PDS Limited (PDSL) Q4 FY23 Earnings Concall Transcript

PDS Limited (NSE:PDSL) Q4 FY23 Earnings Concall dated May. 12, 2023.

Corporate Participants:

Pallak Seth — Executive Vice Chairman

Rahul Ahuja — Group Chief Financial Officer

Sanjay Jain — Group Chief Executive Officer

Analysts:

Nikhil Choudhary — Nuvama Wealth — Analyst

Vishal Prasad — VP Capital — Analyst

Keshav Kumar — RakSan Investors — Analyst

Mohammed Patel — Care Portfolio Managers — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Unidentified Participant — — Analyst

Krunal Shah — ENAM Investment — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the PDS Limited Q4 and FY 2023 Conference Call. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Nikhil Choudhary from Nuvama Wealth. Thank you, and over to you, sir.

Nikhil Choudhary — Nuvama Wealth — Analyst

Thank you, Yashashree. Good afternoon, everyone. On behalf of Nuvama, I welcome you all to PDS Limited quarter four FY ’23 earning call. We have with us today Mr. Pallak Seth, Executive Vice Chairman, PDS Limited; Mr. Sanjay Jain, Group CEO; Mr. Rahul Ahuja, Group CFO; and Ms. Reenah Joseph, Head, Corporate Finance, M&A and Chief IR.

Before I hand over the floor to Pallak, I would like to highlight that the safe harbor statement on the second slide of analyst presentation is assumed to be read and understood. With this, Pallak, over to you. Thank you.

Pallak Seth — Executive Vice Chairman

Hi, good morning, good afternoon, everyone. A warm welcome to you all to our fourth quarter and full year 2023 earnings call. The investor update and the financial results are available on the company website and the stock exchanges. I would like to draw to your attention that the discussion today may have forward-looking statements, which are subject to certain risks, uncertainties and other factors that could cause actual results to differ from those contemplated by the relevant forward-looking statements.

The 2023 financial year has been an intriguing year for us. In the first two quarters, we have achieved high growth, while during the second half, we’ve witnessed some slowdown. The impact of the macroeconomic and geopolitical factors had a bearing on our operations. We have witnessed some customer pushbacks, due to lower demand and high level of inventory with brands and retailers. The impact of these factors we expect it to continue in the first half of the financial year 2024. However, as the saying goes, every cloud has a silver lining. Similarly, for us during these times of muted demand, we are also witnessing huge amount of new opportunities and the pipeline of opportunities is better now than we’ve ever seen in the last 12 years of the Company’s formation.

As our customers continue to focus on their front-end operations, customer acquisition and visual merchandising, among others, they see credible partners, such as PDS, to manage their sourcing operations. The credibility here refers to the ability to provide global sourcing solutions with full governance standards, with financial stability, and almost a debt-free balance sheet. In order to tap into these opportunities, 18 months back, we launched sourcing as a service, which has witnessed good traction with PDS signing contracts with the potential to having merchandise value over a $1 billion. As part of the ramp-up, we should be clocking closer to 50% levels of the merchandise value during the current year.

We are also pleased to share that John Lewis has entered into agreement with PDS subsidiary in Turkey, Spring Near East, to help us manage their sourcing. John Lewis owns and operates department stores, supermarkets, and convenience stores in the UK. The company conduct its business operation under John Lewis and Waitrose and has reported top line of GBP10 billion, with GBP5 billion derived from John Lewis alone. Also, I’m happy to just announce that just before this call PDS has gone into a strategic partnership with a large German retailer called Gerry Weber. PDS will be taking over their sourcing operations in Asia through a subsidiary Techno Design in Germany and managing their business. This business also has a potential sourcing volume of over $100 million, which will be added to our top line in the next couple of years.

The traction of our SaaS modeling enables us to curate more customized solutions. We have also recently signed a strategic partnership with one of US’ largest IP companies called Authentic Brands, which has over $30 billion retail sales. And their acquisition of Ted Baker in UK, PDS has become a strategic partner to them managing Ted Design Group, which will run their Ted Baker head office, plus also the wholesale business both in UK and Europe. The focus is on driving business through long-term strategic partnership, which significantly enhances medium- to long-term visibility into the business and drive the annuity stream of revenue for PDS.

Further, this is enabling us to transition from low-margin transactional orders and focus on value-accretive businesses, driving higher margins along with better return ratios, long-term nature of contracts. It is interesting to note, globally there is no single platform in the fashion industry like PDS because of which we are getting immense opportunities. If a retailer has to do strategy, PDS is emerging as a point of choice for them to engage and discuss strategically their plan. As a company, we are not interested in selling to retailers, but become part of their strategy. So that is opening huge amount of opportunities for us on the whole sourcing business where retailers need to restructure their operations and that specialist player handle their backend.

Also, I’m pleased to mention that our manufacturing business reported its first year of profitability. We are focusing on driving up profitability in this segment. During the year, we expanded our capabilities across the manufacturing vertical. Our Bangladesh facility launched the washing plant, which was funded by Good Fashion Fund. Good Fashion Fund is one-of-its-kind impact fund initiated by the Laudes Foundation founded by C&A family, aimed to drive systematic challenges in the textile and apparel industry by financing the implementation of state-of-art and disruptive technologies, innovation and delivering Good Fashion practices. Further, we have also launched a centralized cutting plant in Sri Lanka. These investments are key steps forward in asking the PDS manufacturing vertical capabilities to state-of-art machinery and digitized processes. PDS is also now pursuing expanding its manufacturing footprint in new geographies, like Egypt and India. Egypt is duty-free to the US with 12 days selling, plus India also seeing increased demand, so we are considering to make potential acquisitions in India to enhance our own manufacturing footprint.

With an aim to expand its supply chain capabilities in the fashion value chain, PDS has also announced acquisition of a logistics company called Transport Partner Limited. They are based in Bangladesh and are already working with some large retailers and brands. So PDS being a platform company, not only offering its customers today design-led sourcing, but also running their offices, complete brand management, manufacturing options, as well as ability to handle their logistics. So this all factors of being a platform is increasing our stickiness with our customers who are looking towards more and more solution provider. And as I had mentioned earlier, globally, we are probably one of the only companies who can have strategic discussions with large retailers who are Fortune 100, S&P 500, and DAX 30 companies and be aligned to their strategy and their future roadmap.

We continue to focus on building a robust platform where our businesses and verticals can thrive and grow. The platform we are working effortlessly to strengthen our digital capabilities initiatives, and to drive process improvements and efficiencies. These initiatives are driven by our Group CIO, Saurabh Saxena, who’s ex-IBM. Further, we have augmented our teams by hiring experts in fabric and trim procurement, which will enable us to drive more procurement synergies. We are pleased to share, during the period, PDS Indian, Sri Lankan subsidiary are certified also as Great Place to Work.

It gives me also great pleasure to announce that Mr. BG Srinivas has come to PDS Board as a Board of Director. Mr. Srinivas is a well-known and respected member of India Incorporated with over 30 years of experience in information technology sector and was previously the President and whole time Director of Infosys Limited. With his global expertise in strategy, operations, finance, especially his experience in the technology sector, made Mr. BG a vital addition to our Board. PDS is going towards a full 100% compliance journey and having Mr. BG guiding us in this process is also a great testament of our future plan as a company.

As a global platform, our outlook for the long-term is strong and robust. We are very much geared to continue aspire to achieve more than $2.5 billion of top line in the next couple of years, along with the gradual increase in profitability. However, we do see some headwinds in the next few quarters of 2024. Having said that, we are focusing on building a pipeline of curated business opportunities, which I had mentioned earlier, with existing and new customers, which will drive our growth and profitability in the years to come.

Thanks very much for joining our call today. I would like to hand over the call to Rahul Ahuja, our Group CFO. Thank you very much.

Rahul Ahuja — Group Chief Financial Officer

Good afternoon, everyone. We are pleased to share that PDS has delivered a 20% growth in the financial year ended 31st March, 2023 and reported a top line of INR10,577 crores. We reported gross margins of 16.7%, an expansion of 53 basis points compared to the last year. Our EBITDA grew by 40% from INR327 crores in FY ’22 to INR459 crores in FY ’23. EBITDA margins also expanded by 64 basis points to 4.3% in FY ’23. EBITs during the year increased by 25% compared to last year. This includes INR36 crores gain from our sale of our real estate property in Milton Keynes in FY ’23 and around INR41 crore of gain from the sale of real estate investment property in the UK in FY ’22.

Our profit before tax has increased by 15%, which included the impact of the increase in interest costs during the year. Our total gross debt decreased from INR623 crore last year to INR601 crore this year. However, the interest cost increased from INR33 crores in FY ’22 to INR74 crore in FY ’23. This is mainly attributable to the increase in borrowing costs with SOFR and LIBOR increasing from 0.08% in March ’22 to 4.16% in March 2023. We continue to be in a comfortable position with net debt being negative. Our sourcing segment, which accounts for 96% of our top line, has clocked 19% growth compared to the previous year, with a top line of INR10,105 crores. Our sourcing business reported an EBIT of INR366 crore, which is an 18% growth compared to FY ’22. And the return on capital employed of 48%.

The new verticals contributed INR614 crores to the top line compared to INR321 crores in FY ’22. Given that gestation phase, these businesses had a PBT loss of INR51 crores. As these businesses grow and as you size and scale, they will contribute to the bottom line of the Company. Our manufacturing segment reported a growth of 28% with a top line of INR703 crores versus INR547 crores in FY ’22. This segment achieved its first full year of profitability journey with a PAT margin of 2.6% in FY ’23 versus a loss of around 3.6% in last year.

Talking about our balance sheet. Our net debt was negative with net cash of INR128 crores versus INR41 crores reported last year. Notwithstanding the 20% growth, we’ll continue to operate with negative two days of net working capital days as we will focus on staying on this journey. However, our new ventures into brand management might expand our working capital requirements temporarily going forward. We will focus on driving working capital optimization as the business comes into our fold. The Company continues the growth and profitability journey and delivered 44% return on capital employed and return on equity of 29% in FY ’23.

We would now be happy to answer questions that you might have.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Vishal Prasad from VP Capital. Please go ahead.

Vishal Prasad — VP Capital — Analyst

Hi, good afternoon. Pallak, I mean, I’m trying to understand how sourcing as a service is different from design-led service. If you could help me understand that, that would be great.

Pallak Seth — Executive Vice Chairman

Yeah, so how sourcing as a service is different from design-led sourcing, right?

Vishal Prasad — VP Capital — Analyst

Right, right.

Pallak Seth — Executive Vice Chairman

Yeah, so basically design-led sourcing is a vendor model where we are working with retailers, providing a full solution of design development and sourcing from third-party factory. In design-led sourcing, there is no long-term contracts. Every six months, we are presenting new product. There is a strategic relationship with the customers, but still we need to start business every six months on getting new revenue streams with them. This is a higher-margin business, because obviously, then it’s order to order, and then we are basically giving them the design development and then we are doing the business with the customer. Where sourcing as a service is totally different because it is actually running the retailers offices for them where the entire business of the retailer in a particular market they run through their office. So we did a deal with Hanes, and then also with Asda, and today we announced with Gerry Weber as well, another German brand, where retailers today don’t want to have the headache and the ESG governance issues of having offices around Asia in many of these emerging market countries. So PDS is being seeing as a platform, which gives high governance standards and our ability to attract the best talent and open offices for the retailer in these markets where everything the retailer sources from that particular geography will come to the PDS office very often under joint planning within the retailer and PDS.

So for example, with Asda, they were running their own offices earlier. With Walmart, they decided to not continue with Walmart relationship and PDS payment as one of the options. So the entire $500 million business of Asda, which is UK’s largest supermarket between home and general merchandise and clothing, PDS took over the existing teams and between China, Bangladesh, India and other geographies wherever they have presence and those teams became part of the PDS platform servicing them on a open, transparent, cost-plus basis model. So again, just differentiating design and sourcing, just order to order, season by season starting again, but sourcing as a service is actually representing the retailer in the market, the entire business go through that operation through the offices we set-up with the customer. So today, retailers, either they want to enter new geographies where they don’t have offices, PDS will becoming their office instead of them opening themselves or where they are currently already running operation, they don’t want the headache of having teams across Asia to be managing by themselves because their focus is now more on the retail and customer side, PDS is taking over retailer operations in these parts of the world and running it for them. So margin structure is different and the volume of business quantum is different in both these options.

Have I been able to answer your question?

Vishal Prasad — VP Capital — Analyst

Yes, sir. To add to that, is it possible for you to elaborate on rules — our rules and responsibilities in a sourcing as a service contract, what things we generally do in that?

Pallak Seth — Executive Vice Chairman

So sourcing as a service, basically we start from — so the design come from the customer and that’s part of the business, the customers send their tech pack. Our team on the ground in countries like Asia, in Bangladesh, India, wherever we have these offices, we will get their tech pack, then we will source the best, most compliant cost-effective vendor base, we’ll get into price negotiation, product development, quality control, and order follow up, merchandising. So our role is basically not design, but basically managing the office for the customer in that part of the world in this function.

Vishal Prasad — VP Capital — Analyst

So is it possible [Speech Overlap]

Pallak Seth — Executive Vice Chairman

Sometime we’ll get involved in financing, others time we will not. Like Mr. Jain and I just also mentioned, we have signed over $1 billion of sourcing as a service contracts. We are not going to be invoicing $1 billion on our cost line, so our income is going to be the service fee we are going to be taking for this business and the profit as a percentage of the service fee. So sourcing a service model, I mean, in finite, return on capital employed because our capital employed is not coming as much, right? We’re just running overhead of the office. So downside is more, because the retailers are also paying the cost of the operation on monthly basis and our profitability is clear.

So for example, on $1 billion — I’m just giving some example, we charge a 4% management fee, so our gross revenue is $40 million and our profit is on a cost-plus model, so we say, for example, we are going to be running on a 2% profit of this business, so $40 million is our top line, which will be added and $20 million will be the bottom line that will be added in this vertical. So gross merchandise value we will handle is $1 billion in the case. But we’re not invoicing $1 billion, we’re invoicing only the gross margin and the profit as a percentage of the gross margin. So there is no capital employed in this basis, but it gives us immense power in the markets we operate, because then PDS is representing the retailers with some of the biggest factories in Asia. So our vendor base in this model are some of the biggest manufacturers, even in India or Bangladesh, or other geographies we operate, who are taking orders from these offices, which is run by PDS.

Vishal Prasad — VP Capital — Analyst

So is it possible to forecast to get sourcing as a service, as well as design as a service, so [Speech Overlap]

Pallak Seth — Executive Vice Chairman

If it’s the same retailer — there are various cases, because retailer has certain part of the business managed through third-party design and certain part of the business which is sold directly from them with their own design services. So normally, I would say 60% is sourcing as a service, normally they do their own design and sold through their own offices, now which PDS is taking over, and 40% is they look at third-party vendor for design input. So it’s not uncommon that with the same retailer, we — when we start offering them a menu of services, we look at PDS for both option. So it’s quite possible.

PDS today is a product company. We are offering four products to our customers. One is our own manufacturing, which is small, but it’s important to keep to make sure that we have the credibility in our industry, and also, on those certain customers who only worked at manufacturing [Technical Issues]. Second is the vendor model, right, which is basically design-led sourcing, which we are offering full complete design services. Third is running the retailers offices, right? And fourth is brand management. So with the same customer, we are offering them full menu of services and then they are picking and choosing what they want. But there is a role for each four of them within the same retailer could be able to work. So that’s how our penetration and stickiness with the retailers is increasing because they see us a solution provider rather than just a factory in middle of Asia trying to sell into them, which is I think there is no future in that business in our industry.

Sanjay Jain — Group Chief Executive Officer

So let’s take the example — sorry, this is Sanjay here. Just to add what Pallak said, with one UK-based customer, our design-led sourcing annual business is about INR800 crores plus. The sourcing as a service contract that we have signed is approximately INR2,200 crore of gross merchandise value, this is one and two, and very recently from the same customer we also got a contract for the home category that we are attending to and that contract would give us an annual potential of INR1,000 crore worth of home merchandise being handled with the same customer. So one customer, three kind of revenue streams are currently already there in terms of contract we have signed. Sorry, Pallak.

Pallak Seth — Executive Vice Chairman

Yeah, based on strategic discussion, so when we talk to our customers today, we have a Board level discussion and they all want to discuss what are their pain points, what are their next five-year strategy, and how PDS can be a solution provider to their pain points and the strategy. So we are not interested to sell garments to any one or consumer good, we are only interested to be part of the strategy and align with them to provide solutions.

Vishal Prasad — VP Capital — Analyst

Yeah, that’s great. And one last question, sir [Speech Overlap]

Operator

Mr. Prasad, we request you to join the queue, sir.

Vishal Prasad — VP Capital — Analyst

Sure, sure.

Operator

Thank you. We have our next question from the line of Keshav Kumar from RakSan Investors. Please go ahead.

Keshav Kumar — RakSan Investors — Analyst

Hi. Sir, just to understand demand-side risk a bit better, so in times when the demand goes down, the garmenter typically get squeezed and there could be some sourcing shift from country-to-country. So if, say, the demand sees a sizable reduction and if retailers face difficult — difficulty passing on the costs, then the entire supply chain, right, from fabric to garmenters to us who are handling the merchandise, do we all have to take some price adjustments or be — or relatively insulated?

Pallak Seth — Executive Vice Chairman

I would say, we are relatively insulated. But at the same time if we take a strategic view that we need to support our customer to continue gaining market share, that’s the strategic view we will take if we have to take it. Or for example, if a customer is doing $50 million, but they need support and they think they’re willing to grow with us to $150 million, but we need to help and partner with them on the margin challenge. So we are going to take not a quarterly view, but a six to 12 month view and partner with them to achieve their objectives. So today, it’s important to partner with people understand the strategy, raw material prices go up and down and making sure that we are collaborative in our working, but at the same time, protecting our own interests.

Keshav Kumar — RakSan Investors — Analyst

Understood.

Pallak Seth — Executive Vice Chairman

But again, being an asset-light model, we can pass a lot of the cost. We can — if we are getting squeezed, we can squeeze the yarn, fabric, trim, manufacturing partners, so everyone at the end of the day. We are not sitting on huge open capacities of hundreds and thousands of machines to feed, right? So we are able to then pass back to the factories, which have huge capacities to feed, so they will also want to get the business. So PDS has seen as a platform to many manufacturers in Asia to make sure that capacities won’t go idle and we get feeding from our company. So they will also [indecipherable].

Keshav Kumar — RakSan Investors — Analyst

Sir, secondly, so we have had some exclusive and non-exclusive relationships for sourcing out of Turkey. So what’s been the impact, what’s been our response and what’s the value at risk there?

Pallak Seth — Executive Vice Chairman

So Turkey, one of the markets, now the election is just happening I think this week. So the thing is that many of the emerging countries like Sri Lanka, Egypt, India, Pakistan, so wherever the rupee-dollar trend is there, normally the dollar is becoming stronger and these emerging market countries are becoming weaker. So even there is huge inflation coming, but in export sectors, because of devaluation, most of it is getting nullified. So that is one advantage we have in being in the export business. Turkey as a country is a little bit under pressure right now because of geopolitical situation and the earthquake that happened, but the thing is, many small, medium-sized businesses disappear, it’s only consolidation and survival of the fittest. So PDS has seen as a safe pair of hands with high governance standards, financial stability, ability to attract the best people. So retailers continue to partner with us in that journey. So rather than trying to work with other small, medium-size companies, PDS has now gained enough critical mass and has got enough goodwill in the industries that we are seen as the company of choice for them to partner, even if the macroeconomic situation is getting tougher.

Keshav Kumar — RakSan Investors — Analyst

Right. sir. And sir, lastly, what would be the reasons for a decline in manufacturing margin quarter-on-quarter?

Pallak Seth — Executive Vice Chairman

Sanjay, do you want to take that, please?

Sanjay Jain — Group Chief Executive Officer

Yeah, I think this is just barely seasonal in terms of the mix that we have had for the particular quarter. There are no permanent inferences to be drawn. For year-over-year, we see gross margin trajectory keep improving. So to specifically answer your question, it’s just a mix that we had for the particular quarter and no other specific reason, that’s one. And from our own efforts side, given the fact that we clocked in $1.4 billion top line in the last 12 months and have got a $1 billion plus of sourcing as a service order plus the recently signed Ted Baker [indecipherable]. As a group, the amount of fabric and amount of trims that we are handling should give us humongous purchasing efficiencies, they should also start getting reflected in our gross margins of manufacturing as well. So I think it’s just a mix for a particular quarter and nothing otherwise.

Keshav Kumar — RakSan Investors — Analyst

Okay, thank you, sir. That’s all from me. Thank you.

Operator

Thank you. We have a next question from the line of Mohammed Patel from Care Portfolio Managers. Please go ahead.

Mohammed Patel — Care Portfolio Managers — Analyst

Hi, sir. How is the demand scenario in the current quarter as compared to last two quarters?

Pallak Seth — Executive Vice Chairman

[Speech Overlap], please.

Sanjay Jain — Group Chief Executive Officer

Yeah, so I’ll take that, Pallak. So as we mentioned in the last con call as Mr. Pallak Seth touched upon that the global situation has a bearing on the last quarter and the next two quarters, but we see signals of on-ground activity increasing now. If you talk about the locations like Bangladesh and Sri Lanka and India or Turkey from where we source internal manufacturing, the buyers are now coming into active discussion. So therefore, for the spring-summer collections of ’24 February-March, typically the order get placed by September-October of ’23. So therefore, while the immediate quarter and the next quarter are a bit soft, impacted by the global situations, but the signals are coming in good that the second half of the year should be considerably better than the first half. And this is commenting on or reflecting on the continued design-led sourcing business. But as Mr. Seth earlier touched upon and we keep signing into more long-term annuity-based contracts, then our longevity of revenue would keep keeping. But on as is where is basis, we see traction improving in the second half to be considerably better.

Mohammed Patel — Care Portfolio Managers — Analyst

Okay. Consolidated EBITDA margins are better, but the segment margins are both down YoY and QoQ on sourcing segment. So can you explain that?

Sanjay Jain — Group Chief Executive Officer

Yeah, I think one reason is that for our new verticals, which, as our CFO, Rahul Ahuja, mentioned, for the entire year we have incurred INR59 crore of loss, which is up into an investment — into the gestation phase. So the loss in the nine months figures was INR37 crore, and in the quarter four alone, it is about INR14 crores because we are starting new verticals. So therefore, it’s more an impact of the new verticals loss going up in quarter four, but we anticipate during the current year PBT breakeven in the new verticals. That’s one of the reasons for any margins being softer in — sequentially in quarter — this quarter versus last year.

Mohammed Patel — Care Portfolio Managers — Analyst

So you’ll be then PBT breakeven in FY ’24 on the new ventures?

Sanjay Jain — Group Chief Executive Officer

Yeah, I think two things there. One is for the verticals that we already have, which incur a INR51 crore loss, we anticipate a breakeven. But at the same time, selectively, carefully, we would keep committing to new verticals as well going forward. So that’s the investment into growth. But to answer your question, we are targeting towards a PBT breakeven in the current year.

Mohammed Patel — Care Portfolio Managers — Analyst

Okay, other income has also fallen YoY and QoQ. So what are the specific reasons?

Sanjay Jain — Group Chief Executive Officer

The other income, in fact, the agency contracts, agency business, part of the revenue of our agency, and typically that doesn’t go to the turnover, any agency commission goes into the other income. So that’s one thing that actually declined during this quarter. Plus, I think, there were, for example, some of the scrap sales that we had as part of our inventory cleanup in the previous quarter of last year, that reduced as well. So these are some — and then there was a INR3 crore profit on one of our venture tech investments as well in the period — in the quarter four last year. So there are some two, three reasons because of which you see a lower other income in this quarter, but any recurring kind of income is well intact.

Mohammed Patel — Care Portfolio Managers — Analyst

Okay, and also if you can throw some light on the potential of the recent deals like Ted Baker, Gerry Weber, what can be the GMV top line or bottom line potential if you can just help us understand.

Sanjay Jain — Group Chief Executive Officer

Yeah, Pallak, I’ll take that one?

Pallak Seth — Executive Vice Chairman

Yes, please.

Sanjay Jain — Group Chief Executive Officer

Yeah, I think for Ted Baker, there are two kind of revenue streams that would come to us. One is that as we are handling the global design, then the merchandise value that we would be handling under this, we would be having about $90 million to $100 million. So there is a 10% — sorry, GBP90 million to GBP100 million, which means, in terms of dollar, it is 1.2 times more, and we should get about 10% commission on that. And then there is wholesale, for which we are the closing partner of Ted Baker. That has annual potential of GBP60 million to GBP70 million with anticipated 35% margin. So therefore, if I have to summarize the two revenue streams of Ted Baker, it’s about GBP80 million or $100 million annually, which means about INR800 crore coming in from Ted Baker. It may take us two, three quarters to get to the full volume potential. That’s Ted Baker alone.

In terms of Gerry Weber, that’s approximately $100 million of annual sourcing that we’ll be handling for customer. Here, we are acting as a principal. So that’s another INR800 crore. So these put together is about INR1,600 crore. John Lewis is about circa $10 million to $15 million that we would be handling and we would getting an agency commission there as well. So these two contracts is about INR1,600 crore. The $1 billion sourcing as a service that we already reported, we signed up. We are aiming that we should be able to get to 50% levels, that means around INR4,000 crore to INR5,000 crore is what we would be handling. And on that, as Mr. Seth said, 4% will come to us. So INR160 crore is my revenue. So to now add up everything, INR800 crore plus of Ted Baker, INR800 crore worth of variables and about INR160 crore coming in — as in terms of revenue to our books, that’s what INR1,600 crore to INR1,800 crore visibility on a per annum basis as we scale up the new contracts that we have signed, which is 15%, 16% more than the current annualized top line that we are having at present.

Pallak Seth — Executive Vice Chairman

And Sanjay, we have 10 more discussions.

Sanjay Jain — Group Chief Executive Officer

Yeah.

Pallak Seth — Executive Vice Chairman

Amount of opportunity PDS is getting now, we have not got in the last 25 years of being existence. So I mean, the Company has invested for since 2007 or ’08, but the restructuring happening in the industry, the consolidation happening, there being no other global player strategically being able to engage with the retailers, having a platform model, offering various variety of services, menu of services. It’s just immense opportunity that we are finding for the mid- to long-term. So the short-term demand slowdown is honestly not a concern to us much. But yes, 6 months, there is going to be some softening in demand. But all these new things we are currently doing will be budgeted in our next financial year. It’s going to have a very big impact, hopefully, in the next couple of years.

Mohammed Patel — Care Portfolio Managers — Analyst

I have one last question. So in one of the interviews you said that, FY ’22, you’re expecting a single-digit growth in revenues and we have a lot of deals that we have signed. So are you being conservative on that guidance?

Sanjay Jain — Group Chief Executive Officer

I think we are trying to be prudent here, cautious here as well. Yes, we are very positive, very confident, feel good about the contracts we are signing and the funnel of such contracts. But low-single-digit growth is coming out of a bit of caution. So yes, we are a bit cautious and careful. We really hope that we should be able to do better, but that’s where we stand as of now.

Mohammed Patel — Care Portfolio Managers — Analyst

Thank you.

Pallak Seth — Executive Vice Chairman

The testament in our industry is the support we get from our commercial banks. So the bank group partners we just got is a very diversified portfolio of banking partners for working capital limits. We just onboarded DBS Singapore, [indecipherable] in Hong Kong and a few others who are in the pipeline. I met them in Hong Kong recently and their comment was that in the last two years, they’ve got many of the small, medium-sized apparel, fashion, consumer good accounts out of their portfolio. PDS is the only one they’ve added and they have huge amount of appetite to grow with us. So consolidation not only happening in the retail, but also in the banking for support to the sector. So all these are good factors that are supporting our buildup of the business, which are going to enable us to capture more market share as the industry basically consolidates.

Mohammed Patel — Care Portfolio Managers — Analyst

Thank you, sir.

Operator

Thank you. We have our next question from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.

Sarvesh Gupta — Maximal Capital — Analyst

Good afternoon, sir. Sir, on the P&L, I had a few questions. You alluded to the profitability being lower this time because of the new sort of investments in the new verticals. But when I’m seeing your sort of the P&L, I’m not able to sort of reconcile that with a high increase in employee or the other expenses. It is more sort of linked with on — our own revenues not growing as much?

Sanjay Jain — Group Chief Executive Officer

Yeah, I think that — it’s a good observation. I think, as I said, one of the prime reasons is an extra INR4 crore loss, but then there is a recurring cost at which we run the entire enterprise and typically in quarter four, one derives much more revenue than the one we have achieved right now, it’s flattish quarter as compared to the same quarter last year. So when you are expensing of the recurring cost, employee cost and other cost, the revenue base could have been much higher. And in a scenario wherein we would have a low belief in the future, one would have gone into cost optimization, cost restructuring. But we believe it’s a temporary phenomenon, and therefore, the investment we have made into getting our designers, merchandisers, our compliance ESG professionals onboard, we will remain good with that because of the thing that we mentioned, that is just a temporary blip for one or two quarters. So yes, your observation is smart that we are, in a way, expensing of the cost in a quarter wherein the revenue could have been more higher being a quarter four.

Sarvesh Gupta — Maximal Capital — Analyst

And earlier we had alluded to doubling of our top line by FY ’27. So are we still on that path or we would want to change it, given the market scenario?

Sanjay Jain — Group Chief Executive Officer

I think we remain positive, confident on that path. Such fluctuations will keep happening. And what Pallak mentioned and what we have also touched upon in our investor release that even the current tough environment is throwing up exciting opportunities, which is what we are converting into long-term contracts. So therefore, we remain positive about doubling up our turnover in a five-year horizon from FY ’22 to FY ’27.

Sarvesh Gupta — Maximal Capital — Analyst

Understood. On your finance cost and other income, sir, we are — we have seen significantly lower debt as such impacting the net cash. But — so how much is the non-interest linked finance cost in your finance cost line item and what is your normalized sort of other income excluding all these one-offs from the sale of properties, etc.?

Sanjay Jain — Group Chief Executive Officer

Yeah, I think one — on the first one, I think what I can best answer at this stage is while the finance cost for the full year has gone up from INR33 crore to INR74 crore, which is kind of a INR40 crore increase. We have analyzed out of this INR40 crore increase, 25% is attributable to an average gross debt increase this year versus last year, 25% is attributable to that, and 75%, as the CFO, Rahul Ahuja, mentioned, that the LIBOR or the SOFR base rate has gone from less than 0.5% to more than 4%. Why did we consciously allow the gross debt average utilization to go up by 25%? We felt that there is an opportunity to get an early payment discount from our vendors. And in fact, if you see year-over-year, 50 basis point improvement in the gross margin as well. It’s a coincidence that when we were doing the mathematic analysis that nearly 25% of this gross margin increase is coming in because they got EPD. So my early payment discount is up 30%. My gross utilization is up 25%. So therefore, if you all believe that the interest rates are peaking out, maybe now or in the next three months, and they should head southwards, then 75% of my interest cost should get favorably impacted. That is one.

And the second factor, which we have touched upon in the previous one or two quarters and with Rahul coming onboard would be a key focus area that we carry cash and bank balances, which are more than debt, that’s why the net debt is negative. So we’ve got to make sure as a management team that we are able to optimally utilize the cash to reduce the borrowings as well. That’s the analysis on the interest cost, wherein there is a three-fourth potential benefit of the interest rate cycle reverse. On the other income, I would say that what you witnessed in the quarter four, which is another income of approximately — while it was low, so for the entire year, we had INR52 crores as the other income. I think nearly about 50% of that — at least 50% plus is a recurring income. The balance 50%, about INR25 crore or so came in from the profit from the sale of two Milton Keynes assets. So the recurring income is about INR25 crore to INR30 crore year-over-year.

Sarvesh Gupta — Maximal Capital — Analyst

Understood, sir. All the best.

Sanjay Jain — Group Chief Executive Officer

Thank you.

Operator

Thank you. We have our next question from the line of Ravinder ji, an individual investor. Please go ahead.

Unidentified Participant — — Analyst

On — overall, the business model looks good with respect to sourcing as a service. So — but the thing is, how do we ensure the quality part? Quality in the sense like, in the industry, there might be some rejections when you are sourcing from other people. How do we ensure the quality? First point. Second point, as we are becoming a larger organization as the sales grow and the business model kicks and the industry is also changing, when we take all those points into perspective, so we need large personal to handle those kind of activities. In the sense, initially, the promoters might be active and they are driving the business to this level. But going forward, we need others also. So how we ensure the human resources point of view? So these are the two points.

Pallak Seth — Executive Vice Chairman

If you look at the quality rejection side, our quality rejection is 0.0001%. So we work with the right vendor, right factories, and we have the best quality professionals in our industry working for us. So that — that’s a very small part of our concern. We don’t have concern on quality. Plus, if any quality rejection is there, the factory doesn’t produce goods to the right quality, normally stays back to the factory, but we have enough risk management done at preproduction stage, that we make sure our factories also don’t get impacted and also have very little rejection. So PDS is quite protected from the quality aspect. When it comes to people, PDS is a company built on people. We have the ability to hire the best-in-class talent. And if he want to, Mr. Sanjay can also later share, the quality of people who have joined us have led some of the largest, most brand companies in our industry since joined PDS. So our ability to attract best-in-class talent from some of the best companies in the world because the culture we have, because of the values on which we operate and the platform and the incentives we give our teams, we are finding that as one of these challenges right now.

Unidentified Participant — — Analyst

Yeah, and Pallak [Speech Overlap]

Pallak Seth — Executive Vice Chairman

I am one of the family members in the company. We are a completely professional run business. So it’s a completely 100% professionally run business. [Speech Overlap] CEO, Sanjay is running it as well.

Sanjay Jain — Group Chief Executive Officer

And just to add, Pallak, one more aspect. I think we’ve invested into the best talent in terms of experience to take care of the anticipated growth. For example, our Head of HR, who joined us about 18 months back, has come from a diverse multi-national background. Our Head of IT has come from IBM. Our current Group CFO, who was earlier with HDFC Ergo. So all these head of the key functions are now, in fact, already there. We do not anticipate any such additions going forward in terms of the back end of the platform to support the growth of the business. And there is an important thing to add here is that beyond a point, technology and digital interface need to play a much more active role. I mean, very humbly, we manage 20% growth with negative working capital of two days. A lot of that is aided by, yes, a careful selection of recurring business model. But if you see our balance sheet, our inventory days are down, our receivable days are down, our payable days are down as well. So we are using a lot of technology and working capital is one of the key investments. So you’re investing to technology to optimize working capital, we’ve recently investing to technology in terms of costing tool to enable our fabric and trims expert, get a visibility into entire fabric that get procured across all of our verticals. So this combination of technology, a combination of people we’ve invested into, we believe we are geared up as a platform now to handle more business going forward.

Unidentified Participant — — Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Krunal Shah from ENAM Investment. Please go ahead.

Krunal Shah — ENAM Investment — Analyst

Yeah, hello, Sanjay. Hello, Pallak. A couple of questions from my side. One is on the — you mentioned that you plan to invest in manufacturing in India and Egypt. So if you can share the broad capex that you are envisaging for that?

Pallak Seth — Executive Vice Chairman

Sanjay, you will take it first, and I can add?

Sanjay Jain — Group Chief Executive Officer

Yeah, yeah, So Egypt, for example, we are in close communication with an existing manufacturing set-up there, fully backward integrated, doing about $100 million of revenue. We believe we have potential to bring in marquee customers to them, and therefore, able to use their capacities much more better. And there the partnership is two-fold. We anticipate forming a joint venture, wherein we would channelize business for them, at the same time, take a small equity stake. So strategic cooperation arrangement, a small equity stake. The small equity stake to begin with may not be an investment of more than $1 million to $2 million, but the strategic cooperation arrangement allowed us to showcase this factory as one of my investee companies that’s on Egypt. In a similar manner, there are opportunities in India wherein the companies have reached on themselves a size and scale of INR200 crore to INR500 crores, wherein an association with a group like PDS allows it to be taken to the next level. So therefore, rather than an outright buyout that is never our belief. Wherein here, a company wherein the entrepreneur has a significant minority stake. So in India as well, while Egypt is our first priority, we continue to invest in India, which is the second priority in due course of this year, later part. We do not anticipate anywhere more than about $5 million to $8 million of investment to go in there. So all put together, both these investments, India carefully being assessed with about $10 million [indecipherable].

Pallak Seth — Executive Vice Chairman

Sanjay, I just want to add. From — if you are a stand-alone manufacturing business, any part of the world, yes, India currently has some — a lot of positivity going because of China Plus One and everything, but many of these assets are trading at a deep discount on net asset value and the valuation even three or four years ago. For them to flourish and survive as stand-alone businesses, like a factory group, even in certain part of India, right, like concentrating one part of India or in Egypt, it’s very difficult for them to have a reach, size, scale to be able to talk strategically to global customer. Very small percentage of them have the ability to do it. As soon as they become part of the PDS platform, they access to few hundred customers, they access to working capital investment from a bank, best practice on ESG governance. So PDS doesn’t plan to invest in manufacturing into greenfield projects. There are enough good assets created by people in different parts of the world, which are actually available to us at a deep discount and we want to have strategic partnership with those entrepreneurs who are running them. And this is a take great value to become part of our group, right, which is like a INR15,000 crore company in the making in the next few quarters and partnering and partnering with us on that journey.

Krunal Shah — ENAM Investment — Analyst

Right.

Pallak Seth — Executive Vice Chairman

So our strategy is clear. We will have manufacturing assets, which are available to become one of the platform, but don’t go greenfield from scratch. So like in Egypt, right, we went and analyze the situation. If you have to put $10 million to set-up our own manufacturing, it would have taken us five years to breakeven and maybe reach a revenue of $25 million, $30 million. But in this case, asset already exist, grew over $100 million in sales, having very, very strong customers like Decathlon, [indecipherable] already working with them for last many years having huge asset bases vertical integration. So if you have to set-up the same setup these people have got, it would have cost us close to $70 million, $80 million to do it. But because of the valuation of the business being low because the industry — how a standalone manufacturing business currently in any part of the world is valued, we feel that by putting small investments, taking a stake — small stake to begin with, with an option to increase it to almost majority, we have the ability to onboard the assets and become part of the platform, which is a win-win, both for the company and for PDS. So just add on to what Mr. Sanjay has mentioned.

Krunal Shah — ENAM Investment — Analyst

Okay, thank you so much. Thank you so much. The second question is on the lines of sourcing as a service. So what was the sourcing as a service merchandise value that we did for Q4 and also for the full year? Sanjay, do you want to take that?

Sanjay Jain — Group Chief Executive Officer

Yeah, yeah, Pallak, I’ll take that. We did approximately $125 million worth of merchandise value that we handle. So that’s approximately INR1,000 crore is what we handle out of the total INR8,200 crore worth of contracts. So that’s what we handle. And as we mentioned earlier, we are now targeting it to scale up and come closer to 50% level in the current financial year.

Krunal Shah — ENAM Investment — Analyst

Got it, got it. Perfect. Thank you so much.

Operator

Thank you. We have a next question from the line of Vishal Prasad from VP Capital. Please go ahead.

Vishal Prasad — VP Capital — Analyst

Hi, thanks, again. I have a request before I get into the questions. Pallak, probably, if you guys can plan to have the physical AGM this year, that will be really helpful. That is a suggestion and a request from my side.

Pallak Seth — Executive Vice Chairman

[indecipherable] to plan, yeah.

Sanjay Jain — Group Chief Executive Officer

AGM, okay. Well noted. [Indecipherable]

Vishal Prasad — VP Capital — Analyst

Yeah, so next question. And I read your father’s book, and it’s very wonderful. I mean, there are very few books available in India on entrepreneurs, and the story is very fascinating. So — and there are a lot of literatures available based on your interview. So I got a sense that we have — I mean, we generally admire Li & Fung and we have fashioned ourselves on Li & Fung like basic difference being refocusing on partnership model. Could you talk about the learnings that we have from Li & Fung, especially in the area of risk management, and what have we done to ensure that what happened with them doesn’t happen to us for a long period of time?

Pallak Seth — Executive Vice Chairman

Just recently someone [indecipherable] spoke to the current second, third-generation family member running Li & Fung from the family and their word was, PDS has turbocharged what they’ve been trying to do for the last many years. So they’re 100-year-old company, we are one-fourth their age, even we’re going to be 25 years next year, but we don’t consider Li & Fung as a competitor anymore, even the customers don’t consider us as a competitor for Li & Fung. So when I started the business in Hong Kong almost 24, 25 years back, there were two key differences. Li & Fung was paying people to exit, plus buying businesses on used valuation, right? So [indecipherable] see any value to pay people to exit because what you’re really acquiring is relationships and order book. But our idea was clear. And so paying people to exit, let’s [indecipherable] people to grow together. We started getting talent from around our industry, very strong motivated individuals who wanted to partner and become part of the growth journey, then people who are already at the end of their career want to retire and offload their business to someone else. So we started bringing in people and partnering with them rather than paying people to exit, that was the initial journey of our Li & Fung and PDS was very different.

One of our Board members, Rob Sinclair, was one of the Presidents of Li & Fung before as well. And the only reason we brought him on is not to grow what Li & Fung is doing, but continue to make sure that we do not fall into the trust that as a company grows falls into. Li & Fung then became a very hierarchal organization, once they paid people to exit, then they started bringing President, Executive Vice Presidents, Senior Vice Presidents. So just hierarchy of people how a typical organization grows. We are very clear. We are a platform, neither can be merged, neither can be acquired. Our job is to enable and support entrepreneurial to join us to grow, but govern and control them when it comes to risk and operational management. So PDS being a value-driven company, if you find any of our entrepreneurs, we have enough checks and balances placed. [indecipherable] this is doing to website globally, which is send to all our vendors and [indecipherable] to all our employees to make sure they report any unethical practices. If we find a single issue, we get the exit to a person. We don’t care how big, small business they run. So we are a value-driven company. And the reason all these big retailers partner with PDS today because they believe that our governance standards are in line with Fortune 100, S&P 500, and DAX 30 retail customers. So managing risk reputation is center and heart to how we operate and zero tolerance policy around it. So Li & Fung [indecipherable] we partner with people to grow, Li & Fung [indecipherable] trading hierarchical organization, PDS being a platform, highly entrepreneurial and agile in its nature with the key difference is how we both evolved in our journey as these organizations.

So if you think about other platform, right, we can onboard 10 talented individuals and not have worry about integration issues. If you see why many companies fail today, right, when they bring a very strong management team? After two years, there’s politics between people and then half of them end up leaving or playing 70% politics, 30% doing the job. But because of the organization design of PDS, which is also Harvard Business School case study, we’re able to onboard the people, give them a clear roadmap, enable and support them, but governing control when it comes to risk and operation management. In PDS, compliance is controlled centrally and cash and treasuries controlled centrally. But enterprise has a free hand to handle all the customer needs based on their own customer portfolio their managing. So I hope it answers your question.

Vishal Prasad — VP Capital — Analyst

Yeah, sure. So usually, when we go with — go and bid for design as a service. So is there a competitive bidding there or it’s generally through negotiations?

Pallak Seth — Executive Vice Chairman

Sourcing as a service?

Vishal Prasad — VP Capital — Analyst

No, design.

Pallak Seth — Executive Vice Chairman

Design-led sourcing. Yeah, so, on design-led sourcing, which is a vendor model, PDS is seen probably the most financial stable player in the industry doing their business. So financial stable and is having the best design team. So there are rather small, medium-sized specialized players who are competing. But customers today, not only are buying product, they’re buying governance, they’re buying financial stability, they are buying a global vendor base, right product, right country, right factor. So yes, there will always be small — INR50 crore, INR100 crore, INR200 crore companies competing with — against us. But more and more we are finding them [indecipherable] and customers trying to work with more structured players, which not too many exist in the world.

Vishal Prasad — VP Capital — Analyst

So it’s more relationship-driven, our strength-driven rather than competitive bidding?

Pallak Seth — Executive Vice Chairman

No. Yes, completely relationship-driven. When I say, in technology, the enabler in the industry [indecipherable] disruptor. Even if I look at Amazon, some of the most sophisticated buying organization, buying apparel, they still have individuals who are running their sourcing. Individual will place business to companies based on their trust, transparency they have at their vendor base. Even a company like Amazon is not doing digitize or, let’s say, online bidding to a particular product. So the advantage of the industry is that, if you see the garment, right, if you go to stores, there are thousands and thousands new offerings coming every month. So it’s a design product, it’s a bit touchy feely product, so their relationship — and it’s art and science. So art is very important along with science. So maybe some very core volume line they try to bid in, but I would say, that’s a small part of the business.

Sanjay Jain — Group Chief Executive Officer

And just one point to add to what Pallak was saying, when we walk in into the room, it’s not just about design, commercials or governance, but the fact that PDS has been carefully building a venture-taking investment portfolio, wherein we spot, we nurture some newest processes, technologies, which are aimed at improving the carbon footprint or preventing the governments in terms of getting to landfill. So to all the large retail customers such commitment to the environment, such commission to sustainability, circularity becomes a big, big important factor for them to consider PDS as a counterparty to their business.

Pallak Seth — Executive Vice Chairman

So PDS is a platform, a venture arm of the ecosystem. The ecosystem is driving innovation both to the platform but to our customer base as well. For example, Walmart, one of the key initiatives was to do onshoring manufacturing in the U.S. plus also become [indecipherable] sustainability. So one of PDS venture investments is fitting perfectly into their goal. And because of that, we have a meeting with one of the presidents of Walmart global sourcing in U.S. just because the see the innovation PDS is bringing, right?

So big organizations rather work and partner with companies, which is bringing them innovation and partnering with them on this strategic journey rather than just being a supplier sitting in one part of Asia trying to do design and supplying them apparel. So today, if you’re not part of the ecosystem, if you’re not part of a platform, a stand-alone business in any part of the world has very limited future. So PDS has organically created this in the last 20, 25 years. And as I said before, starting the call, the pipeline of opportunities we see now coming is more than we’ve ever in the last many years of our existence.

So my last point will be if people are going to look at PDS on a quarterly basis and then make their decision, probably there are better other companies you guys can invest in, but if you believe in the next few years journey, PDS is going to become one of the largest companies in our industry and a force that every retailer [indecipherable] want to partner with. So someone needs to have a bit of a vision and a mid-term goal plan to become part of their journey, as if they really want to be invested in our business.

Vishal Prasad — VP Capital — Analyst

Yes. So we have got BG S on our board, and BG S, given his background at Infosys, and he used to head retail there. He will be having a lot of CXO level relationships with a lot of retailers in the U.S. and Europe. So is there a thought process behind when he onboard that he will help us in getting some of the customers?

Pallak Seth — Executive Vice Chairman

So that is definitely, currently, we’ve not even discussed this, but Sanjay also you can mention that with Bain consulting, AlixPartners, some of the — BCG, some of the top global consulting firms, we have been approached by big retailers for strategy and restructuring. And for them, PDS has become one of the partners. So like Bain is closely discussing working with PDS, they have a kickoff meeting soon, where they’re also saying they don’t want to have any upfront fee with us, but aligned with our like three- to four-year objective and partnering with us in that journey, and a lot of referrals are coming through the global top four consulting firms as well. So I think reaching the right clients is not a big issue for us, it’s basically managing our own growth based on our own internal cash flows, making sure that we are not taking any inventory risk, not taking any credit is a key factor — limiting factor we have currently in PDS.

I see all these venture companies are not getting this big $50 million, $100 million check, [indecipherable] go and spend it and see what happens after the next five years. PDS, we basically reinvest our own profit into growth, and we do it in a very cautious manner, and making sure we don’t take any inventory risk or credit risk. So that’s the only limiting factor we’ve got. We are seeing in the company that whatever profit we make, we are investing and we are not taking any debt, company has no long-term debt, our long-term debt equity ratio almost zero, and we are not capping capital markets for further expansion.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments.

Over to you.

Sanjay Jain — Group Chief Executive Officer

Thank you so much, Nuvama, for organizing this. Thank you to all the listeners who joined the call, and we wish you a good weekend ahead and stay safe all of you. Thank you so much.

Pallak Seth — Executive Vice Chairman

Thank you. Thank you, everyone.

Operator

[Operator Closing Remarks]