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Strategic priorities to drive profitability

We attended the investor day for PDS, represented by Mr. Pallak Seth (Promoter), Mr. Sanjay Jain (Group CEO), besides key subsidiary heads. Key takeaways from the meet - 1) company expects softness in near-term (1QFY26) profitability given two Eid holidays during the quarter - impacting Bangladesh business and a seasonally weak quarter 2) FY26 revenue and profitability growth guidance maintained at midteens 3) company is focused towards recalibration of new verticals - losses from new verticals (INR1.62bn in FY25) expected to come down by 30% in FY26 4) cost optimization remains on track – benefits to materialize in 2HFY26 and annualized in FY27. The company remains committed to its 5-5-5 vision with current GMV at ~USD2.2bn (ahead of target) while there is catch-up to be done on PAT (20% of target achieved). Company plans to achieve this through cost optimization initiatives and recalibration of new verticals. With a new wholesale / franchise team in place and establishing relationship with multiple retailers to clear excess inventory, company’s brand management business might witness a turnaround. Going forward structural drivers in terms of a) increased out-sourcing by global retailers b) turnaround in manufacturing operations c) increasing penetration in US markets is likely to act as strong base for top line growth. Maintain BUY.

* Strategic priorities to drive profitability: With cost optimization being the key focus, PDS is closely monitoring the new verticals with a clear mandate to the business heads – meet budget or cut cost or fund losses. Company is also focused towards reorganizing existing verticals – improving profitability through structural efficiencies. Overall 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). Cost optimizations initiatives remain on track with benefits expected to materialize in 2HFY26 and annualized in FY27. Company remains cautious of new investments and remains focused on reducing working capital in the next few years.

* Softness in near-term; long-term intact: Company expects softness in near-term (1QFY26) profitability given a) cyclical nature of the business b) two Eid holidays during the quarter impacting business and c) normal profitability evolution cycle. However, long-term outlook stays intact with FY26 revenue and profitability growth guidance at mid-teens. PDS remains committed towards achieving its 3-3-3 vision, an intermediate step towards the 5-5-5 vision, targeting USD5bn GMV over 5 years and delivering a 5% PAT. Company plans to achieve this via a) maintaining a sustainable growth rate of mid-teens to reach a GMV of USD3bn, translated into a projected topline of ~USD2.1bn b) moving from investment stage to extraction stage – investment in employee costs to aid margins (3% PAT by FY27) and c) diversifying into high-value categories.

* Opportunities in crisis; Ted Baker might see a turnaround: Company remains well-placed amidst tariff uncertainties given tariff advantage against China (10% for Bangladesh against 30% for China currently) and structural positives in terms of increased outsourcing from global retailers, entry into newer markets (i.e. US), improved capacity utilisation at manufacturing segment. With India-UK FTA in place, PDS remains wellpositioned to gain from its UK customers (USD1bn of GMV) by establishing their sourcing base in India. Ted Baker agency business was impacted in FY25 given most of its stores in US and UK were closed. Company also witnessed detrimental effect for its AW24 (Autumn / Winter) UK wholesale business. Ted Baker is now seeing a turnaround with new Wholesale and Franchise sales and account team in place – Q1 and Q2 ranges well received. Ted Baker has also established good relationships with retailers like TK Maxx and Zalando Lounge to clear excess inventory. Company is also restructuring its buying and design teams – to result in USD1mn annualized savings.

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