In conversation with Sanjay Jain, CEO, PDS Multinational Fashions Limited

I think whatever we have achieved in terms of operating margins and working capital efficiency, we are maintaining that trend, says Sanjay Jain, CEO, PDS Multinational Fashions Limited.

For the quarter ended September 30, 2021, PDS Multinational Fashions reported its strongest quarterly performance in the last five years. What factors have contributed the most to help you outperform? 

I think one is the good topline growth, in the first six months our growth rate has been about 32 per cent over the same period last year. The second quarter also saw strong growth and we are also, cutting down the losses that were getting incurred in the manufacturing operations, where we incurred a loss of almost Rs 100 crore last year. This year, our losses are significantly lower in manufacturing operations. In fact, our top line manufacturing is up by 84 per cent and our losses in the first half are down by 68 per cent. And in the second quarter, they were down by 85 per cent as compared to the same period last year. So, top-line growth in the sourcing business and manufacturing business; the manufacturing is slowly heading towards profitability and then gradually we have been taking measures to improve our gross margin, whether it is through the introduction of higher-margin categories or introduction of brands or introduction of the benefit of the economies of scale.

As the scale is going up, we do get the benefit of better procurements. So, in the first six months of 2021, our gross margin was up by 2.4 per cent compared to the same period last year. In fact, in the second quarter, the gross margin was 50.4 per cent. So, the net profit of the top-line grew more than 3 per cent. Better gross margin and economies of scale is slowly driving manufacturing operations to cut down losses towards profitability. These are all the reasons that we had strong growth in a bottom line in the first six months of FY22.

Based on the current business environment, inflation and supply chain volatility have become a problem for all businesses. What are the challenges currently being faced by PDS Multinational Fashions? 

On one hand, there is an opportunity for robust demand, but at the same time, as you rightly pointed out, there has been strong inflation and that has been impacting the input prices. So, a strong demand most often should enable us to absorb that input cost increase. But at the same time, talking about the challenge then we at PDS multinational, are constantly striving to see that how can we bring improvement in process efficiency, rather than simply passing it on in strong demand, we brought in process efficiency to absorb or utilize uprising.

Secondly, of course, supply chain logistics have been impacted. However, we are present very close to the origination of goods, hence are able to have better control visibility and are also able to derive the benefits of scale. So, yes, we are having challenges with input prices. We are having challenges of supply chain disruptions, but we are trying our best to process efficiency to being closer on the ground to improve that. Also, I think, as I said in the first question is when we have a careful strategy of adding more categories that are better on the margin front; we're adding a digital branch for our customers. Therefore, we're also making efforts on how we can augment or how we can add better margin categories (if at all the margin on given businesses under pressure), so that we keep our prospects of having better margins ahead.

Europe and the UK are predominant markets for PDS accounting for nearly 84 per cent of its total business. What are your plans for geographical diversification and expansion? 

We would continue to further strengthen our relationship with the existing market of the UK and Europe. But at the same time, we are a lot focused on the US market. Two to three years back, just about 9 per cent of sales were coming from the USA market, and in the first six months (of FY22), close to 15 per cent of sales have come from the US market. So, therefore, we have experienced strong traction. We have set a goal to double sales contribution from the US market i.e. to get 20 per cent in the coming three years. So, therefore, that's diversification or adding new geography in our portfolio is being pursued and so far it has reaped successful results.

What is your earnings outlook for the upcoming quarters? Do you see any trends playing out?

We have maintained our guidance, originally at 12 to 15 per cent top-line growth for the entire year. We including each and every one of you is also cautious about the impact of COVID. So far, we have grown 32 per cent in the first six months of FY22 and order books are going positive. But as you know, now, there's a new variant of COVID. So, to that extent, we are cautious. I think the growth momentum should continue for the next six months as well and I think whatever we have achieved in terms of operating margins, working capital efficiency, we will maintaining that trend.

Therefore, what we achieved in the past six months, we are targeting to achieve the same in the next six months with a bit of caution around COVID. But, where we are now at this stage, we feel we should be able to do well, as compared to the original guidance as the first six months have been ahead of the schedule. So, to answer the question, what we have achieved so far in the past six months, our performance continues to be on the track.