasted particularly personal media with a specific and written consent of the company.
To give you a brief business update and take the of the results from management team, we have Mr. Pallak Seth, Executive Vice Chairman; Mr. Sanjay Jain, Group CEO; Mr. Rahul Ahuja, Group CFO; and Ms. Reenah Joseph, Deputy CFO.
I now request Mr. Sanjay Jain with a brief update for the quarter. Over to Sanjay.
Sanjay Jain — Chief Executive Officer
Thank you, Diwakar. A very good afternoon and good evening to our stakeholders across time zones, and thank you for joining us. I also want to extend a very warm wishes to everyone for the Diwali festivities around us. And a very warm welcome to a and H1 FY 2025 Earnings Call.
Before discussing our quarterly performance, allow me to briefly touch on the economic and industry trends that may impact our business in the shop in near term. On a positive note, global efforts to control inflation are beginning to show results. Although some regions are still creating price pressures, but inflation is nearing central bank targets in many countries and thereby opening the doors for a potential monetary even. The global economy has proven business.
One is witnessing growth in U.S. and modest recovery is expected in Europe. Emerging markets, especially in Asia, are holding a stable outlook. While this provides a foundation of stability, this provides a foundation that there could be more and more monetary easing supporting the spend. But if the high interested continued geopolitical uncertainties in some part of the world and also some rising tensions. There remain as potential headwinds to growth and could exert upward pressure on inflation.
However, on the whole, we believe that there is positivity that is giving traction. Now, moving on to our performance for the quarter and the first half of FY 2025. I’m very pleased to share with you that the growth momentum has been strong both over the previous year and also in terms of the previous quarter. Even going forward as well, at this stage, we are expecting the growth momentum to continue, which is getting reflected in our order book for the year.
Our order for quarters ended September stand at about USD620 million which is almost 20% higher as compared to the same period last year. During our first half, the gross merchandise value crossed USD1.1 billion which is 39% higher than the same period last year. We also achieved a 29% growth in our income from operations compared to last year with a top line of INR5,927 crores.
In the second quarter, the company recorded the highest quarterly sales of INR3,306 crores at a growth of 26% versus the first quarter. And as I mentioned earlier, with the strong order book in hand, we believe that the growth momentum was 20% plus to continue and impact in our two factories in Bangladesh, we’re pretty much fully sold for quarter three and quarter four, and we’re beginning to get good order traction for the quarter one of next financial year as well.
The growth was broad-based across categories and geographies. In line with our strategic administrative, we have registered a remarkable 62% growth sales coming in from North America customers.Amongst our customer base, our top 20 customers reported overall a 30% growth, it is underscoring the trend of our relationships and the widened service offerings, thereby having a larger share of wallet for the customers as we move along.In terms of our business verticals, our top verticals on one hand, delivered 33% year-over-year growth in the first half of the year and achieved profit margin expansion with profit before tax margins improving from 4.9% to 5.1%.
Our investments in new verticals, which, as you know, in our case, happens to our P&L has also started a business a downward trend. We invested about $5.8 million circa INR48 crores in quarter one, and it is now down to $4.3 million circa INR36 crores in quarter two.We’ve also seen green shoots in our design sourcing business, new initiatives wherein from a position of losses in the quarter one, loss I mean in terms of the investment phase in design sourcing business. These are actually turn profitable in Q2 largely driven by one of our recently launched [indecipherable] businesses. We continue to closely monitor our sales initiatives or implement corrective actions to drive profitability enhancements.
Regarding our acquisition of the Ted Baker wholesale business, while we started on a very strong footing, we encountered the challenges with some retail partners in the U.K., Europe and the U.S. and keen to administration. When I say retail partner, we were the franchisees chosen by Authentic Brands Group where in the partners that we have chosen in U.K. and Europe and U.S. face administration.
But given our strong B2B relationships that have been in place, we made more focus on wholesale revenue. We also took corrective stems at the cost front, quickly realigned our cost base so that while as ADG appoints new franchisees, we are, in a way, not remain too much dependence on that and we created a plan that in line with our own wholesale relationships, we actually are feeling positive that this year, we should have a 10%-plus growth in our Ted Baker business over last year and could continue to be profitable.
What is good is that while there was a bankruptcy or administration of the U.S. partner, subsequently, ADG has announced a partnership, United Medwear [phonetic] and Apparel for the U.S. and Canada operations and the online operations across U.K. and Europe. So this should be an upside to the internal measures that we have taken.So therefore, we believe the tough couple of quarters that happened are behind us. and we remain positive about sustaining close to 10% growth in the next one to three years and also see a gradual augmentation of profitability.
During the quarter, very thankful to the support that we got from our existing stakeholders that up in there and the new investors who participated in the qualified institutional placement enabling us to raise about INR430 crores. We have allocated INR84 crores to repay debt in our U.K. entity, and while the remaining INR330 crores has been line with fixed deposit pending deployment.
Looking ahead to summarize, we’re enthusiastic about the opportunities before us and are confident in our strategy to deliver long-term value to our shareholders, customers, and our stakeholders.We started the year on a cautious note, had put in a plan to remain ahead of the strong headwinds. But we’ve been so far ahead of it in terms of what we have foreseen as top line growth for the entire year. And we also believe that we should be in a position to achieve better profitability than what we have foreseen in the beginning of the year.
With this, I would like to turn the call over to our Group CFO, Mr. Rahul Ahuja, who will provide an overview of our financial performance for the quarter and for the half year.
Rahul Ahuja — Chief Financial Officer
Thank you, Sanjay. Good afternoon to all. And building on the momentum we saw in Q1 FY ’25, I’m pleased to report that this quarter has continued to reflect strong growth. We achieved the top line INR2,306 crores, looking at sequential growth of 26% and a Y-o-Y growth of 34%. Our gross profit increased by 19% in Q2 FY ’25 compared to Q1. However, we did experience some pressure on gross margins. Despite this, the robust growth allowed us to capitalize on operating synergies with EBITDA margins expanding from 2.8% in Q1 to 4.5% this quarter.
Given the growth in top line and the cost optimization measures, as a percentage of income from operations, our employee expense declined to 8.8% from 10.4% in Q1. Our other expenses also declined to 6.3% from — in Q2 from 7.6% in Q1. This clearly shows operating leverage sitting in our business, given the robust growth in top line.
When you look at the above — sorry, this translated into a 103% sequential increase in EBITDA, achieving margins of 4.5% this quarter with PAT increasing by 199%, developing NPAT margin of 2.8%. When we look at the above, excluding our investments that happened through the P&L that Sanjay spoke about, normalized EBITDA margin rose to 6% in Q2 FY ’25 and to 5.5% in H1 FY ’25.
Adjusted for these new verticals, our PAT margin for Q2 FY ’25 was 4.3% and 3.8% for first half. As we drive scale, synergies and leverage. We anticipate that these new investments will start contributing positively to our bottom line over the coming quarters.On segmental performance, our sourcing business posted a year-over-year revenue growth of 29% for the half year ended September 30, 2024, generating INR5,716 crores in revenue, with EBIT margins of 3.8% to 3.1% and delivering a strong return on capital employed of 30%.
Our Manufacturing segment delivered a robust growth of 71% year-over-year, achieving a top line of INR366 crores with an EBIT margin of 4.7%. We continue to focus on margin expansion in our Manufacturing segment and are pleased with the performance in spite of various macro challenges that unraveled in Bangladesh over the last few months.
Moving to the balance sheet. As of September 30, 2024, our net debt stands at INR12 crores, which includes INR330 crores of QIP proceeds which are yet to be deployed. As expected, with strong growth, our working capital has expanded. However, net working capital days remain steady at 10 days compared to the same period last year.
We expect this to normalize as a portion is due to timing differences impacting. Our leverage ratios remain pretty robust with net debt to EBITDA at 0.3 and net debt to equity at 0.07. Lastly, we are pleased to declare an internal dividend of INR1.65 per share, commodity to 25% of our profits allocated to equity shareholders, aligning with our dividend policy.In summary, our performance this quarter reflects the resilience and scalability of our business. We are focused on maintaining this growth momentum to achieve sustainable, profitable growth, delivering value for all our stakeholders.
With that, I would like to invite the moderator to open the floor for questions, and we’ll be happy to address that. Thank you.
Unidentified Speaker
So, I just wanted to add Rahul that as we’re opening up, Vice Chairman, Mr. Pallak Seth also joined, who’s is in Hong Kong. So among the three of us we shall be taking the question, please.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session [Operator Instructions] Our first question is from the line of Pritesh from Lucky Securities. Please go ahead.
Pritesh
Yes, sir, my question is on gross margins. So if you look at the last eight, 10 quarters now, with about 300 basis points lower gross margin. Can you highlight the key reasons for these 300 bps? And what will be the future trajectory on this gross margin protection?
Sanjay Jain
Yes. Hi. This is Sanjay here. I think if I talk about our medium- to long-term horizon, then we are confident about the gross margin project to improve on the factors like we’ve been investing into sourcing of a service business that is giving the traction. So therefore, the contribution from that high-margin business, likewise manufacturing is growing rapidly.
Our brand initiative, a lot of our new initiatives, new investments are in brands as they start buying in. Our third vehicle business in the last few months got impacted because of the reasons we mentioned. So therefore, this high-margin business as of the infection. So we believe a portfolio that we are building in our medium- to longer-term projects, the margin should head upwards.
But when you observe it over near-term quarters, then they may go a little up and down depending on how the market situation is. We have witnessed close to 15%, 16% volume growth. We also witnessed close to 14%, 15% average sales price growth in the first six months. So at present, I think the entire value chain, whether it is the retailer in the front end and supporting them are focused on supporting the sales section momentum that has got built in.
Customer is coming back to section momentum is built up. That has happened at the expense of in the price. But I guess, these are short-term quarterly phenomenon. In about two, three quarters, we should once again see upward trajectory of margin. And one more thing that I want to add here, which is that on our cost optimization with respect to procurement initiatives. We have started investing, and next quarter is going to be the first quarter wherein we believe we should significantly benefit from it. Could you summarize medium- to long-term after-product in the short term to support the growth, we may observe for one or two quarters and margin to be under pressure. At the gross margin level, not at the operating margin level.
Pritesh
Yes, I understand, first of all, why has it shun so, is it that the supply in the system is higher and hence, the brands are able to squeeze a lower GP number for the suppliers? Is it that way? Or is it that PDS themselves have taken some business at integral gross margin managerial?
Sanjay Jain
PDS, as terms of philosophy always believes that we are into a strategic relationship with our customers, and we should support their growth. And now the fastest account that we have seen in terms of growth in the first six months have been Primark as an account. And as you know, Primark is close to about $10 billion to $12 billion retailer, growing very, very efficiently going very strong.
They were growing and we decided to grow along with them. That means in my portfolio, a business which is very, very cost competitive and therefore, giving you high growth but for the — one or two quarters has put a pressure on margins. So therefore, I don’t think PDS has kind of resorted to lowering prices. PDS have decided to go in line with this customer. one more factor, technical factor, as I mentioned about technical, which if I go a little deeper into that as well, that our — in the last four, five months, as the retail franchise of ADG went into administration, they’ve got the ones who were generating agency income for while on one hand or wholesale, which is my direct billing to retailer, but agency income was my commission about 10%, but was getting from the retail franchise.
Tier operations almost ceased last three, four months. We have just announced the appointment of their partner for U.S. market and also for the online market of UK. So as we gained traction, I think what we lost as a margin on the L&T commission should come back as well. So we would not let the business go away. We would get it into our fold, and then we will work towards in the one quarter, two quarter, three quarter, how do my synergies cost optimization, I get my margin target feedback.
Pritesh
Okay. And my last question is sourcing as a service. That piece of the business, what is it in half year in terms of revenue book in your P&L? And what is the growth on sourcing as a service?
Sanjay Jain
Yes. I’m just going to answer you in one minute in terms of the specific numbers. Yes. So our GMV in the first half has been at about USD400 million which has been 100% growth over the same period last year. The revenue that we booked in SaaS over this $400 million GMV is about USD9 million in the first half and the contribution that gives us related to our bottom line is 3 million, almost 33%. So therefore, $400 million GMV with 100% growth, $9 million of revenue in the first six months and $3 million of PBT contribution, which is almost 33% of the revenue.
Pritesh
What is the growth of the $9 million? Is it also 100% or lower?
Sanjay Jain
It is also close to 100% down to the U.S.
Pritesh
Okay. We want to share the outlook on this software as a service what we see as a revenue is $9 million, what you see in FY 2025 and FY 2026?
Sanjay Jain
So, I guess, as of now, when we are talking about 100% growth over the same period last year, I think a more sustainable number, if you talk about the next 2-year horizon is more in the vicinity of 30% to 40% because right now, we’re going from a low base. The customers are beginning to see the benefit of that some of the very, very large retail customer like same stories in Primark as well are beginning to engage with PDS to start evaluating social product. So therefore, if these engagements turn into tangible results, one could at least see 100% growth year-over-year. But notwithstanding these engagements, we believe in the next two years, 35% to 40% is the maintainable growth rate for this new offering of ours.
Pritesh
Okay. Thank you very much and all the best and happy diwali.
Sanjay Jain
Thank you.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Ashutosh Somani from JM Financial. Please go ahead.
Ashutosh Somani
Thanks for taking my question sir. My question is on the cash flow. So I see a negative cash generated from operations with some perceptions product to two line items. One is change in other assets and the other is the change in trade payables. So can you specify what is there is change in other assets?
Sanjay Jain
So are you talking about a $33 million number?
Ashutosh Somani
You have published a cash flow statement in the result. And it says net cash generated from operating activities is a negative number. Just if you could clarify the change in other assets, which seems to be a larger amount and the other negative number again change in trade payables. Just some color would be great.
Sanjay Jain
Yes, yes. So as far as trading in current assets or other assets is concerned, this has three, four components. There is a inventory receivables and payments, payables component of about $15 million, which is about INR120 crores INR125 crores that is coming in there. And then there are advances to vendors given the robust increase in our order book and performance. So there has been an uptick as far as business with our vendor is concerned. So that’s a number of about $14 million, which is again similar to about INR115 crores to INR120 crores. So these are two large components. Another one being direct taxes paid during this period. Of close to INR26 crores. So these three are the key components of this line item.
Ashutosh Somani
Thank you, sir. That’s answers my questions.
Operator
Thank you [Operator Instructions] Our next question is from the line of Rahul Bhansali [Phonetic] from Rami Capital. Please go ahead.
Rahul Bhansali
Yes. Hi. I wanted ask — about the — yes, sorry. So I wanted to ask about the SaaS contract with Hanes that was discontinued. So I just wanted to understand whether that will hamper any plans that we have — the defined is sourcing the business?
Sanjay Jain
So I think a bit of backdrop to this is Hanes sold off your champion brand and therefore, the sales relating from Champion went to third party. And as a result, their own factories, Hanes’s also own factory there was needs for them fill up their own factories. And as a result, they wanted to reduce dependence on third-party factories. Therefore, the sourcing of the service business that we were running for them in Bangladesh has been decided to discontinue. And this in the first six months, there has already been a declining trend that we have observed in the Hanes business. Going forward, as the partnership comes to an end in the H2 part of the year.
On one hand, we would be fully recovering other costs that we have invested, Secondly if there is also a combination cost recovery more than the cost that we have incurred. So therefore, this relationship from our start to finish would be a profitable relationship. We do not see that this is in any manner linked to a small design-led sourcing business that we do for deals. These are two dealing activities. The main sourcing service base is coming to end not because of relationship it is because the customer doesn’t need to fill up their own factories. So these are two mutually independents. And in response to the previous question I mentioned, notwithstanding the Hanes contract, we believe the traction that is building up in the sourcing of a service business shall continue going forward as well.
Rahul Bhansali
Got it. Got it. And sir, we also — I think we had — we also plan to get the Hanes brand in India. And I think we had also mentioned about the Champion brand coming to India or getting the brand management rights for the Champion brand. So if you can give some update on these two deals, please?
Sanjay Jain
I’m going to require start Vice Chairman, Mr. Pallak Seth, to please give us initial views on this, please. So Sanjay just mentioned about the Hanes relationship with PDS. We are — after the Champion brand as to we are in touch with the other operating partners they have got in Europe and U.S. and Australia to continue some kind of relationship so that discussion are going on in the next four to six weeks will add some confusion. So we’ll probably end up becoming a vendor Champion for other markets where the license is having sold to third party. Coming to our India license business, now we are evaluating several brands including Champion Hanes and two others. So hopefully, in the next six to eight weeks we’ll make a decision, which is the right brand to go ahead with. We have done a Kantar report study in — it gets Kantar currently to do a market assessment, and we’ve given them around four or five brand names, including Hanes and Champion to see the customer — connecting customer preference which brand they feel would be the right one to what previously launch under essentials the lingerie market in India. So on the study is out then we’ll pick and choose, which is the right partner for us to take the domestic distribution for underwear in essential brand. Got it. Got it. Okay, sir great. And just…
Pallak Seth
The term sheet in hand already. We have a term sheet in hand, which we have not signed. Timing this time table will come.
Pritesh
Understood. And so we are also having our own brands now. And I think we’ve also partnered with certain brands like [Indecipherable] is, I think, one brand that we have partnered with. So I just wanted to understand, yeah, like how much do we plan to sell for this segment in particular? And what is our differentiation here? Because we’ve actually helped our customers to sort garment, whereas, this seems to be a completely different segment altogether. So how much do we plan to spend there? And what exactly is our differentiator here?
Sanjay Jain
The thing is PDS will continue to remain a B2B business. We don’t have any ambition to start opening shops and become direct to consumers. So very different and very catalyst in terms of business, open shop and selling direct to consumer. So any branded strategy we have, are they taking on licenses or acquiring brands like [Indecipherable], which is one of the most respected brands in UK currently. Once we are acquiring brand that has almost no value or very little net asset value. We’re not saying huge goodwill and premium for these labels and brand.
Second, if you’re acquiring any brand in terms of a clear wholesale strategy with a creditworthy retailer. So, for example, if you have Ted Baker, we have got creditworthy retailers who we first consult with and taking their confirmation that they would like to wholesale this brand and buy period of wholesale without any inventory risk planned in terms of buying the product from us, then only we go about acquiring these brands.
So any brand we do have a wholesale line, pre-sold without any immunity. So, we’re not really digressing from our B2B strategy. We are actually becoming more sterile to our customers because from one side, we are designing into their private label and supplying them. On the other side, we are trying to run the sourcing operation in Asia. And third, we’re giving them a full solution through branded offers by offering them
Strong brands, which we can then also retail in the shops.
Operator
Thank you, sir. The line from the participant seems to be disconnected. We’ll move on to the next question. [Operator Instructions] Our next question is from the line of Shrinjana Mittal from RatnaTraya Capital. Please go ahead.
Shrinjana Mittal
Hi. Thank you for the opportunity. Firstly [Indecipherable] of this quarter?
Sanjay Jain
Pardon me, we could not hear you clearly. Could you kindly repeat again?
Shrinjana Mittal
Yeah. So I was asking that for the Ted Baker business, what would be the revenue in this quarter?
Sanjay Jain
Which business you said, ma’am?
Shrinjana Mittal
Hello?
Sanjay Jain
Which business are you asking, ma’am?
Shrinjana Mittal
Ted Baker.
Sanjay Jain
Ted Baker business. Sorry, yeah, okay. So I think right now, in the last quarter, it has been pretty much flat as compared to the same quarter last year. But for the entire year, as we said earlier, we feel positive that as compared to the revenue of ’23, ’24 be positive that we could get closer to 10% growth for the entire year of ’24, ’25.
Shrinjana Mittal
Understood. And so it would be around INR150-odd crores, that’s what I remember from last quarter, and this would be entirely the wholesale business because the agency business, like you mentioned previously that part of the business has not come this quarter?
Sanjay Jain
So, I think the last full year revenue in Ted Baker was circa INR523 crores, and if you talk about the quarterly number, then in quarter two of this financial year, it is approximately US$13 million. And in quarter one, it was approximately $12 million. So, therefore, from a Q2 over Q1, it is about 10% up. But as I said, as compared to the same quarter last year, it is flat. So does it answer your question?
Shrinjana Mittal
Yeah yeah, that does. Yeah. Second, I wanted to understand the movement in the debt number. So we have a some INR400-odd crores in the PIC. And in the presentation, has mentioned that we have also repaid some long-term debt, right, INR80-odd crores. But if I look at the balance sheet number, the long-term debt number has still increased a little bit by say 70-odd crores. Can you just throw some light on that?
Sanjay Jain
Sure. So firstly, as far as PIC is concerned, we have utilized about $10 million of those proceeds to repay our working capital loan that we have taken for the Ted Baker business and that has been repaid with HSBC. So no term that has been paid with that proceeds. The reason we see an increase in term debt from of about INR65 crores, $6 million to $14 million is largely on account of the office property that we have bought in U.K. There we have taken a mortgage from State Bank of India, which we drew down during the quarters of this year. So that’s what’s reflected in the increase in the term loan.
Rahul Ahuja
And we wanted to clarify to all our stakeholders that the QIP money that we have raised, 430 odd crores, circa $50 million. Rahul just mentioned $10 million has been used to repay the debt. The remaining $41 million is lying after the issue expenses, lying in the fixed deposits. As per the laws of land, PDS Limited, the Indian company, will be injecting these funds into overseas subsidiaries. And we have insignificant borrowing, not too many borrowings in India. The borrowings are largely in our overseas operating subsidiary. But for this money to move from PDS India to the overseas subsidiary, this would be done basically with PDS Limited audited accounts for 30th of September.
The audit has been done. And in the next 10 to 15 days, this money under RBI regulation of ODI norms, basically 400% of the network, would now be injected. And then in line with the stated objectives, wherein a part of this money is going towards debt repayment, would be done. And the remaining would be kept in safe and liquid havens, eventually went into growth objectives. So therefore, it’s not by choice that we’ve decided to park in fixed deposit. There is a technical process that underlays before it actually goes overseas to repay the debt.
Shrinjana Mittal
Understood. Thank you. Thank you. That’s very clear. Just one last question from my side. On the Jerry Weaver contract, where are we currently? As far as I remember, it was about EUR90 million to EUR100 million pounds is what we used to say, the potential of that contract. So currently, what are we done getting on that? And where do we see that going?
Sanjay Jain
Yeah. I think this business has actually shaped us — shaped very, very well for us. And if I talk about in the first half, we have done $33 million of sale. That is approximately close to INR270 crores. And we believe the H2 should be better. So what we had foreseen that this account in two years should do an annual run rate of 100 million. This is the H1 performance. We are confident that we should be ending the year at about 70 million plus for the entire year. And then gradually scale it up to 100 million level. So we are on track with respect to what we are foreseeing on this account.
Shrinjana Mittal
Yeah, that’s very good to hear. Thank you. Thank you for taking my questions and all the best.
Sanjay Jain
Thank you.
Operator
Thank you. [Operator Instructions] Our next question is from the line of Mohammed Patel from Care Portfolio Managers Private Limited. Please go ahead.
Mohammed Patel
Yeah. Thank you for the opportunity. So I have a couple of questions. Can you give me some details on Fashion Nova and PDS Asia Star? What is the update and what could be the size for us in the next few years?
Sanjay Jain
Palak, would you please like to take that?
Pallak Seth
Can you repeat the question, please?
Mohammed Patel
What is the outlook on Fashion Nova business and also the PDS Asia Star and this aspect going forward as well?
Pallak Seth
So Fashion Nova, we have got now very, Fashion Nova is predominantly doing apparel currently. So on our apparel front, we have got two PDS subsidies supplying them. One is specializing on kids and lingerie, and the other on the fast fashion business. So we are seeing very fast traction and healthy margin coming from the Fashion Nova business because their current sources are all from domestic importers living in LA and New York with a very high order structure. So having direct teams sitting in Asia servicing the fashion of our business you’ve seen a lot of traction and healthy order book trading. So I think in the first two months of our selling teams already more than INR130 crores business has been booked. So the apparel continue to grow and it could reach that to $100 million potential in the next two years. Plus, we have now started adding new categories to them like home.
They currently don’t do any home business. So you set up a home business for them and also on the tech accessories and other, which are not related to apparel. So it’s a very strategic partnership open all the dose, even now serious teams are sitting in the fashion of office and we’ve got three people from PDS, sitting in the rates constantly working with the bank teams and helping drive business forward. So period has set as a fast production business model. So what faster wanted was a fast production business model. So these companies like Periods online enterprise is actually a power production business. and not only seeing the success of fashion over all other retailers are facing period than you do a similar model for us also no minimum quantities, high amount of SKUs from a global sourcing gas. So this new line of business is starting being an agile platform, we’re able to set up a new business line and see a lot of capital on passover but also excited many other customers wanting to use this service we have set up. Hope this answers your question.
Sanjay Jain
And if I may add, there was an angle of PDS to start to it. So as we all know that China has been a geography as there are big curement to online that demand. Our subsidiary in Shanghai serious SaaS has been largely into design-led sourcing. But given the proximity on ground, as we got this new line of activity created Perpetual was able to quickly in a very assignment back to whether to start fulfilling. So that’s how PDS Asia Star and fashion our relationship is enabling us to deliver this very fast.
Mohammed Patel
This $100 million in two years DLS?
Sanjay Jain
Yes, designers.
Mohammed Patel
And my second question is, so what part of the business has contributed to the good growth in North America and Europe? And is this growth expected to continue in upcoming quarters?
Sanjay Jain
I think as we said, the overall global economic factors are being in to look good. I think motors are keeping some cross and new collections. But in the near term, we believe this traction will continue at the 60% growth that we have witnessed. This trend to continue in the coming few quarters as well. And we are as well in U.K., if at all, our growth is 10%, 12% that because one of our two rounds are like Matlin is putting a sluggish trend but we remain positive that on a portfolio basis, 20% plus growth and U.S. would still keep driving the pack for the coming few quarters. Yes.
Pallak Seth
Okay. In the top 10 sourcing verticals, small and card bring KSL, — they have experienced negative PBT growth. So what explains that? Sanjay Jain
So there have been some — for example, Norlanka is more an internal matter that while we had a 20% growth, some inverse supply chain snacks back to some inference of freight costs. And in our business, there is flexibility because all our contracts are back to back that we are able to recover these interims of trades from apartment taxes. Suspending that, these are the costs that we have inferred. And we have done some internal corrections to string onwards, Norlanka put this behind itself. On Spring, which is our business based in Turkey, but there has been — while they enjoy a very strong relationship with Ralph Lauren, Saint-Sol, now we have opened up Tesco as an account. So therefore, from a relationship perspective, very well in place.
There has been tremendous stock pressures. As you know, in Turkey, the inflations are upwards of 50%. So therefore, there has been cost pressures to offset these cost pressures we actually invested into a sampling room and a small cutting facility, whereby we felt that if we take our own designs to the factories, design in the sense that rather than working on pet pack business, if I choose my own fabric to own prime, then my ability to influence the value chain as a result, minimize the impact of cost increase only. So therefore, to answer your question, this impacted me in the past, but with good customer base with Tesco account recently opened up and the something room and a small cutting facility, allowing me a better handle on value chain, we believe we should be able to reverse this trend going forward.
Mohammed Patel
Okay. What about other two trades [Indecipherable]?
Sanjay Jain
Yes. In Asia has been designed [Indecipherable] has been serving the customer Matalan. And Matalan has seen a change of management and ownership whereby the bondholders took charge of the company by converting debt to equity, and as a result, the entire focus shifted on cost, cost, cost. And thereby, they started engaging with us to keep driving on the price, impacting one of the earlier question, we said we would never let the sales to rate. But when somebody tries to drive price tumors down, then I think we also have to hold our ground. So therefore, there has been a 34% decline in the revenue, largely because of this account shrinking. And in the meanwhile, the design and print management have adopted Tim strategy.
On one hand, they have realigned the cost structure, which will lead to benefits coming in the later half of the year. Secondly, they have also faced up the efforts to start doing business with more customers beyond Matalan as well. But in the interim, we have got hurt [Indecipherable] account, they lost business with one of the customers, they are into sustainable demand and which I think, again, the management team is by the end of quarter 4, beginning to get more orders from new customers. So these were some specific issues, the reason we wanted to highlight the first stage on the next two are two issues that I’ve heard. We are realigning the cost structure. We are getting more customers, and we believe in about two quarters, these businesses also should be back on track.
Mohammed Patel
Okay. My last question is, so you find been finance. So how much that can help in reduction of P&L interest costs in Latam?
Sanjay Jain
Sorry, could you repeat your question? Unknown AnalystSo you — sustainable green financing. How much that can help in reduction of P&L interest costs in the near term? Sanjay JainSo sustainability and deal financing, I guess, is the later with banks these days. Everybody wants to participate in the sustainable journey given this is a very sensitive topic. So we have partnered with our primary bank of CDC and also MBDA on green financing. Now as far as the specific questions of how much will it lead reduction in interest costs.
Do these guys usually set up certain KPIs, they will merge us over a period of time. And in case that delivery is there anywhere between 20 to 25 basis points is what can come as a day of production. So green facility should not be viewed as a facility which will lead to cheaper financing. But yes, it has many other benefits because it’s fast track. We monitor it very closely. And then there are those benefits that have to do something new that the bank is trying to do. But on a P&L basis, 20, 25 basis points over 18 to 36 months.
Operator
Our next follow-up question is from Rahul [Indecipherable]. Please go ahead.
Unidentified Participant
Yes. Thank you. So our sourcing is straight towards Bangladesh right now. So I think around 55% to 60% of our sourcing is from that country. So do we have plans to have a more diverse sourcing base, let’s say, in two years and two to three years, let’s say?
Sanjay Jain
So two things there. One is notwithstanding the disruption that happened in quarter 2, we have plans to have a more diverse sourcing base, let’s say, in two years — in two to three years, let’s say? So, two things there. One is notwithstanding the disruption that happened in quarter two, especially on two occasions for competitive today. Your company has been able to post our record high sales growth — higher sales quarter. We believe in Bangladesh, given that R&D exports are the single largest exporting item for the country and the company is certainly dependent on that. The country was able to quickly get a stack together and put whatever happens behind. That’s number one. But on an incremental basis, we believe that we are working very carefully as we had also mentioned earlier when we met our investors at the time of QIP that we are looking at ownership of a manufacturing unit in India, wherein we believe the world is looking at India for increasing their sourcing and our relationships with customers are well in place. This ownership of small to midsized asset would allow us to have a base in India and thereby have more sourcing from India. That is number one. We also carefully evaluate in Latin America and Egypt. The American markets and some part of Europe are also looking at nearshoring. And is it also that the benefit of our duty-free access to the U.S. market. So therefore, to answer a point, Bangladesh is stable, but from an incremental capital deployment perspective, we believe we’re closer to taking a decision in India and keeping a close evaluation of Egypt and Latin America. That would automatically take care of diversification of our partners and sourcing base.
Unidentified Participant
Sure. Sure. And do we also partner with some of the big players such as, let’s say, [indecipherable] such companies or do we actually — do we generally partner with smaller company? And if there is a — if, let’s say, a few years down the line, the bigger companies tend to get bigger, is that going to hurt our business? That’s what I wanted to know.
Sanjay Jain
Rahul, would you like to take that? I will — the question.
Rahul Ahuja
On our design led sourcing business, we tend to partner with the medium to large players. Like, for example, in India, there are thousands of factories, maybe 10 large groups are capable of dealing with the large retailers, but another 50, 60 manufacturing groups, which have similar facilities in terms of infrastructure, compliance standards and quality standards, but they do not have the SG&A costs or design teams and the customer reach to reach these customers. So, typically, they are the next — 10 to 15 vendors in these countries tend to become PDS’ vendors. So the point you made it ends up becoming bigger in manufacturing pro business, the capex to do growth turnover is 1:2. So to grow to a $200 million top line for the garment manufacturer, they have to put $100 million capex almost, right?
And it’s a huge investment and their ability to scale up is very limited. Whereas PDS loan in the industry for business solutions companies, as soon as we find opportunities, we are able to get the vendors on a model, you see our turnover, how much we’re kick-off without having to invest much in fixed assets and keeping asset-light nature of the business alive are still elementary factors and much more. Whereas the manufacturing group is limited to how it is scale, not only because of the capex requirement, but also because you have to hire amount of manpower and labor creating future liabilities for themselves as well. I’m not too concerned as manufacturing is scaling up and becoming competitors as to be honest.
Unidentified Participant
Good. Okay. Thank you so much.
Operator
Thank you. Our next question is from the line of Vivek Kumar from [Indecipherable] Research and Advisory LLP. Please go ahead.
Unidentified Participant
Sir, am I audible, sir?
Sanjay Jain
Yes, please go ahead, sir.
Unidentified Participant
Yes. My question is on U.S., how — are we taking — I know it’s going very well, so in the long run, how different it is from Europe in terms of clients’ preferences and how easy or how challenging it is to crack here because U.S. is much, much larger than all other markets put together, so I just wanted to understand if — because U.S. is cracked then like it’s a very big opportunity for us. So, I just wanted to understand, it’s easy or there are challenges? And what are your dialogue with your clients giving the indication on? How is it looking for you for the next three, four years, I’m not saying next year, because base is low, you will grow, but to scale. I think I made my questions. Thank you.
Sanjay Jain
I think U.S. versus Europe is quite different markets. Europe is very product-driven and also very bottoms up. So you have to have relations with the buyers, the merchant and then the CD leadership can you give like support.But in Europe, you have to have product first approach. And we have to have a relationship with the teams first, whereas in U.S. to do the business, it comes from top down.
The relationship has to with the CEO of the company when the directors was going below and then below [Indecipherable]. So, it’s a different approach how you approve the U.S. market versus the European market.Also U.S. are very strategy driven, where Europe is product-driven. So PDS invested in resources currently, where we have the right people in place now. We have those relationships at the senior level at retail. So if those are getting open, right?
So most difficult thing today is to open the door. As soon as we meet the CEO of a large American retailer, we see PDS group presentation, our business model, our venture fund fueling innovation we ultimately end up opening our door, which is one of the hardest parts.One of the doors is opened then in a case one, two, three years to build the business to clinical level, right? So the good thing is any customer approach, nine out of 10 an agreed to open a previous account, which is biggest part of the most companies sales.
So fundamentally different both markets, I think with fashion over we have seen the ad the right discussion of sleds owner level that business starts building up. Target is another internal where you see no traction in building up sensitive in Hong Kong, leading Walmart leadership also today.So that continues to grow in terms of tractor what they’re seeing in our business model. So, it takes time but I think the hard partners to open a door which previously successive in there in the U.S. market.
Unidentified Participant
So whether we’ll be able to scale, we will be more confident in one to three years. We will know whether we’ll be able to stop. You’re very content that you’ll scale because the doors are open.
Sanjay Jain
So U.S. we say that the opening an account they are definitely, because of strategic reason. The European retailers opening account is more in productive and in the next year they might not buy it.
In U.S., if you’re opening account, they want to plan three years, five years so the growth, so a different approach. So I think with goals American area in Walmart, Target, fashion over and then some of these large entailing accounts be on, we already feel there’s a big place to hundreds of millions of dollars of business in the next three years.
Unidentified Participant
But it’s just a function of time, can I understand — can I get it that way?
Sanjay Jain
Yeah, it’s a function of time. Because first account is open, they’ll have to then approve the factories, which is currently ongoing. When product selection meeting happens twice a year as Europe is buying six times a year, eight times a year, U.S. buyers two times unit. If you use one season then we into the next to start.
Unidentified Participant
Got it. So you’re not seeing a big — sorry. You’re not getting any big challenge at all and such?
Sanjay Jain
No, we are seeing positive traction.
Unidentified Participant
Thank you, sir. Thank you very much.
Sanjay Jain
Yeah.
Operator
Thank you. Our next question is from Aditya from AK Investments. Please go ahead.
Aditya
Yes. Thanks for the opportunity. Hi Pallak, I just wanted to know regarding the brand management deals, we see quite some time, we have not heard any of the deals in the brand management. That is my first question. Can you throw some light what’s happening there? Any U.S. directed?
Pallak Seth
We have recently signed deal is probably in the final stages of with one of Hollywood largest actress called [Indecipherable]. So if you heard there is a back to back record in the U.S. Of course, we’re running shopped into and so the die-to-die business also.
So when a private equity from an acquired that business in our period is on in compute and management similar to car vehicle portal business. So first, volume is around $20 million, but that is more the direct to consumer side, but the coal business is a couple of hundred million right now.
So in the next 18 months, that one coal business as transient period as well. To be honest, every — getting a New York IT company approaching us like two days ago, Reebok entire European business is offered to us a lot of sense sportscasters there is a large movement in the industry where brands have been sold in your IT companies.
So PDS is now getting the deal to whenever some movement happens, we get to see the deals. We are carefully evaluating and anything that’s been learning from [Indecipherable] also which is the right way to approve them and what kind of exposure you want to take. So — I mean our bank business is already an up to, I think, $400 million between what we’re doing on our current wholesale customers of propriety bank giving for retailers as well. So there’s a lot of activity, probably we’re not putting announcements like we used to earlier, but all that data, I think can be made available under that website. All the brands we own in terms of either ownership of brands or licensing our brands of the parts we are doing with our customers. And then we can make that access even in the chart.
Aditya
Okay. Okay. And then Sanjay regarding the guidance for this year, would you talk about 20% growth on the revenue terms and some terms growth on profitability on the base of INR200 crores or what you’re giving that guidance for FY ’25? And how do you see FY ’26 [Indecipherable] in terms of revenue and profitability?
Sanjay Jain
So I think last year, we were stuck ’25 or so in the PAT. We started the year at about 10% top line guidance on what, 15%, 20% PAT. We are ahead of almost double in terms of top line growth, we should, therefore, see the benefit of that in much higher profitability than what we had foreseen in the beginning of the year. We are inching towards more 25%, 30% growth at this stage in terms of PAT at slate 15% we have on earlier we be also into as you know, investment mode this year. After come by FY ’26, we believe mid-teens, I’m talking about a sustainable rate, mid-teens should be the top line growth and one could see a higher PAT growth in the next year because in FY ’26, two things will happen. The investments that we would have made in FY ’25 to start giving results plus the economy of scale of the existing leading businesses. So therefore, the 26 growth should be faster than the 25% PAT growth.
Aditya
That sounds good. And currently, the employee expenses, whatever we are incurring, it’s more those opening to the U.S. side, right? And how do you see this panning out this call year and next year? I mean, it’s right, we are currently having in the quarter.
Sanjay Jain
So right now, we have seen about 7% increase in headcount in the first half as compared to the same period last year. This kind of headcount increase plus 6% to 7% merit increase is a sustainable number is growing in mid-teens basis. We believe the heavy lifting, the heavy was that we wanted to bring on a board, I think the impact is to be captured. That could be slightly because one of the people we brought in towards the end of quarter two, but the heavy lifting has been done. So quarter four, you should see a kind of steady-state employee cost. That’s where we are.
Rahul Ahuja
So just to add on that, what Sanjay mentioned on the numbers front, employee cost has gone up by 6% quarter-over-quarter. If we were to exclude the investments that we have made, which will bear fruit down the quarters for our existing businesses, this growth is only 1% quarter-over-quarter.
Aditya
So this — whatever the investments we are doing, it will be — I mean, what should be the steady state we should take or it will be cooled off. I mean this onetime expenses or this is — how should we say, the INR38 crores, whatever we have done?
Rahul Ahuja
So like Sanjay mentioned, quarter-over-quarter is coming down more towards the end of this quarter and start of next financial year. This should be down to eligible lens.
Aditya
Thank you, sir.
Operator
Our last question for today will be from the line of Deven Kulkarni from Marcellus Investment Managers. Please go ahead.
Deven Kulkarni
Hi. So how big was the aims contract in FY ’24 and in Q2?
Sanjay Jain
So in terms of the contribution of aims was approximately I’m just — it’s about in $33 million in FY [Indecipherable].
Reenah Joseph
So in FY ’24, is around $25 million from a tax during the perspective which in the first half around 12 million.
Deven Kulkarni
Is it reduce by half?
Reenah Joseph
Is that for full year?
Deven Kulkarni
Okay. Sir, 12 million in H1 FY ’25, right, compared to $24 million last year.
Reenah Joseph
That’s correct.
Deven Kulkarni
Okay. Got it. And second question, sir, in your investor presentation on the Ted Baker slide, you have mentioned that you have moved your office to Fraser’s office. So what’s the deal here with Fraser?
Sanjay Jain
Pallak, would you like to take that, please?
Deven Kulkarni
Your voice is not clear. On the Ted Baker data what, can you repeat, please.
Sanjay Jain
The fact that we have got collocated our Fraser’s office. So he wants to understand the rationale of that. Yes.
Pallak Seth
So basically, Fraser getting into a strategic partners with PDS and GST Ted Baker is a great brand now, which unfortunately, doesn’t have physical retail stores in the U.K. But Fraser’s themselves between their ownership of House of Fraser, USA, their own online platform and many other channels, they are like a US$5.5 billion, almost US$8 billion retail U.K. They have seen like Ted Baker to their distribution channel — Ted Baker grew a lot of business. So almost a strategic move that PDS goes into their head office into one of the separate floors soon after the independent companies there is no financial relation between them and us in this business, but there’s a strategic relationships. And we’ve given some kind of indication that up to GBP25 million a year, you can buy from us the Ted Baker brand. So considering the current volume, you’re buying a $3 million from us that to 25 million.
There is huge upside where we think they can use the Ted Baker brands at a store don’t exist in U.K., which is the home market, but distribute through the channel and we close it obviously. There is a strategic intent Ted Baker was the first brand that they are having many of their own brands also that PDS owns. They want PDS to take some of the other brands that Ted Baker team got. Another great brands like distribute to the press network. These are strategic relationships like as I mentioned, PDS has been now sitting in factor office, PDS been sitting in [Indecipherable] office, now PDS been sitting in Frazer’s office. We cannot get more strategic than that, where a retailer coming and says, coming to our office, put your fees and do as well digital brand with us. And that is the power of PDS as a company, which is respected and also trusted by global retailers to partner with them. So where no one else in the industry has this kind of reach or reputation like we have got.
Deven Kulkarni
Okay, understood. And finally, Sanjay, any impact of, let’s say, the Bangladesh crisis you want to call out in Q2 numbers? Or was there no impact at all?
Sanjay Jain
As I said, we — in our own factories, three to four days production got lost. But despite that, we had overall 70% growth from our own factories. From our partner factories, just three, four days got lost there as well. But I think the entire ecosystem later on then work towards setting up. I would say is keeping a close watch on ground rarities for now everything stable and under control.
Deven Kulkarni
Okay. Okay. Thank you.
Operator
Thank you. Ladies and gentlemen, in the interest of time, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Sanjay Jain
Thank you so much, everybody for taking the time out and participating in earnings call. And once again, we will have to extend to all of our stakeholders across geographies, Happy Diwali a lot of festivities still ahead to all of you out of the home. And we look forward to interacting with you for our quarter three call. Thank you, and stay safe.
Pallak Seth
Thank you. Happy Diwali to everyone. Thank you.
Operator
On behalf of PDS Limited, that concludes our conference. Thank you for joining us, and you may now disconnect.