PDS Limited

NSE:PDSL

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to PDS Limited Q4 FY '24 and FY '24 Earnings Conference Call hosted by E&Y. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Reenah Joseph from PDS Limited. Thank you, and over to you, ma'am.

[Reenah Joseph, executive]

Hello, everyone. I welcome you all to PDS Limited Q4 and FY '24 earnings call. Today, from the management, we have Mr. Pallak Seth, Executive Vice Chairman; Mr. Sanjay Jain, Group CEO; Mr. Rahul Ahuja, Group CFO; and me, Reenah Joseph. Please note that a copy of the presentation is available on the Investor section of the website as well as the stock exchanges.

Anything said on this call which reflects the outlook towards future or which has been construed as forward-looking statements must be reviewed in conjunction with the risks that the company faces. The conference call is being recorded, and transcript along with the audio of the same will be available on the website of the company and the exchanges. And please note that the audio and the conference material is copyrighted material and cannot be copied, rebroadcasted or attributed to any press media without specific and written consent from the company.

With that, I would now like to hand over the call to Mr. Sanjay Jain, Group CEO, for his opening remarks.

[Sanjay Jain, executive]

Thank you, Reenah. A very warm welcome to all of you, and thanks, everyone, for joining us today. Before we go deeper into our operating and financial performance, let me provide some context regarding the challenges and opportunities we faced in 2023-'24. It's been kind of tough year, significant headwinds, muted demand, high interest costs, geopolitical factors across various parts of the world impacting the demand. However, the company tried its best to minimize the impact of all of this and [indiscernible] wherein while the industry got severely impacted, but we presented that and only had close to about 2% decline in revenue as compared to previous year.

While this could be continued to be seen as a year of challenges, PDS also saw this as a year of opportunities. And, therefore, we felt that this year would be a year where indeed we'll be preparing ourselves for the next phase of growth. On one hand, as I mentioned that we successfully navigated the challenges, but there were opportunities unfolding, and we decided to capitalize on them and started investing into them. And these efforts not only positioned us for growth in the coming years, but also solidify PDS as a global leader in the fashion value chain.

And as I mentioned, it was a tough year, but somewhere in quarter 3, we could, as a first step, utilize the declining trend. We almost had a flat quarter. But in the quarter 4, we had a 25% growth over quarter 3. And as I'm talking to you today, we have a healthy order book of about USD 585 million, which is almost close to INR 5,000 crores and over 30% increase over the same period last year. Our aim this year is to maintain the momentum of growth and profitability.

Fueling our further growth, we made investments of approximately INR 100 crores to our P&L. In our company, which is an asset-light company, any investment that we make into future avenues is primarily through P&L, and that is where it aggregated to about INR 100 crores. Our investor presentation captures a slide on the specific areas where we decided to invest to pursue the opportunities. These are primarily focused on establishing new teams and expanding into new verticals across our business offerings.

For an instance, under the leadership of Mark Green, a very senior industry professional, who has had a long innings with PVH, which is the house which holds Tommy Hilfiger, he has come on board. And under his overall guidance, we have formed a robust team to drive our North America strategy. We are beginning to see good traction and have already made some headwinds in terms of getting on board with some very reputed clients like Target, and also, now having a visibility of increasing our fold -- our business manifold with our existing customer, Walmart.

Additionally, recognizing the potential for higher margins, we also partnered with a gentleman Damian Hopkins in U.K. to supplement our brand business. Furthermore, our existing verticals like Poeticgem, Design Arc, Simple Approach, while they continue to stay focused on furtherance of design at sourcing business, they're also venturing into brand space. However, it is crucial to note that we remain committed to operating within the established guardrails, including maintaining an asset-light approach, managing inventory risk through [indiscernible] models and partnering with creditworthy customers and mentioning about [indiscernible] themselves also growing the brand journey when they are carefully trying to leverage the existing network that they have with the retail customers and how in a very calibrated manner they can also supply brands to them.

Looking back at our strategic tie-ups in the last 2, 3 years, and this is a proof of concept to why we are pursuing these INR 100 crore opportunities, whether it is addition of category, addition of geography or addition of new service offerings to our existing customers. In fact, we have tried to do this in our investor presentation, a deeper insight into 3 of our such investments that we have made in the last 2, 3 years.

One of them was with a gentleman called Eric Leddel. In his previous innings with Li & Fung, he was standing close to 600 million plus of home category business. And we brought him on board. And it took about 2, 2.5 years for the business to be where it has reached today that it has actually got multiple contracts in the home category, starting from a test order of $50 million to actually sourcing the service contract of $250 million from Asda George. And now this business is looking at hanging on the U.S. markets in terms of taking this product offering. So the business is already profitable. The business is already generating a handsome return on capital employed.

Likewise, with a gentleman, Gaurav Pandey, who has earlier in his previous innings with other companies has been successfully dealing with U.S. retailers, he has come on board and has started building the Walmart business, and we are very confident that this business will also be PBT positive in this year in about 3 years of his journey.

Likewise, a third example is the CSS vertical, which is a vertical we have started in Bangladesh and now sourcing of a service for our retail customer Asda in U.K. This business is profitable from day 1. It has a gross merchandise value of approximately $210 million, approximately about INR 1,700 crores. As I said, day 1 profitable, and it generates a very handsome return on capital employed, which is infinite. There is no capital that gets employed in the business, and the returns are highly, highly value-adding.

So if I summarize, Casa Collective's Home Category business that is generating an ROC of about 47% last year should be doubling up in FY '25. PDS Far East, profitable business, at present an ROC of mid-teens, but is looking good. And CSS as a business is about infinite. So this INR 100 crore investment that we have done in our business is a gestation wherein it leads to an immediate P&L impact, but as these unfold into their real potential, these are the kind of numbers that is there as the potential.

We achieved -- moving on, we achieved a gross merchandise value of about INR 15,000 crores during the year, marking a 25% increase over the same year last year. And notably, our posting as a service segment experienced remarkable growth with a staggering 240% increase in GMV totaling to approximately USD 440 million, that's approximately about INR 3,600 crores.

While we generate service free from these volumes, we continue to gain a larger share of wallet with our customers and continue to deliver customized solutions to meet these volume needs. Our goal is to foster strategic engagements with key customers and continue to provide clearer solutions to address their specific requirements.

We've built a robust model, which has enabled us to navigate these challenging times as is reflecting in terms of just about 2% decline and about 25% growth now in quarter 4 over quarter 3. And not only we have kind of tried our best to navigate, but we believe now we are in a path of driving our growth and profitability upwards. And at the same time, PDS is poised to make further strategic advancements by increasing its wallet share with existing customers working via service offerings and enhance our capabilities through strategic investments.

Now I'll hand over to Rahul Ahuja to enable -- provide a detailed overview of our financial performance. Over to you, Rahul.

[Rahul Ahuja, executive]

Thanks, Sanjay. Good day to all on the call today. I will, over the next few minutes, inform you all about the financial performance for the quarter and 12 months ended March 31, 2024.

As Sanjay was just mentioning, we witnessed recovery in the later part of the year. Gross merchandise value increased by 19% to INR 4,526 crores compared to the previous quarter. The consolidated topline of INR 3,215 crores was a 25% increase with gross margins of around 20%, while our EBITDA of INR 124 crores increased by 66% with EBITDA margin increased from 2.9% to 3.8%. However, when we normalized this for our business in gestation phase, our EBITDA translates to INR 157 crores versus INR 107 crores in the previous quarter and a margin of 5.1% versus 4.2%. Our interest expenses were largely flat in spite of the increase in top line and increase in the base lending rate, which [indiscernible] from 4.9% to 5.3%. Profit after tax increased by 157% to INR 65 crores with 2% margin versus 1% in the previous quarter.

Talking about the full year, our gross merchandise value increased year-over-year by 25% to INR 15,048 crores. Our Sourcing as a Service business delivered around 240% growth in the financial year '24. With a consolidated topline of INR 10,373 crores, we arrested a decline to a mere 2% in spite of us being 8% lower in the first 9 months of the last financial year. Gross margins continued on the expansion trajectory with us clocking 20.4% in FY '24, an expansion of 360 basis points compared to the last year.

Our EBITDA was INR 402 crores with EBITDA margin of 3.9%. However, when we normalize it for the INR 100 crore investments in new initiatives, our EBITDA actually was INR 502 crores. It's important to note that we have pulled through this year with higher EBITDA of INR 502 crores versus normalized EBITDA of INR 489 crores in the same period last year. This was achieved despite an early single-digit decline in topline year-over-year. Similarly, our normalized EBITDA margin expanded from 4.7% last year to 5.0% this year. PAT amounted to INR 203 crores with 2% margin.

Moving on to our segmental performance. Our Sourcing segment clocked a top line of INR 10,080 crores with a gross margin of 18.6%, an expansion of 352 basis points. Within sourcing, our design-led sourcing offered -- our design-led sourcing offering achieved a gross margin of 17%, an improvement of 179 basis points, while Sourcing as a Service achieved a growth in topline of 125% with an EBIT margin of 38.5%.

Brand management continues its growth trajectory, registering a growth of 96% compared to last year with gross margin and EBIT margin of 33% and 5%, respectively. Our manufacturing operations reported a top line of INR 597 crores with a gross margin of 38%, an improvement of 206 basis points and EBIT of 4%.

Turning to our balance sheet. From net debt of INR 259 crores, however, in spite of the growth in Q4, we have managed to curtail our debt levels to the previous December quarter. Despite the industry dynamics, our balance sheet remains robust with strong leverage ratio of net debt to EBITDA at 0.61 and net debt to equity at 0.22. With regards to our working capital days, it decreased to 7 days by the end of the year compared to 9 days in December. Excluding Ted Baker Business, our net working capital days stand at 1 day. We are focused on bringing back the net working capital days to early single digits.

On the capital employed front, in PDS Ventures and others, the capital employed stands at INR 254 crores. It is important to note that this includes INR 36 crores attributable to MTM gains. We are also pleased to announce that we have proposed a dividend of INR 3.15 per share. We had declared an interim dividend of INR 1.6 per share in the first half. This makes the total dividend to INR 4.75 per share for the year, a payout of 33%.

In conclusion, the resurgence of demand and the promising performance of our new ventures bolster our confidence in achieving growth in the upcoming quarters, driving steady progress in quarters to come.

With this, I request the moderator to open the floor for question and answer.

[Operator]

[Operator Instructions] The first question is from the line of Vishal Prasad from VP Capital.

[Vishal Prasad, analyst]

So, Pallak, when we talk about PDS Ventures, we report mark-to-market gains. So doing the background of us thinking in terms of mark-to-market, what is our thought process behind investing in so many companies? And internally, how do we measure our performance over a period of time for these investments?

[Pallak Seth, executive]

Yes. Thank you for the question. So PDS Ventures was started around 7 years ago, as they initiated from PDS Group to look at how the industry was moving forward. There's a lot of discussion around sustainability for clarity and new material size in our industry. So we were seeing that some of our strategic customers were like really getting impacted, the business model getting impacted because all the regulatory pressure coming in and all the activists pressure coming in the west that we have questioned these retailers practices on their environment footprint.

So PDS took a conscious decision that we should be part of the solution going forward, not part of the problem. So the investments we made paid huge dividends by helping us position the company strategically with various customers. So like Sanjay mentioned, we opened an account with Target U.S., which is one of the largest retailers in the U.S.; with Walmart U.S., which is one of the retailers in the U.S. as well; Ralph Lauren; IKEA. So having this PDS venture investments had a [indiscernible] impact for PDS.

One, we onboarded a lot of new customers who typically are not looking to add any new vendors right now to their supply chain because they had enough vendors around the world. And looking at PDS as an innovation provider, we got our account opened, and these 4, 5 customers alone could be a $500 million business for us in the next 3 to 4 years.

And then with the existing customers, it solidified our position because fortunately, in the global supply chain PDS treasury is the only corporate treasury arm structurally investing in the future on innovation. So the impact on reputation, impact on gaining new customers and solidifying our position with existing customers was a very strong outcome from our decision to get into this activity.

Now, coming to why so many investments, we've identified around 4 or 5 buckets. One is material size. We are seeing that a lot of -- garments going to store, they must come from a sustainable source, so PDS invested in a hub in Portugal to basically invest in a lot of material-sized innovation technologies. Second is manufacturing process, how to make our manufacturing leaner and more efficient. Third is circularity in fashion. The biggest issue in the West is how millions and millions of tonnes of clothing are going into landfill. So the PDS is providing solutions to our customers making sure goods don't go into landfill [indiscernible] economy.

And then finally, tracing the transfer into a supply chain where the U.S. retailers are asking about the Xinjiang cotton issue. So having key investments into these 4 buckets with businesses and companies coming out of the top universities is really expanding our ecosystem globally as one of the key players there. Any innovation coming in fashion industry, PDS, CCS, and then, we co-invested our customers like Walmart, Target, IKEA, Patagonia.

So when these people are looking at the innovation, they contact PDS Ventures that they need to have a look at it as well with them. And our check size is very small. So companies raising large rounds have a check size which is going to be like $100,000 to $300,000, where the retailer puts the maximum money and the venture capitalist receiving the larger check. But then it makes us strategic to the customer, makes it long term and differentiates us from the 100s and 1000s of suppliers out there, which no one is able to do this with these retailers the way we do it. I hope I answered your question.

Sanjay, you want to answer on the mark-to-market side, please?

[Sanjay Jain, executive]

No, I think the mark-to-market is just our attempt to mention that this is the amount of gain that has already accrued on these investments. But from a conservative accounting policy we are still building this into the balance sheet and not yet taken to P&L. As and when we see an opportune time to disinvest some of these, then that is the time this MTM could potentially get into P&L.

[Pallak Seth, executive]

Yes. And most of the investments we have done, I would say, are gaining in value only because they have been backed by the right venture capitalist, right retail partner and PDS. So all these investors have a very strong ecosystem around them of people that they are being used for not only from a seed stage or a lab stage, but also into bulk production with the help of PDS and the retail customers that are backing them with some of the largest names around the world.

[Vishal Prasad, analyst]

Right. So you mentioned that we benefit out of our investments, but I understand we are not majority owners of all the investments that we do in our venture funds. So how are we able to use their IP for PDS' benefit?

[Pallak Seth, executive]

That's exactly what I meant because we don't want to be majority for sure. We want to have small investments in various companies because we are co-investing with our customers. See if a retailer's venture capitalist firm either H&M or bestseller or Walmart or Target is investing with PDS in these companies, then -- these companies to gain traction needs to have a combination of people supporting them to move to the next level, right? So it's important that they are backed by various stakeholders, then they can be moved forward. So if there is like a $2 million round, PDS will invest maybe $100,000, $200,000 only, right, but become part of the [indiscernible], but become part of the solution with the retailers who take these investments from start-ups into the next level based on combining strengths of the ecosystem of people who have invested in these opportunities.

[Vishal Prasad, analyst]

Okay. And the second question I have is, I remember we were planning to invest a lot of money in the U.S., and then, we talked about the QIP that we were supposed to do. But on our balance sheet, we have close to INR 600 crores. And it has been lying on the balance sheet for a long time. I mean, it is between INR 400 crores to INR 700 crores over the last 4, 5 years. So there are 2 questions here. We have a lot of money on our balance sheet. So why don't we use it for our investments rather than doing a QIP? That is one.

And second, if we are not planning to use the cash, then what is the plan for us for using the cash? I mean, what -- why it is sitting on the balance sheet for so long?

[Sanjay Jain, executive]

Yes. I think the cash is about INR 680 crores on 31st March '24, and then, we report net debt [indiscernible], this is typically the cash that is spread across various legal entities of PDS, and this is also the cash that is pending dividend distribution. What, Rahul Ahuja, our CFO, [indiscernible] first step trying to do is at one hand if there is this cash, then there is borrowing on the other side, so can we minimize the borrowing by usage of this cash, so we save interest cost, that is one.

We also need to look into the fact that a decent part of this cash is the margin money that we give to banks because we are able to enjoy 1 day working capital because we factor our receivable on a nonrecourse basis, and for setting up these lines, we give margin. So this is cash margin, a, this is cash across various entities of PDS wherein endeavor is to knock it off against the borrowing so that we can save some interest costs, that is one.

And on the QIP that you mentioned, we did take an enabling resolution from the shareholders, and -- but at the same time, we wanted to have this flexibility of having the requisite approvals in our hand. But at the same time, our pursuit is continuing to be asset-light. And at present, we do not have a very, very sizable opportunity that we feel we need to write a check. We do have many opportunities knocking our doors, but there is no pressing need to start raising capital, enabling resolution helps.

And I think somewhere, if in the near future -- this resolution is till December, if you feel this is opportune time, and we also are wanting that this step would also enable us for the broad base, our investor base by getting some good institutional investors through this process. So, therefore, these are the 1 or 2, 3 reasons in terms of cash being there, and as I said, no pressing need to do a QIP. It's just an enabling resolution.

[Vishal Prasad, analyst]

Yes. One last question. On Slide number, I think, 19, we have given revenue breakup for top 10 verticals. So what's the currency that we have used here?

[Sanjay Jain, executive]

It is USD millions. So I think -- thank you for pointing out, we will correct it and upload it again, but it is USD millions.

[Operator]

[Operator Instructions] The next question is from the line of Deven from Marcellus Investment Managers.

[Deven Kulkarni, analyst]

My first question is to Rahul. So, Rahul, is there any delay in the factoring arrangement which we were trying with HSBC for Ted Baker?

[Rahul Ahuja, executive]

So there is no delay in the factoring arrangement. HSBC has an approved line lying with them currently. We are in the process of still finalizing the integration from what the Ted Baker used to use as their ERP system, which was AX to SAP. I think another 3 to 4 weeks from now, the testing and all should be over. And the process that is followed by the banks in U.K. is that they release receivables purchased on factoring only once they do an audit of your systems. That's not a practice that is followed at least in India.

So they want everything to come end-to-end from the system. So let's say, they were -- I were to go to them today and give them a list of my receivables, they would want to trace it back to the PO level from the system. Any manual step in between, they don't do factoring. Obviously, the reasons are they don't want to spend too much time as far as analyzing that data is concerned or any manual touch is concerned. So we are starting our testing phase of the integration in a couple of weeks from now. And that's why I said about 4 weeks from now, we should be in a position to invite the bank to do their round of tests, post which they will take their internal approvals to disburse the facility.

[Deven Kulkarni, analyst]

Okay. And is there any impact of restructuring which is going on at Ted Baker level?

[Rahul Ahuja, executive]

Pallak, if you could take that and give an update of the latest at Ted Baker.

[Pallak Seth, executive]

Yes. So ABG is in the process of finding a new retail operator because PDS [indiscernible] and the wholesale business is more or less stable in the head office, but the U.K. and the U.S. retail partners, they're trying to replace with some of our assessable companies. So hopefully, in the next 1 week there will be announcement. We have indications who the U.K. partner is. It's one of the largest retailers in U.K. with $5 billion turnover who will be taking over the Ted Baker retail stores. So we are just waiting to sign the documents, and the announcement should come shortly. So that will give us PDS a very strong partner on the retail side, which will then invest in the business and more retail stores and concessions and e-commerce to take the business forward on a stronger footing.

And similarly in the U.S., I think in the next 1 week, they'll have some announcement coming, so ABG is one of the highest priorities, and we are on it on a daily basis.

[Deven Kulkarni, analyst]

Okay. Okay. Understood. And my second question is to Sanjay. So, Sanjay, last -- in Q3, if you remember, we had said that other expenses, which had increased from INR 170 crores to INR 190-odd crores, midpoint of both, like INR 180 crores is a sustainable number. But this quarter, the number is close to INR 240 crores. So we are almost INR 60 crores higher than the budget. So what happened here?

[Sanjay Jain, executive]

Yes, I think -- allow me to share a full-year context, and that could also help answer your question on the quarter. For the full year on a consolidated basis, in FY '24, we have INR 738 crores of other expenses, and the last year same time was INR 551 crores. So the increase is about INR 187 crores. Now how do we break up this increase? There was no Ted Baker last year. And this year, in the other expenses, Ted Baker has contributed INR 111 crores.

And then Gerry Weber complete sourcing solution business that we took over in Germany, it was not there last year. The INR 8 crores of other expenses got added up from Gerry Weber. That's INR 119 crores, Ted Baker and Gerry Weber. The new verticals that we have mentioned that we have invested INR 100 crores. The corresponding previous year was INR 22 crores of other expenses in the new verticals. This year it is INR 69 crores. So the increase is INR 47 crores. So INR 111 crores plus INR 8 crores, INR 119 crores plus INR 47 crores. That is the kind of not apple to apple, new verticals, Ted Baker and Gerry Weber.

If I exclude this, then the like-to-like last year number, FY '23, was INR 529 crores, and this year, it is INR 550 crores. So the increase is actually 4% in the other expenses. The number is looking higher because we've added 2 new verticals, Ted Baker and Gerry Weber and added numerous new verticals in terms of growth strategy. That's the like-to-like comparison, please.

[Deven Kulkarni, analyst]

Okay. Understood. And final question, in Q3, the employee cost was around INR 270-odd crores, and that included, I think, a one-time bonus or incentive of roughly INR 25 crores, INR 30 crores. But we haven't seen sequential decline in employee costs. So is there anything -- what's the reason for this?

[Sanjay Jain, executive]

Yes. In fact, some of these questions that you asked us have enabled us kind of look deeper. And as I answered on other expenses in the same manner, the employee cost is INR 984 crores in FY '24 and was INR 761 crores last year, that's an increase of INR 223 crores. Now, in the increase of INR 223 crores, there is Ted Baker, INR 65 crores; there is Gerry Weber, INR 22 crores. And there are new verticals.

The employee cost was INR 32 crores in FY '23, and it is INR 95 crores in FY '24. That's approximately INR 64 crores increase. Then there is North America, which is about INR 7 crores to INR 8 crores. So if I exclude this Ted Baker, INR 65 crores; Gerry Weber, INR 22 crores; new verticals, INR 64 crores; North America about INR 7 crores to INR 8 crores, the increase is INR 66 crores from INR 730 crores to INR 795 crores, which is a 9% increase on an overall basis, which we believe is a normal increase given small increase in headcount and an overall inflation or so. So that's the answer to the question in terms of how we are explaining the employee cost increase.

[Operator]

The next question is from the line of Pritesh Chheda from Lucky Investments.

[Pritesh Chheda, analyst]

Just to the continuation of the preceding question, so then this Ted Baker account, what margins is it making at the reported level for us?

[Sanjay Jain, executive]

Ted Baker, I will take that question. For the full year ended March '24, we did about INR 507 crores of topline. We had a gross margin of about 41%. And in terms of PBT margin, it is approximately -- it's about INR 28 crores of PBT that works out to a little less than 6% of PBT margin. So that's 41% gross margin, 6% PBT margin.

[Pritesh Chheda, analyst]

Can you give the EBITDA margin?

[Sanjay Jain, executive]

EBITDA margin of the business is about close to 6.5%.

[Pritesh Chheda, analyst]

And how much have you invested? Because when I'm looking at your cash flow statement, I can see trade receivable, INR 570 crores invested into, INR 160 crore invested into property, plant and equipment and INR 158 crores invested into acquisition of noncontrolling interests in subsidiary and all these places. So that's totaling about INR 160 crores plus -- INR 320 crores plus INR 570 crores, about INR 800 crores, INR 900 crores. So how much did Ted Baker attract investment from your side?

[Sanjay Jain, executive]

It is circa INR 150 crores. That is the amount of check we wrote to begin with, and subsequently, we did recover part of investment through working capital squeeze. So if -- I'm giving an approximate number. I think the INR 150 crores is down to close to about INR 100 crores to INR 110 crores, so INR 40 crores was squeezed. So today, the answer is INR 150 crores is down to little less than INR 110 crores. And on that, our EBIT is INR 33 crores. You are asking about EBITDA. And EBIT number is INR 33 crores. So it is approximately a 30% ROC on the last year performance. And I'm counting INR 33 crores is from June end onwards -- sorry, June beginning to May end. So, therefore, I'm not analyzing it for the period that we were holding. It is INR 33 crores of EBIT on the business, and the net investment as on date is approximately INR 110 crores. That's the metrics of the investment decision.

[Pritesh Chheda, analyst]

And from your cash flow, if you could tell why has the trade receivables increased so much by the year end at INR 570 crores. And what are these other 2 investings that you have done, INR 162 crore in property, plant and equipment because we haven't done this kind of a CapEx earlier and the consideration paid towards acquisition of noncontrolling interest of INR 158 crores? So what resides in these INR 900 crores of cash flow item?

[Sanjay Jain, executive]

Rahul, do you want to take that? Then I will chime in.

[Rahul Ahuja, executive]

Pritish, your first question was -- if you could just repeat the first part of your question? Pritish, if you could just repeat the first part of your question.

[Pritesh Chheda, analyst]

So I'm looking at the cash flow. There is change in trade receivable, INR 570 crores. So that's a fairly large number. And -- so basically, the question is from cash flow generation and usage. Cash flow is low in generation because there's a INR 570 crores receivables for no growth in sales. And then on the top of it, you have invested about INR 320 crores in property, plant, purchase, equipment and acquisition and noncontrolling interest. So if you could explain what all is it.

[Rahul Ahuja, executive]

Sure. So as far as receivables is concerned, a large part of the receivables increases on account of the Ted Baker business as well as a few of our large customers increasing the number of days as far as payment days are concerned. So both these led to an increase in the overall receivables number as far as this year is concerned.

As far as your second part of the question, which is around investment in property, we last year had liquidated a property in the U.K. Our 3 large businesses, which is Poeticgem, Design Arc and Ted Baker, all work out of rented premises. And particularly Poeticgem itself aspires to be a $1 billion business in the next 4 to 5 years. So there was a need for us to have a better office. We were operating out of more like a warehouse from industrial area in Watford in London. And we invested about $10 million in acquiring a property which we feel will be appropriate for the size and shape of our businesses in the U.K. and also the customers that we handle in U.K. So we thought that this investment was required during the year. So that's where we invested about $10 million in this property in Watford in London.

[Pritesh Chheda, analyst]

So that still explains out of INR 320 crores, $10 million, which is about INR 80 crores, INR 90 crores. So you have INR 162 crore investment in purchase of property, plant, equipment, capital work in progress and investment in property, that is INR 162...

[Rahul Ahuja, executive]

So, Pritesh, $10 million, as I said, about INR 90 crores, is this property. Including tax and all that we have to pay, it overall comes to about $11 million to $11.5 million, so let's say, INR 100 crores in this property. We do about -- every year across our verticals about anywhere between $6 million to $8 million of CapEx. This year, it was slightly higher because one of our businesses -- third largest business, which is Simple Approach set up a sampling unit in Bangladesh, which led to a slightly higher CapEx than what is routine. So about $9 million to $10 million went into CapEx.

And our PDS venture investments in any year are around $5 million to $6 million, which is basically cost coming from the existing investments that we have done plus any new opportunities, so we usually restrict it to around that level. So all of these put together -- and including a small CapEx in our Sri Lanka operation, all of these put together add up to another INR 180 crores to INR 200 crores.

[Pritesh Chheda, analyst]

So these INR 158 crores is those PDS venture investment, which is usually about $5 million, $6 million.

[Sanjay Jain, executive]

No, Rahul, just allow me to...

[Rahul Ahuja, executive]

PDS venture is not INR 158 crores.

[Sanjay Jain, executive]

Sorry, allow me to chime in here. I think in the order of the question that you asked, firstly, the receivable, as Rahul explained, went up.

[Pritesh Chheda, analyst]

I understood that. I understood the purchase of property...

[Sanjay Jain, executive]

Just allow me to address all these points. While the receivables went up, the corresponding payables also went up. If Ted Baker we exclude, the net working capital is 1 day. Typically, we manage 0 days, 1 day's net working capital. So in our business excluding Ted Baker, we are bang on there. Any increase in receivables is also corresponding -- managed through payables, so no increase there. Rahul answered that. We are at INR 60 crores CapEx in years FY '23, and we have a CapEx of about INR 167 crores with almost close to about INR 110 crore increase. And the answer to that about is about $10 million, which is about INR 85 crores to INR 86 crores including some taxes went into the U.K. property.

What's the remaining amount that is there is the CapEx. The INR 10 crores, INR 15 crores remaining is the CapEx in the sampling room of Simple Approach in Dhaka with a CapEx in Sri Lanka. So that's the explanation. So CapEx is in line with what happened last year except the investment in the U.K. property. And in fact, we have invited our investor community to be part of the Investor Day on 11th June wherein we have noted all the business heads from U.K. to also be present, and they are very excited themselves to scale up the business to $1 billion from about $400 million right now.

In terms of the venture tech investment, we invested close to INR 70 crores in venture tech investment last year in FY '23. And as we can see from PAT flow, the investment is about INR 29 crores in venture tech investments. And in respect to the Ted Baker, we mentioned about INR 150 crores. That's part of the acquisition of Ted Baker, INR 155 crores. I think just for the venture tech investments are down, the CapEx is in line plus the addition of the U.K. property and the INR 150 crores, as you asked earlier, was in the Ted Baker business.

[Pritesh Chheda, analyst]

Okay. So that INR 157 crores that we see is all Ted Baker business entity..

[Sanjay Jain, executive]

Approx -- that INR 52 crores -- yes, the acquisition of TDG, Nobles and others that INR 155 crore number that you see it includes Ted Baker. We also mentioned in one of our releases that in a factory in Sri Lanka, which is making an EBITDA of about INR 15 crores, we invested about $1 million, about INR 8 crores to get a 26% stake in that business. So that's also captured here, that INR 8.5 crores to buy a 26% stake in a factory in Sri Lanka with EBITDA of INR 15 crore...

[Pritesh Chheda, analyst]

And sir, from your opening remarks about this interpretation of adjusted and the reported margin, how should we interpret now this for FY '25? And when you say that you have started your order book at $585 million, which is plus 30% Y-o-Y. How should we interpret it for your future for FY '25? Now this INR 585 crores will also have -- I don't know whether it's a GMV value, how it is -- how should we interpret this number with your revenue performance -- to all your revenue performance and the margin adjusted reported for FY '25?

[Sanjay Jain, executive]

See on the margin, as we have mentioned by giving the 3 sample actual cases of Casa Collective and PDS Far East and CSS, it takes about 2 to 3 years from the investment phase to these businesses becoming to their full potential. And given that FY '24 was a year of large investment, relatively large, so we will continue to report normalized EBITDA to enable our stakeholders see this. But in about FY '26, I think we should start seeing significant benefits coming in from these investments. It can be sooner, but that's, therefore, the normalization impact, we have to capture in FY '25 as well. That Is answering your first point.

In terms of the order book, when we're talking about almost a 30% growth as compared to the same period last year, this is the order book, which is equivalent to the way we book revenue. This is not that we are saying that this is -- a $585 million circa number is a GMV number. This is what actually is the number that gets booked into revenue. We have mentioned a 10% year-over-year kind of outlook that we are seeing ourselves. Currently, we are very positive with the order book in hand, 30% and up. But I think we are a bit cautious given the overall environment, but at present in hand, the order book is much better than the 10% that we are aspiring to grow the year with.

[Pritesh Chheda, analyst]

When you said normalized margin, your normalized...

[Operator]

Sorry to interrupt. Mr. Chedda, maybe...

[Pritesh Chheda, analyst]

Sir, I just want to finish this with. When you say normalized margin, you mean normalized margin of FY '23, which was 4.5%?

[Sanjay Jain, executive]

Yes, we have done apple to apple. So when we had given a normalized EBITDA of 4.7%, it was in FY '23. And the corresponding number is 5% in FY '24. And the only main exclusion to arrive at the normalization is the investment in new verticals, nothing else.

[Pritesh Chheda, analyst]

So if I have to understand your comment properly, you're saying that FY '25, we go to the normalized margin number of FY '24 as the reported number and then whatever increment we see thereafter?

[Sanjay Jain, executive]

Yes. I think firstly, we would request -- we are very happy to get all your questions, and we would really request if we can have a one-to-one meeting to get deeper so that we can take more questions, but taking this as your last question, yes, our endeavor is that whatever is the normalized EBITDA for FY '24, we should target to achieve that as the EBITDA from normal operations post the investments.

[Operator]

The next question is from the line of Chirag Fialoke from RatnaTraya Capital.

[Chirag Fialoke, analyst]

Congratulations on the traction on the top line. Just 2 clarifications. So Ted Baker this quarter was around INR 152 crores. Is that correct?

[Sanjay Jain, executive]

Yes.

[Chirag Fialoke, analyst]

And could you just share the same number for Sourcing as a Service for this quarter?

[Sanjay Jain, executive]

Yes. We will just -- we will answer that in 1 minute time. If you have any more questions. Sourcing as a Service for the full year that we have booked as a revenue, and Reenah will just help pull out the quarter number, is INR 215 crores out of the INR 10,373 crores revenue that we reported. The Sourcing as a Service and agency is about INR 215 crores and was INR 66 crores in the same period last year. Quarter 4 number, I will just come back to you as we take more Q&A.

[Chirag Fialoke, analyst]

Perfect. So INR 215 crores is the total for the full year for Sourcing as a Service just to confirm, right?

[Sanjay Jain, executive]

That's right. Commission income from Sourcing as a Service and the agency income that we get otherwise plus INR 215 crores for the full year against INR 66 crores in the previous year.

[Chirag Fialoke, analyst]

Perfect. Understood. Just one clarification question. I think the previous participants also sort of were trying to get around to this. The Page Number 31, which is the FY '25 outlook on the presentation, you talk about 10% topline growth, which you're saying is sort of mildly -- being conservative a little bit to be in the order book, but given the environment, what is puzzling is more the profit growth. A 15% PAT growth would mean a far lower margin still in FY '25. Are you -- is it a plan to continue investing through the P&L for new ventures? Or am I missing something? Would you just talk a little bit about sort of profitability for FY '25 a little bit if that's possible?

[Sanjay Jain, executive]

I think you have to permit us to be a bit conservative. We want to make sure that we are in a position to try and beat these estimates that we have for the year. And our endeavor is to improve the margins going forward as well. But as I said earlier, the verticals that INR 100 crores that we have invested would continue to be in the gestation. But on an overall basis, to answer specifically your point, we achieved a PAT of about 2%. And I think we will endeavor to improve it for the year on the whole. If that means more than 15% growth, then that is what we will strive towards. We're not anticipating the PAT margin will decline going forward..

[Rahul Ahuja, executive]

So as far as [indiscernible] add here that the market -- as we mentioned at the start of the call, last year, the market conditions were very challenging, very tough in the markets we operate in. And while we have seen a good amount of recovery in Q4, and we expect the trend to continue. But we are -- we rather be conservative, wait and watch for a couple of more quarters for both topline recovery and bottom-line margin expansion to start happening. So it's still not a situation where we can get aggressive and say that we will deliver an X amount of growth in bottom line. We would rather be conservative and wait and watch for the market to bounce back.

[Chirag Fialoke, analyst]

Understood. That's clear. Just so that -- my question is clear. So if I look at the Page 21st of the presentation, if in general, you guys think of INR 30 crores as an investment in new verticals, in FY '25, do you anticipate investing a lot more than that? Or is it going to be around the normalized range? I think that's the only thing that's kind of under our control, the rest of the environment whatever happens, happens. But what do you anticipate as investments into new vertical for FY '25 broadly?

[Sanjay Jain, executive]

I think 2 points to clarify firstly on your previous observation or question. A 10% growth in top line, a 15% targeted growth in profit when the profitability is including at a higher percentage, clearly indicates a better PAT margin. If we were at 2%, with these kind of numbers, we should do better. That is point number one.

We have invested about INR 100 crores. I think our focus this year would be that let us retrieve more value from the investments we have made. So, therefore, at this stage, we are anticipating to bring this number down. We will continue to keep investing, but if I have to prioritize, let us harness what we have invested into than committing more, so, therefore, this number should gradually sequentially come down.

[Operator]

The next question is from the line of Lovish Soien from Phoenix Advisers.

[Lovish Soien, analyst]

My first question is that despite the accelerated investment in the U.S. market that we have made over the last 2 quarters, it seems like your revenues from North America business has declined 15% year-over-year in FY '24. So what is the reason for such a degrowth despite these investments? And when would our efforts in U.S. start to produce tangible results?

[Sanjay Jain, executive]

I will also request Mr. Pallak Seth to -- allow me to firstly answer the number part, and I'll request Pallak to add in on the U.S. strategy. I think hitherto we were catering to North American market sitting from where we are, whether we are in U.K. or Hong Kong or in Bangladesh. It is in this year that has just gone by that we actually created a strategy, let us invest into senior resources with relevant experience. Let us have people on the board whether it is at the Board of Directors or whether senior people employed with us. So that is where we believe that -- it was a tough market for U.S. You all are aware of the inventory issues. You all are aware of the overall high interest rate and low sentiment environment. So -- but now that we've invested into these people, we've got kind of a camp on the ground, that is where we are very bullish on scaling on this number.

And I will request Pallak to please add in terms of what is the game plan and strategy, please.

[Pallak Seth, executive]

Yes. So overall, U.S. inventory level is extremely high last 12 months. It started normalizing in the last -- during the Christmas period. So this year we're seeing the bounce back of demand coming from customers. If I speak to most of our customers and the competitors. they were looking at almost a 30%, 35% decline on the buying they were doing last year versus the year before. So now situation has improved, but periods in the last 12 months as we on-boarded some of the largest American retailers as customers. So -- Sanjay had mentioned about Target U.S., which got a $50 billion apparel business; Walmart U.S.; Kohl's; Lands' End, so some very big American customers have now chosen PDS as stragic vendor. And we feel that the investment in the quality apparel we are making is going to facilitate huge growth of that business in the next 20, 24 months.

Walmart had a summit in India. They came to India in, I think, February, March this year, and they met almost 65 vendors to talk about strategy and growth. And only one vendor was invited back to Bentonville, which was PDS. So on a 65 evaluation of different companies they did on the apparel side, PDS was the only company that was invited back to Bentonville, where we met and -- went and met them last week, and they're asking us what is our 5-year vision with them.

So our 5-year vision is forecasted as we want to do USD 400 million in Walmart in 5 years time from now. So they are the kind of discussions we are having with these retailers in a time where vendors are being consolidated, and it takes time, right? Everything takes time. Opening account is the first step, and actually, discussion with senior leaders is the second, and then investing in the right team to make sure that all the discussion happens to get into business that can be executed, which is the third. So we've taken all the 3 steps. And, hopefully, by H2 this year we will see our U.S. business start picking up and orders flowing in. So the real impact will come in next financial year, but this year already green shoots and all the positive news has started flowing in. And hopefully, we will see big upswing on the business in the U.S.

[Lovish Soien, analyst]

Got it. Just a follow-up on that. Given that these large customers you mentioned, Walmart, Target, Kohl's, already have their onground sourcing teams in Asia. So how big can PDS become as a part of their overall source?

[Pallak Seth, executive]

Because the sourcing team are the one who are putting PDS forward. Our interaction with Target U.S. is through the Bangladesh office because they only work with 4 vendors in Bangladesh. So they -- in my view, if you are a factory in middle of Asia, be it in India, be it in Bangladesh, be it in Indoneas, be it in Vietnam, has zero value to our customer. You get 10,000 factories globally, no one is interested, no retail is interested to talk to another factory, to honor another factory and do business with them. The only thing they're interested is every detail has got pressure of margin, design, FOB, LDP, sustainability, [indiscernible].

So there are a lot of things that retailers are facing in their home markets, where they need to align with strategic suppliers to be able to fulfill those objectives. That's what Target U.S. said that they evaluated 180 vendors since COVID, PDS is the only one that got orders. And PDS doesn't even own large factories, but because of the element of design and the entire investment we have done in our whole sustainability and circularity side, this is number one objective from Target, how to make the supply chain more sustainable.

They [indiscernible] PDS as a company based on all the investments we have made to provide us solutions on that journey and that's why added as a vendor. If you look at Walmart U.S., their chief strategy from the CEO's office last 2 years, which we are now in their 5-year plan, one is made in India, other is made in U.S.A., third is sustainability of supply chain. So PDS was ticking almost all 3 boxes; Made in India, we did a partnerships, like a joint venture with a factory in Mysore, which we have put forward; made in U.S., we threw a venture around the company called [indiscernible], which now is putting plants in the U.S. Obviously, it's a small investment from PDS, but that company is now talking with Walmart instead of some manufacturing plants in the U.S.

And third, on sustainability, basically, the solution we are providing is very, very important for how they are looking at their own supply chain going forward. So the local offices of these retailers are the ones talking to PDS and putting us forward as a solution provider through the head offices in the U.S.

Hope that answered your question.

[Lovish Soien, analyst]

Yes, that does. Just 1 last question from my side. With 10% revenue growth in FY '25, the ask rate for FY '26 and '27 to meet the $2.5 billion revenue target in FY '27, like we said a couple of years back, is very steep. So how confident that we'll be able to achieve that $2.5 billion target in FY '27? Or is there a deferment to that? Or are we deferring that plan for now?

[Rahul Ahuja, executive]

I think, as Sanjay mentioned, we already have a 30% uptake on order book compared to last year, which is very few companies can say this in our industry. Still the industry is highly challenging. There are a lot of companies -- suppliers going out of business. Now retail is consolidating. So in that consolidation, if PDS is seeing a 30% growth in our order book on H1, which is a positive sign. But as you said, also to be conservative, we are giving guidance of numbers, basically, because we don't know what will happen in H2, but overall situation is looking quite positive. So, hopefully, we will obviously beat our guidance for this year as well.

[Lovish Soien, analyst]

And that means that we are continuing with that $2.5 billion revenue target for FY '27?

[Rahul Ahuja, executive]

I mean, yes, this is the plan, but PDS will not take any unnecessary risk to business model to post anything, but yes, the kind of opportunities we are seeing and the customer engagement we are having, we can easily see a lot of growth being projected by existing customers. And so these discussions happen in most of them.

[Operator]

Ladies and gentlemen, we would take that as our last question for today. I would now like to hand the conference over to Mr. Sanjay Jain for closing comments.

[Sanjay Jain, executive]

Thank you so much, E&Y team. Thank you so much, our investors, for joining -- our stakeholders, for joining this call. We would welcome that if anyone wishes to have a one-to-one conversation at group level, we are available. We have also sent you a Save the Date for June 11 in Jio Centre, BKC. We are hosting our Investor Day. We are inviting our top 5, 6 business heads who are flying in from various locations to get an opportunity of meeting you and vice versa as well, so kindly do join us. We will -- our investor deck would be e-mailing the complete agenda by the end of this week, and we look forward to your participation.

Thank you so much. Thank you, everyone.

[Rahul Ahuja, executive]

Thank you, everyone. Thank you.

[Operator]

On behalf of PDS Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.