PDS is committed to its long-term 5-5-5 vision targeting USD5bn GMV over 5 years and delivering a 5% PAT. Buy for target price of ₹790 (77.7% upside): JMFICS

PDS investor roadshow takeaways

We recently hosted the management of PDS Ltd for an investor roadshow, represented by Mr. Pallak Seth (Promoter), Mr. Sanjay Jain (Group CEO) and Mr. Rahul Ahuja (Group CFO). The company provided insights on the growth strategy to achieve its 3-3-3 vision (USD3bn GMV over 3 years and delivering a 3% PAT). Company plans to achieve this via a) maintaining a sustainable growth rate of mid-teens to reach a GMV of USD3bn, translating into a projected top-line of ~USD2.1bn b) moving from investment stage to extraction stage – past investments in employee costs to translate into lower fixed costs, in turn aiding margins (3% PAT by FY27) and c) diversify into high-value categories and build new customers across geographies to capitalize on the growth opportunities. PDS expects 4Q demand to be subdued but expects significant growth in FY26 and FY27. Company’s recent acquisition of 55% stake in Knit Gallery India Pvt Ltd. (KGIPL) for an equity consideration of INR410mn at ~6x EV/EBITDA and ~4x P/E is expected to consummate by May’25, helping PDS diversify its sourcing footprint and enhancing company’s manufacturing capabilities in India. The company remains committed to its long-term 5-5-5 vision targeting USD5bn GMV over 5 years and delivering a 5% PAT. Going forward structural drivers in terms of a) increased out-sourcing by global retailers b) turnaround in manufacturing operations c) newer revenue streams – SAAS/Brand management d) increasing penetration in US markets is likely to act as strong base for top line growth. Maintain BUY.

 Strategic investments to drive growth; outlook optimistic: PDS remains committed towards achieving its 3-3-3 vision, an intermediate step towards the 5-5-5 vision, targeting USD5bn GMV over 5 years and delivering a 5% PAT. Company plans to achieve this via a) maintaining a sustainable growth rate of mid-teens to reach a GMV of USD3bn, translated into a projected topline of ~USD2.1bn b) moving from investment stage to extraction stage – investment in employee costs to aid margins (3% PAT by FY27) and c) diversifying into high-value categories. Company expects 4Q demand to be subdued but expects significant growth in FY26 and FY27.

 Enhancing manufacturing footprint through acquisitions: PDS recently acquired 55% stake in Knit Gallery India Pvt Ltd. (KGIPL) for an equity consideration of INR410mn at ~6x EV/EBITDA and ~4x P/E. Part of Knit Gallery business will be transferred from its existing firm to KGIPL for a Business Transfer Consideration of INR340mn, which will be payable from KGIPL cash flows over 3 years, subject to achievement of pre-defined targets. The combined business clocked around INR2.9bn in FY24 with EBITDA of INR360mn. The transaction is expected to consummate by May’25, helping PDS diversify its sourcing footprint and enhancing company’s manufacturing capabilities in India.

Brighter story ahead: Company’s medium term outlook (FY25-FY27E) already bakes in demand fluctuations arising out of global economic slowdown. Overall structural positives in terms of increased outsourcing from global retailers (owing to cost savings and reduced efforts to deal with local market complexities), entry into newer markets (i.e. US), improved capacity utilisation at manufacturing segment, increasing contribution from SAAS is likely to act as triggers for growth implying a revenue CAGR of ~18% over FY24- 27E.

PDS is committed to its long-term 5-5-5 vision targeting USD5bn GMV over 5 years and delivering a 5% PAT. Buy for target price of ₹790 (77.7% upside) JMFICS