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PDS Limited
Earnings Call Analysis
Summary
Q1-2025
PDS Limited reported a robust start to FY 2025 with a 24% increase in revenue, driven by geographic and category improvements. Gross merchandise value rose by 28% to INR 3,898 crores. The order book stands at INR 4,813 crores, a 24% year-over-year growth, suggesting potential to nearly double the anticipated 10% annual growth rate. Gross margins expanded to 20.8%, up 211 basis points, with manufacturing operations growing 54%. Significant investments, particularly in North America, and strategic sourcing arrangements are expected to fuel further growth, with projected annual revenues from new initiatives reaching $100 million.
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Ladies and gentlemen, good day, and welcome to the PDS Limited Q1 FY '25 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from. Thank you, and over to you, sir.
Thank you, Yuen. A warm welcome to all the participants to the PDS Limited Q1 FY '25 earnings call. Investor presentation and the financial results are available on the company's website and the stock exchanges.
Please note that anything said on this call, which reflects our outlook for the future or the change we consolidate the forward-looking statement not to be reviewed in connection with the rest of the company basis. This conference call is being recorded and the transcript along with the audio and the same event available in the rest of the company as these changes.
Please also note that the audio the conference call is recorded at PDS Limited center and cannot be copied the broadcaster attributes without specific and written consent of the company. To give you a brief business update and take hold from the management team. We have felt, Executive Vice Chairman Sanjay Jain, the Group's CEO. Rahul Ahuja, Group CFO; and [indiscernible] CFO. I will now record Mr. Sanjay Jain to all you update in the quarter.
Over to you, Sanjay.
Thank you, Grace. A very warm greetings to everyone joining us from around the world. A very warm welcome to our quarter 1 FY 2025 earnings call. I'm pleased to report a good start to the fiscal year. The quarter 1 has come out strong with 24% top line growth backed by improvement across various geographies as well as the categories.
This achievement underscores our ongoing effort to reach addition brick by brick every quarter. We clocked a gross merchandise value of approximately INR 3,898 crores, which is a 28% increase compared to quarter 1 last year. And this translated into a 24% increase in the top line.
Further, as we stand today, our order book is at INR 4,813 crores, which is approximately 24% higher as compared to same period last year. So as we started the year amidst uncertainties across various parts of the world, we had foreseen that on an average, there could be 10% growth throughout the year.
But quarter 1, we stand at 24%. The order book is currently 24% as compared to the same period last year. So at this juncture, we believe we should be able to nearly double the original growth rate that we have foreseen parcel for the entire year. Our gross margin expansion journey continued as value-accretive businesses contributed 15% to total revenue.
If we go back same time last year, these value-accretive activities were approximately 10% to 12%, and now the percentage has gone to 15% of the total revenue. In addition, the margins of our existing business are also an upward trajectory. Happy to report that the manufacturing operations achieved a growth of 54% over the same period last year.
And as we are talking to you today, the capacities for quarter 2 are running full. And the outlook for quarter 3 is also in a similar direction. During the quarter, we continued to invest allocating approximately INR 48 crores to fund these new activities, new verticals. At our end, we are closely monitoring their performance and are pleased to report that some of the benefits that we have foreseen are beginning to come.
Our sales from these new segments in the first quarter was approximately INR 93 crores, which is almost 4x increase from the new vertical sales in the same quarter last year. Our strategy of expanding our geographies and wallet share with existing customer is gaining traction with the U.S. now significantly contributing to our overall revenue. And if you talk about growth, the sales from U.S. are 50% up as compared to the same period last year. As part of the new vertical investments that we have been making, investments in North America has been a key part of it and somewhere this 50% growth in quarter 1 in terms of sales from North America compared to the same period last year is a step making us -- increasing, you feel more and more positive about these investments that we are making.
Additionally, our U.S. business has expanded through a strategic sourcing arrangement with a large U.S. online fashion player. As their strategic sourcing partners across resonating China, Manama, Cambodia, Vietnam, Morocco, Pakistan, Bangladesh, India, Turkey and Egypt, we aim to leverage our existing global sourcing network and expertise to meet the dynamic demands that are coming in from a large U.S. retailer.
As this business unfolds, we believe as the next step, there should be a $50 million annualized revenue, and then we should be able to scale this relationship to circa $100 million revenue. The business has already started. With these encouraging sectors at play, they are more driven than ever to our vision moving loans to turn on turn. By utilizing technology and digitization, we're managing decision-making and creating higher synergies across various raw materials and operations.
I would like to emphasize that on one hand, we have taken initiatives to lessen to new verticals, to hasten the growth of the company. But in the same time, we've also now accelerated our efforts for cost optimization and cost synergies. We believe at the current size and scale of the organization within the GMV that we are handling is almost at $2 billion.
At the back end, there's a lot of potential to synergize the procurement to synergize the basic cost to share service centers. And also, we are looking at optimizing our [indiscernible] network. And I'm happy to report that this plan of action has already been put under play, and we should also start now in 1 quarter from now, start getting the benefits of this cost optimization underway.
This is a parallel activity in addition to the growth agenda that we are pursuing. We're also pleased to mention that a very senior industry person [indiscernible] has been working with LX Partners as a retail sector expert, he brings on board an extensive experience working in the retail sector and at the same time, an extensive network of relationships across the global retailers.
So from a President, strategy and market position, he should be able to enable us leverage more and more the new initiatives that we have taken by our investing across various markets. To sum up, we are excited about the opportunities that lie ahead, and we are feeling confident in our strategy to deliver long-term value to our shareholders, customers and our stakeholders.
Our achievements in Q1 where the growth of 34% is visible, it's just the beginning. We believe in 1 or 2 quarters from now, the investments that we have been making will start tapering off on one hand. And at the same time, the contribution from these investments will start becoming visible in the later part of the year as well committed to building on this momentum as we medicate through rest of the financial year. I would now pass on to our Group CFO, Rahul Ahuja, and the question in to provide you an overview of the financial performance for the quarter.
Thanks, Sanjay. Good afternoon, everyone. In continuation with our Q4 FY '24 momentum, we witnessed strong growth during this quarter. We achieved the top line of INR 2,621 crores, clocking a growth of 24% year-over-year, with a gross margin of 20.8%, which is an expansion of about 211 basis points. Our employee costs and other expenses increased mainly due to new business verticals and the inclusion of businesses like Ted Baker and Gerry Weber to our group which were not part of our portfolio in Q1 of last year.
Increase in other expenses also increased due to an increase in freight costs, travel and marketing expenses resulting in an EBITDA of INR 73 crores, a growth of 8% year-over-year. Given the incubation phase of new businesses being 18 to 24 months, our investments in new verticals continued throughout P&L during the quarter.
Our operating profit included the impact of INR 48 crores invested in new verticals during the quarter. And our EBITDA when normalized for these investments stands at INR 121 crores as compared to INR 86 crores in the same quarter last year. Normalized EBITDA margin has increased to last year to 4.8% this year.
EBIT recorded a growth of 38%, dropping INR 70 crores in this quarter versus INR 51 crores in the same quarter last year. Profit after tax increased by 34% to INR 31 crores versus INR 23 crores in the same quarter last year.
Talking about our segmental performance. Our sourcing business delivered around 23% growth in quarter ended June 30, 2024, generating INR 2,505 crore in revenue. Our gross capital employed in this segment stands at INR 1,112 crores delivering a return on capital employed of 30%.
Our manufacturing segment demonstrated growth with a top line of INR 180 crores during the quarter marking up year-over-year increase of 54%. Moving to the balance sheet. Our net debt as of June 30, 2024, stands at INR 245 crores, down from INR 258 crores as of the end of March 31, 2024. Our leverage ratios remained strong with net debt-to-EBITDA at 0.6x and net debt to equity at 0.2x.
We have further been able to reduce our net working capital days from 7 to 2. In conclusion, our performance this quarter underscores the strength of our business model. We are focused on maintaining our momentum and delivering value through the years. With this, I request the moderator to open the floor for questions, and we will reply to those amongst us. Thank you.
[Operator Instructions]
The first question is from the line of Rashi Modi from Morcilus Investment Managers -- the next question is from the line of Shrinjana Mittal from Ratnatraya Capital.
Can you just take up of what is the sales ...
Sorry, Ms. Mittal, can you speak a bit louder? We're not able to hear you.
So I was saying that we did the breakup of the vehicle and the sourcing of the service and in this quarter.
So this sourcing as a service in terms of the revenue that we booked in quarter 1 if I tell you in crores, it has been approximately INR 31 crores in terms of the revenue book, which is approximately 49% growth as compared to the same period last year. So that's the -- is the quantity of INR 31 crores with 49% growth over same year.
And on Ted Baker?
Ted Baker, we have done $12.3 million, which is approximately INR 100 crores, INR 102 crores and which is approximately 240% growth over the same period last year. Last year, of course, is not a like-to-like because it was only being the end of the end of the quarter that we acquired. So INR 30 crores number last year in the Q1 and approximately INR 100 crore number in the first quarter this year.
Sir, this is a little lower from the run rate...
Your audio is not clear.
I was saying that in the last 2 quarters, the run rate was around INR 150 crores for Ted Baker. So it has come off a little bit. Is it -- is there some seasonality? Or like what would be the reason for that?
There are 2 factors to it. Then, of course, is seasonality in the quarter 4 in the later half of the year as the things -- the winter and then the in summer collection, the sales are always better. So one should see improved traction in the later part of this year as well. That's the first quarter. The second factor is that the retail operations of Ted Baker have been under a little bit of turbulence, we're stabilizing, but the wholesale growth momentum continues. So that's the 2 reasons.
Understood. Understood. And the other -- second question I have a bookkeeping question. So our interest cost has increased sequentially, even though the debt has reduced gross debt has come down. So is it some -- because of some early payment discounts on bank charges, what would be the reason?
So what you see in our books is the loans that we take on the supplier side or on the payment side. Besides that, we also do insurance back factor. Given that the quarter has been a growth of almost 24% over the same quarter last year. And we have been adding more customers to our factoring facility.
So our overall factoring facility in the Q1 over the sequential quarter of March has gone up by about $8 million to $9 million, which is translating into a large part of the interest cost going up.
Understood. Understood. I have 2 more questions, if I can ask or I can come back in the queue.
Please go ahead.
Yes. Yes. So in terms of the investments that we have done for the new verticals, this quarter, it's around INR 28 crores. So should we assume that, that's more of a run rate number? Or like how should we think about this new vertical inline?
I think this process got accelerated in Q3, Q4 of last year and somewhere it is peaking out in the current and the next quarter. So no, this should not be taken as a run rate. I think, as I mentioned in the opening remarks, from quarter 3 onwards, we should see this number coming down to nearly half and we should actually start seeing value coming back towards the end of the year. So this is not the number. This is close to the peak investment in the quarter. It's lowly coming down.
Understood. Just one last question on the tax rate. So effective tax rate has reduced, but -- and that's mainly because of the mix, is it now that because the Ted Baker business contributed a little less compared to last quarter, that -- is that the reason?
So that's one of the reasons. Also, we have certain new verticals, which are currently loss-making, but we are sure that in the near future, they will be delivering profits. So we have made a better tax asset to the extent of about $400,000 to $500,000 to capture the real tax for the quarter.
The next question is from the line of Rashi Modi from Morcilus Investment Managers.
Yes, Rahul, just wanted to check on the debt that we have against the Ted Baker working capital. Has that been factored in this quarter?
No, it hasn't been until now. As we have said in the last call as well, that our IT integration, which is SAP would be completed by mid to end of July. So that has been done now. In U.K., the banks, once the integration is done, come to check the systems, they do a kind of an audit to ensure that end-to-end everything is getting generated from SAP or whatever ERP systems you are using.
So our banker, which is actually -- which has already sanctioned lines on this aspect is coming for this inspection or discussion around the end of first week of August and post that, the limit should be available to us. So maybe the second fortnight of August is when we should see the limits getting operational.
Okay. So effectively, in the Q2 balance sheet, our debt should come down?
Correct. So what is the OD facility should be translated into an insurance-backed factoring facility. And to that extent, that should come down.
Got it. Second, I just wanted to check on the OCI, right? There's a huge expenditure that been shown this quarter. Just, could you explain what that line item is regarding?
Sorry? Could you just repeat that question?
In the other comprehensive income, so the expense that I'm seeing, which if you could just explain that amount to me, it would be a great help. I'll just point out the line item to you, one second.
Sorry, Rashid, can you take a look at what you're referring to?
Yes, I'll just highlight it -- so there's 26 items that will be reclassified to profit or loss in the other comprehensive section of the comprehensive income/loss for the period. So what is that 26 CR amount that will be reclassified to profit or loss?
Yes. This actually refers to, we are just translating the foreign currency, our balance sheet, especially balance sheet related to Bangladesh, where the currency has been depreciated more than 70% into this Q2 this quarter, right, meaning [indiscernible] So that is a we're taking to the some.
Understood. Understood. All right. And the receivables days coming down in the quarter all factoring or something else out there?
It's a mix of both. We -- as I said, we are increasingly every month, trying to ensure that we do more and more factoring of our receivables to ensure that there is better working capital cycle. And if you compare it sequentially, March is always the biggest quarter for us, where there is a lot of pressure or focus on sales towards the last fortnight. So both these factors do result in Q1 showing better. Did I answer your question?
Sorry to interrupt, but the land for the current participant has dropped off. We'll move on to the next question. [Operator Instructions] The next question is from the line of Gautam [indiscernible] from Neaton Capital.
The Question I had was with respect to the entire China plus 1 unfolding. The government of India in particular has been coming up with various PLI schemes, et cetera, to attract manufacturing back into India. From that standpoint and from India being a sourcing point, how important has it become for your customers as to diversify away from China? Or are we facing serious competition from a host of other countries? Carlo, do you want to take it, and I will chime in.
Yes, sure. I think definitely we now even from potentially coming in as the President of U.S., there is going to be accelerated decoupling with China happening. And people have already now exhausted between Vietnam and Bangladesh or the other sourcing countries and people don't want to expand the social metrics there. So definitely, there's 2 or 3 growth areas you are seeing in Central America. Africa and more Middle East, but India being at the top of the list, the most globally result as a sourcing destination.
The challenge the retail are facing that the amount of business to be placed is so large that they are not enough factory with scale, which can take up that level of business. So that's also the raw material base. A lot of the Chinese business is also cater material with [indiscernible] . And India is lacking fabric in this raw material base. So if India is able to build in scale of manufacturing plus also the raw material base, the fabric capacities or policy and synthetics in the large part of the business potentially could be moving into India in the next 3 to 5 years.
I'm just sorry, just add to what Palak said, 2 real-time cases that we are experiencing, the world's largest physical retailer because of the reasons that you mentioned China plus 1 has been looking at sourcing $10 billion plus from India. So while there are large factories that can come up to meeting the various ESG and quality and delivery requirements.
But then there are large, medium-sized factories, and that is where PDS brings lot of value in our ability to aggregate and also represent. What that transfers into that besides the large factories, we also shortlisted PDS as a prospective party on they want to engage and take the discussion to the next level. So we are progressing well on that track. Secondly, U.K. and Ireland based a $10 billion-plus retailer has been recently in India focusing on their sourcing strategy from India and their host for their visit of [indiscernible].
Wherein as a trusted existing partner for their sourcing from these locations beyond India. We are bringing that relationship and the regulator India as well. So we are seeing to answer your question very specifically, such opportunities that are getting with the funnel and in about 2 to 3 quarters. But if you see conversion of those into actual revenue coming in.
Or just on -- for most of the retailers, India has been 5% to 7% of the current sourcing on apparel or the global source mix, India is 5% to 7%. Indication we have got that this number could become as 15% in the next 2 to 3 years. So that's been either INR 5 crore to INR 50 crore to INR 3 crores or INR 7 to 5 doubling up the business. So there will be the motor potential in periods being a company that originated from India.
Obviously, we are one of the first point of choice for what most of our customers want to look at India sourcing manufacturing teams become the port of call likes, and you just mentioned 2 examples of the many more that I'm the discussion with that. So currently, you said India is 5% to 7% of global sourcing. Is that right?
I mean if I look at a major global retailers, India is 5% to 7% a [indiscernible] , Bangladesh is 30%, China is 20%, 30%, 50%. So it's a global sourcing, right? If you want to be in this industry after the global players to survive and custom grow. So India 5% to 7% or more retailers today. And that's a good unions you're looking at 15% million next this year.
So what I wanted to share with you was that I was in the U.S. in the month of May this year, and I always make a trip to Costco. Just to see how many more products actually made -- and how much of that diversification in the U.S. is moving away from China. So I just want to share this with you guys that have you found garments and then specifically to look at comments now increasingly Cambodia, Vietnam, Thailand, Nicaragua, Guakamala -- Thailand I repeated, sorry. And India, of course.
But interestingly, still -- and by the way, some also increasingly made in the U.S.A. So again, that's very limited stuff. But I was surprised to find still at least 40% of the staff made in China. This is specific to the Costco that I went to. So I'm not generalizing, but I just wanted to give you some feedback.
Yes. I think with China decapping Tomas clearly said that we might take the improved to 60% because 20% levels since China can be competitive because goblins given to manufacture is huge there. And 60% import duty which will be uncompetitive and sustainable? And all the other countries you have mentioned, they are all run by Chinese manufacturing groups having plants in different parts of the world.
So raw material sites coming from China to all these countries, only the CLT factory is done there. So India, it's all the manufacturers. It's all orders Hong Kong, a Shanghai-based company, and they make all the raw materials from China, shift. So CMT's around 20% to 30% of the value chain capture in China for Thailand, Cambodia, Vietnam, because in all these countries. That's the reality.
[Operator Instructions] The next question is from the line of Krunal Shah from Enam Investments.
I have 2 questions. The first is on your Gary Weber. Can you describe how was the progress being made there and the outlook over there? And the second question is on the new U.S. customer that you mentioned in the presentation. Can you describe the scope of work that we'll be doing there?
Yes. On -- let me take the first one on Gary Weber, in the first quarter this year, we have actually clocked in USD 22 million of revenue, which is approximately INR 182 crores and whereas the contribution was 0 in the same period last year because we actually got into quarter 2 to varied relationships. So somewhere, if I have to annualize the first quarter then the account is shaping up very well into annualized INR 700 crore plus account.
So we started on a good move in Q1, and we believe this trend should continue. Our subsidiary Techno has become more and more strategic to their global operations. In fact, amongst our top 10 verticals, if I have to name the vertical that has passed growth last year was actually seconded by ever and the momentum is continuing on that as well.
And on the second one, I would request Pallak to talk more about the deal that we recently signed with the U.S. e-commerce company.
Yes. So this U.S. e-commerce company is based out of L.A. and they are around USD 2.5 billion online retailer. And the largest in the U.S. for online business in fashion. So the main competitor currently issue and the conviction of this owner of this business is still a single owned business. So there is no sort of public company of $2.5 billion is making almost $400 million, $500 million net profit because of the lack of competition in online retail and in the states, they're operating there.
But the CSU grow data from where they are currently in the next 5 years, especially with, for example, the U.S. politician tumor CMS 2 big Chinese companies trying to dominate the U.S. retail space. And if the policy was happening from comes in, there's a big talk how U.S. bank ticked off. They will also ban these 2 online retailers.
So this online business is talking about growing from $5 billion to $10 billion in annualized revenue in the next few years because they have the customer that engaged with them on the website. But currently, they do not have any structured supply chain. So the entire owner of the business is a genius on Internet marketing, customer acquisition and customer engagement but I'll let him in a few months back, and he's never even been to China to source government.
So the entire sourcing currently has done through ages based sort of MA and New York, right? It is all agents sitting there making 30%, 40% margin. and obviously not giving them the value they required. So this contract we have signed with them, you set up a new team, a coppers online enterprise. One of the most competent teams in our industry, [indiscernible] who's run the sourcing of boohoo one of the largest online retailers in the world have joined us. He was the sourcing and Commercial Director there to lead this initiative. So yes, first year, we are considering almost $30 million business in the financial year, but the numbers we have been given could go up to $300 million, $400 million easily in the next 2 to 3 years once the supply set up out.
So we're introducing to them around 50 factories across the world or that only 20% in China, 80% will be in other parts of the world. which will be plugged and played into the supply chain and they all come into [indiscernible] . So we are very bullish on this account. Their sales are growing fast. So and the impact is going to help us and having the most competitive in the industry now representing PDS with this customer, we see no reason this could not become a $3 million comp for us in the next few years, if not possible.
Yes. Thanks for the detail explanation. So this is more like a design sourcing being? Or is there a [indiscernible]
It's a design that sourcing more or less cost sourcing a service, but are arrangements with them if we are going to be getting $400 million, $500 million business if we are going to cap our profit at 4%, right? So what we have mentioned that we'll have a company after all expenses, we will be looking at around a 4% net profit at CDS level if there's any further profit on top of that, you'll give them back in our marketing contribution on the grade.
So I think we win in situations of both parties. If we can get $100 million at 4% net profit after all costs, I think it's a positive situation for the group and gives the customer the confidence that they can grow the period is a lot of turnover because they are not being role they are currently done by their current Asian small one agency in New York and [indiscernible] them.
Got it. Just one question Gerry Weber. What is the profitability there right now?
Yes, on a blended basis, the profitability of techno design for the entire year, we're looking at close to 4% PBT margin. And wherein Gerry Weber would be the -- I can't answer for now the profitability from a single account. But on a whole, on a blended basis, we are looking at circa 4% PBT margin for Tech on the whole, which is where the Gerry Weber is based.
[Operator Instructions] The next question is from the line of Mohamad Patel from Care Portfolio Managers Private Limited.
Can you please break out the new vertical integration operating cost of INR 48 crores in Q1 FY?
Yes, please. We can do that -- And Yes. [indiscernible] So we have 2 cuts of the breakup here. So basically, our design-led super total INR 48 crores, $5.8 million that we just mentioned. Of this, our design-led sourcing business is about INR 7 crores. Brand management business is about INR 18.5 crores. Manufacturing is about 2.5%. What goes into the new verticals for expansion of geography, whether we are entering new markets like North America and others, that's about INR 11 crores.
And into product, new product category is about INR 3.5 crores. As far as expanding our services business is concerned, which is our design services and sustainability, both put together are about INR 5 crores. And so that pretty much will sum up to about INR 48 crores.
So just to go down. So which component will be reducing broadly?
I think the North America related investment are expected to continue for 2 more quarters, whereas the design led sourcing commitments and the brand management related they would actually start taping off slowly now. But the North America investment will be there for 2 more quarters.
Okay. My next question is, which we're expecting this to come down and it is usually a good quarter for PDS. So are we expecting to meet our guidance of INR 19 crores of FY '25?
I think at this stage, for the entire year, what we had originally seen. We remain well poised to meet our profit guidance for the entire year. Yes. The answer is yes.
Sir, like we have given the geographic wise sales grid, what is the geography like sourcing mix for PDS or TTM basis for FY '24?
So Present circa 55% to 60% is coming in from Bangladesh and then the sourcing on the pole. And then Sri Lanka is about 8% or so, China is about 6% to 8%, and the Turkey is about 8% or so. Then India and rest of the markets is the remaining piece of it. Yes, that's the deposit mix.
And how is the situation in Bangladesh affecting our vendors?
we -- I think the country went on the pain for 4, 5 days, but normal restoring our factories opened up today. The partial attendance and tomorrow, we're expecting full attendance. I think, if at all, 2 things here from vial pattern one has observed in this country, there are such small spurts after a gap of 2, 3 years, but then the normalcy comes back soon, which has happened here as well. And it's really up to quantify, we may have a delay of about $15 million to $20 million of shipments because of these last 4, 5 days of whatever happened.
And we would be catching up on that. I think it's something that we want to put it quickly behind. And our teams are working overnight to see that this snag of about $20 million is accelerated in terms of pushing out.
Okay. The last question is, so the rating are increased in Bangladesh, so has that affected our profitability?
So if you look at the silo, the answer is yes, but at the same time, there has been a lot of focus, a, on running the factory 100% capacity utilization last year in the first 2 quarters, because of a change in management in our factories. There was a bit of impact of that. So, a, we are running 100%. I am working towards seeing that our fast efficiency levels. They have already crossed 65%. So we want to touch 70% efficiency levels. So that has also happened. So I think thirdly, we are focused more and more of strategic engagement to migrate to more larger ones and as we saw get more efficiency.
So therefore, to summarize, answer to your question, yes, the labor cost and a result of wages cost went up but because of the efficiencies, because of better capacity utilization, we believe our factories on the call in terms of the earnings profile should do better. And in fact, what we have reported in quarter 1, our factory has achieved EBIT margin of 5.7%.
And last year, in the same quarter, the EBIT margin was 3.5%. The way the increase happened from December, notwithstanding the wage increase, our EBIT margins have actually gone up 2.2% quarter-over-quarter.
I think also the currency devaluation in Bangladesh, we have that taste also of some of the like inflation.
Yes. Yes [indiscernible]
[Operator Instructions] The next question is from the line of Yash Bajaj from Lucky Investments.
Sir, you had mentioned about the retail operations of Tech Baker being slightly muted. So can you expand on it further in terms of what are the reasons behind it? And I mean, in terms of the -- I mean, the kind of take rates we have, is it an impact? That's my first question.
I think, Sanjay, I can take a little bit of it yes. So basically, the retail operator of Ted Baker was ABG, the license holder has given the retail operation to U.K. and U.S. companies to run the retail. Both of the companies were unable to get the working capital limits required to run the business effectively.
So unfortunately, they were not able to run those businesses. So as a result of that, you were basically getting a 10% agency fee. So the retail buying was, say, $40 million. CDS is getting 10% which is $4 million as our fee to basically supply those businesses.
What has happened as a result of that, the retail business is not performing at this stage, but the wholesale business is growing very rapidly now because if Ted Baker [indiscernible] everyone at retail through its own shops and e-commerce currently in the U.K. and U.S. So wholesale, the only area direct consumers can buy those good ARPU wholesale period current wholesale customers like Frasers Group, Next very, John Lewis are now increasing their buys with us.
So once the product is looking good, second, the customer demand is huge. Other state example, NEXT in the U.K. has a license of pet Baker kids that license a loan for them that GBP 30 million sale earlier, whereas the business is only GBP 3 million at this stage.
Net is coming to PDS saying that there is a huge demand from its customers, from its direct customers, the consumer in the U.K. for Ted Baker and they want to expand the business rapidly with us. because customers cannot buy back to the online channel anymore to Ted Baker website to next become the platform from where the customer is able to buy those goods. So any prices bought an opportunity. So yes, the retail were not performing. It did not have a big impact on Pasmuch only getting an agency commission, but the wholesale accounts have started firing and growing [indiscernible] this year as well.
So we are quite confident that this business will become stronger for us in the next -- this financial year will be a little bit restructuring busily profitable. But next one was will be on track to be a highly profitable and growing business based on customer.
So just a follow-up on that. So the wholesale business is growing at strong double digits.
Yes.
Okay. And so I mean, when it comes to the agency side of the business. I mean for PDS, it's a much more margin accretive business. So I mean it kind of impacts our earnings to that extent.
No, no, no. [indiscernible] On the wholesale, we are getting 35% to 40% gross margin. On ADC, get 10%. Obviously, the wholesale account increase is much better for us 35%, 40% gross margin whereas on the ADC is only 10%.
Yes. But on agency, we don't take any kind of inventory risk, right?
We are also we don't in inventories. So [indiscernible] .
Okay. Okay. So you're not ...
In period as a principle, we do not take inventory res, we do not take credit risk. So if the customer also place orders are the payments of secure -- or if there's any business that we have to see before we start manufacturing. You're not taking any risk across the globe on any biomill inventory where we don't have purchase orders impact. If it is 0.05%, 0.03% of our [indiscernible]
Okay. Okay. Got it. And just a last question on the sourcing as service piece. I mean, at what rate are we expecting the GMV to grow for the next -- is it on track or?
I think we have done a triple side guidance in PDS, which is we feel very confident based on the market dynamics that have happened in the industry right now, we see acceleration of restructuring in the global fashion and supply chain business. We see a big consolidation happening. You see less and less value of there being a factor in mid of Asia being able to connect with the customers.
So definitely, we see that what is happening in the industry and the globe. Good defense going to help accelerated growth in the next 6, 12, 24 months into a triple time reason.
The next question is from the line of Rishab Gang from Sachete Family Office.
So your employee costs are rising trend, right? It was around INR 273 crores. This quarter, a year ago, it was INR 200 crores. So I wanted to understand what would be the general trend of growth in employee costs? And I understand you're also building capacity for growth. So has that phase pass away or it's still got -- and then in the operating levers come into play on this some guidance?
Yes. I think if you permit me to answer in USD, on the whole -- the last year, Q1 employee cost was USD 24.4 million. This year Q1, it was $32.7 million. So on the whole, we see an increase of 4% then we have to take into account that Ted Baker was the part of the year last year at about $0.4 million. This year, it is full year $2.7 million career was the part of the year at $1.9 million. You said it is full more than $2 million. The new verticals that we accelerated towards the end of the year, last year, the employee cost was $1.1 million, it was $4 million. and manufacturing, we discussed in response to one of the earlier questions, there was a wage increase the went up from 3.9% to 5.3%. So if I take Tedder, new verticals and manufacturing on one side. On a like-to-like basis, the employee cost was USD 17.2 million last year, and it has gone up to $18.6 million.
So there is a 9% increase, which is a mix of an average merit increase of 5% to 6%, and the rest increasing the headcount. So that's the explanation for this. But on the operating leverage, 2 things here. I think these new strategic initiatives of Debeka, Griebel, and also we talked about new verticals.
We believe that from a [indiscernible] able is already running full operations, Ted Baker, we've just had a comprehensive discussion new verticals, Q3, Q4, we should start seeing benefits coming in from them. Manufacturing has already addressed operating leverage. So as a result, in the later part of the year, you should see more leverage splitting in. That's transactionally moving.
But as I said in the opening remarks, company has identified leverage areas improvement in terms of a procurement synergies and also a lot of our back-end activities, which are being carried out in our verticals, we clearly have identified room for consolidation of those back-end activities. For example, which is akin to a shared service center in a low-cost location like Gurgao, Bangalore or Bangladesh. We already have existing offices here, we just need to start performing these activities.
From a change management perspective in terms of buying of the single leadership that all has happened. And we have already put a plan of action in place. So in the later part of the year, both the new vertical benefit and also the initiative of cost optimization should start kicking in. So I think you should see in H2 benefits of that for [indiscernible]
Also so you have 12 subsidiaries and in Brand associates. I understand that's the business model, like business model requires that. But ultimately, what percentage of share of that, that will flow down to shareholders after existing for minority interest. Like you might find a specific answer, but some direction of cans on that front.
So before specifically answering your point, yes, having legal entities is integral part of the way we function. But every organization in this journey always have points of reflection in areas of improvement. So internally, we have identified close to 17 entities, which we believe can be consolidated. That is number one.
Secondly, our existing verticals top 10 are independently become sizable. So more and more, we are encouraging that can the new initiatives be passed more with them so that the need to have independent legal entities keep coming down. So in fact, you asked the previous question on operation synergies. We are putting this also into an area of operation synergy that can we start optimizing our existing legal entities to do more business.
That is part one of your question. Part 2. In a steady state, we believe 75% to 80% should be the profit that should get attributable to public market shareholders and approximately 20% to 25%. If you take the last 1, 1.5 years out, somewhere that has been the trend. And it is at the platform level wherein we feel positive, we feel that there is growth opportunity we need to capitalize on, and that is where we invest.
But as these investments start generating results, you will see the restoration of 75% to 80% profits attributable to public market shareholders and the rest being minority interest.
Very nice -- just one question. If you have already answered it previously on the con call, I'll read it in transcript. It not answered, if you can answer that in very good. So what is an update on the CapEx? And what's the status on working capital days? Have we seen any improvement on that side.
Sorry?
I would see in the transcript.
Okay. So I think very quickly answering as Al mentioned in his opening remarks, our working capital days was 7 days on March they have come down to 2 days on June. And 7 days was somewhere a combination of Ted Baker business acquired and second, the combination of quarter 4 sales being high. It is always our endeavor of our CFO and his team to try and keep the company around a 0 to 2 days working capital.
So therefore, answering the second part improvement has happened. On the first one on CapEx, all you want to answer in terms of the outlook for the entire. So our CapEx is usually to the tune of the $4 million to $5 million is what we budget across our different verticals. And I guess that is where it should be for this financial year as well. Barring the property that we purchased in London last year.
Excluding that, our routine CapEx should be in the same.
The next question is from the line of Krunal Shah from Enam Investments.
Just one question on the cost synergy the cost savings that you're targeting. Are you sharing a number to that?
So let us talk about potential. I think somewhere one has to work with the blue side thinking as a potential and then work towards it. We have an EBITDA of about USD 55 million to USD 60 million. I'm just speaking a broad number. And the synergies that have been identified can be 2 of $15 million annual savings. And they are expected to largely come from procurement savings. In fact, in the -- somebody asked a question, where is the INR 48 crores, a small part of it has also gone into. I have set up a central procurement team in Gorga in Hong Kong. These are subject matter experts in Jan in fabric in trans who are coming.
Our CIO, Sorab Saksena, who was the head of IT that set up IT systems of costing tool, we are bringing all our vendors on to project We, which is wherein all vendors would be on an e-commerce platform with the company. So vendors being on e-commerce, costing to implemented subject matters being there, we believe we will commence the journey to convert this potential $15 million into our P&L.
If you ask me at this turn, what is the time horizon? Maybe I can't tell it right now. But one quarter down the line, we should be more confident. But I know this is a number. I know the plan has been initiated, and we'll be working towards converting this potential to numbers.
Got it. Second question is on just market conditions. I mean what are the market conditions like losses on the market conditions in U.K. and Europe. So we then were no doubt just how is the market doing? And what is it supporting there?
Let me request Pallak.
Yes. So I think in the market conditions in U.K., Europe and U.S. in all 3 markets seem to be consolidating further. So if -- as I used to mention, is in Europe, there are like 50 retailers who are controlling the fashion market, maybe only 2020, all the 50, 20 would be right. So 30 either out of those 50, 30 have gone out of business or will go out of business in the next 1, 2, 3 years. But the 20 were surviving are going to become stronger.
So on overall base, the market is not shrinking, still growing 2%, 3%, but is getting consolidated in fewer hands if you then have a growth in their own business. Those retailers who are growing are strategic customers for PDF, right? So from their point of view, also we see a consolidating on the tender base. So monoclonal consolidating if you have those consolidated players looking at further having trading relationship with fewer partners, which can provide them solutions.
So PDS evolved from a product company or a solutions company is seeing the benefit of the market trend that are happening currently in this whole global industry. And then CDS checking up this new vertical period online enterprise, starting with the U.S. retailers. So that I've mentioned during the conference call earlier, clearly, we have bought in place. It's currently in the large over-sourcingclose to INR 10,000 crores of fashion from 50 factories across the world, making 300 to 400 units per style, right?
So now we have the capability to engage with a global customer base being able to offer them also smaller quantity run, which are current we are not able to handle. So from a company point of view, business moving some fast fashion we did not have started this arm also opens up a new customer base, which is also a growing segment in the market.
The next question is from the line of Yash Bajaj from Lucky Investments.
Just one question on [indiscernible] I mean our order books have grown significantly at 25% this quarter. So just wanted to check on I mean for the rest of the year, are our factories in Bangladesh filling up led. And does it help us in better negotiations versus the previous?
So I think if I to speak of our own factories, as I said, they are running some capacity out there is positive. But in general, if you talk about all factories filling up, therefore, what is the impact on us, PDS and its vertical to any factory in Bangladesh in part of the world, bringing stability of revenue severity of payment tax resort.
So to that extent, we have enjoyed our preferred status by all our factories. So as a result, we believe we should continue to get handset allocation of capacity by the partner factories that we work with. And if at all, I'm saying are there any pressures that come in, we operate in an industry where there's always price pressure, other selling price pressure, but augmentation through value-added services. And secondly, as I just mentioned in response to previous question, we believe there is potential for us to see our cost efficiencies. So these are the multiple levers that I think are eventually going to have an impact on the margin profile.
Just for understanding in better, I mean, there is a scope of improving the margins, which we are seeing the design as a service and in the future, I mean next 3, 4, 5?
Yes, the answer is, yes. Aided by value-added services, aided by our existing verticals getting benefit and also aided by the early payment discounts that we get, thanks to business lines. The answer is that our margins, in fact, our existing mature sourcing verticals were operating at 15.5% gross margin in quarter 1 last year were roughly operating at 16.7%. Our new verticals that we started, they are working at 33% gross margin and also operating at the same level. So new verticals are actually in the margin accretive, but the existing one also have expanded 1.2% gross margins.
Thank you. Ladies and -- the last question. I now hand the conference over to Mr. Sanjay Jain for his closing comments.
Thank you so much to all our stakeholders across the world participating. I also want to thank by team for helping us organize and thank you, and -- we look forward to staying in touch with you and look forward to your participation in the end of quarter 2 earnings call. Thank you, and stay safe all of you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of PDS Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.