Buy PDS Ltd For Target Rs. 690 By JM Financial Services
Beat in margins; cost optimisation remains on track
PDS reported consol. EBITDA of INR1.4bn, higher than JMfe of INR1bn driven by better sourcing performance. Revenue for the quarter registered a 10% growth YoY to INR35bn driven by a) ~10% YoY growth in sourcing segment revenues b) ~16% YoY growth in manufacturing segment revenue. Key takeaways from the call are 1) FY26 revenue growth guidance at mid-teens 2) Company has guided for total cost savings to the tune of ~INR500mn driven by a) losses from new verticals (INR1.62bn in FY25) expected to come down by 25-30% with improving sales growth b) plan to save INR150-200mn from optimising the tail (merge or shut down option for non-preforming companies) 3) North America orderbook is expected to witness uptick over the next few months with multiple customer accounts ramping up 4) margins were subdued in FY25 given subdued Agency business (Ted Baker). PDS completed the acquisition of 55% stake in Knit Gallery India Pvt Ltd. (KGIPL) in 1QFY26. With India-UK FTA in place, PDS remains well-positioned to gain from its UK customers (USD1bn of GMV) by establishing their sourcing base in India. The company remains committed to its 5-5-5 vision targeting USD5bn GMV over 5 years, delivering a 5% PAT. We revise our earnings downwards by 15% / 19% for FY26E / FY27E driven by subdued performance in brand management business and lower overall margins – leading to a revised target price of INR690/sh (-13%) at 30x P/E FY28E. Maintain BUY.
* Margins expand given better sourcing/manufacturing performance: Revenue for the quarter registered a 10% growth YoY to INR35bn driven by a) ~10% YoY growth in sourcing segment revenues b) ~16% YoY growth in manufacturing segment revenue. Consol EBITDA for the quarter came in at INR1.4bn, up 22% YoY driven by higher sales. The company delivered PBT margins of sourcing / manufacturing segments at 2% / 4% respectively. GMV during the quarter increased 11% YoY to INR50bn. Net debt as at end of the quarter stood at INR3.7bn – increased YoY given acquisition of 55% stake in Knit Gallery. Order book for the company in early April stands strong at over USD600mn.
* Enhancing manufacturing footprint through acquisitions: PDS completed the acquisition of 55% stake in Knit Gallery India Pvt Ltd. (KGIPL) for an equity consideration of INR400mn, to be paid in three tranches over the next 12 months. Out of this, INR240mn has been paid by the company in 1QFY26. Part of Knit Gallery business will be transferred from its existing firm to KGIPL for a Business Transfer Consideration of INR340mn, which will be payable from KGIPL cash flows over 3 years, subject to achievement of pre-defined targets. With India-UK FTA in place, PDS remains well-positioned to gain from its UK customers (USD1bn of GMV) by establishing their sourcing base in India. With tariff situation settling, North America orderbook is expected to witness uptick over the next few months with multiple customer accounts ramping up like Walmart, TJX etc.
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SEBI Registration Number is INM000010361
