PDS Limited - A platform for entrepreneurs

Chins · October 13, 2021, 3:42pm

Quoting from one of the best threads in FY22, @sahil_vi’s write up on platform companies,

Let’s use the framework set up in that discussion to talk about PDS Multinational.

Business Model and Scalability

PDS is a platform which curates the supply chain for multinational companies. As a brand, where do you want your fabrics from? Are you looking for a design team to be onshore or offshore? Where would you like your manufacturing facilities and warehouses to be located?

(DRHP, 2014)

PDS has spent the last decade expanding their network, and becoming an economy of scale:

The first thing that should stand out while reading this paragraph is that their clients include Walmart, Primark, Sainsbury’s and Tesco. These brands are known for selling clothes at the absolute bottom price range. If these people come to PDS, PDS must run an incredibly tight ship, and is a cost setter. Indeed, even Amazon is a customer.

If we were to assign a score to the scalability of the platform, it depends on two factors:

If PDS is connecting brands with manufacturers, there is a huge potential for scaling as it entirely depends on PDS’ distribution network, and is not limited by physical assets or capacities.
The second driver of scale is the number of repeat customers PDS has. If new business comes at the cost of people switching to a different sourcing company, PDS is on a treadmill. Crucially, 98% of PDS’ business is from existing customers, up from 89% in FY15.

This sourcing business takes up ~95% of their revenue. At this point, we should expect that anyone who sells to Amazon and Wal-mart won’t be a high margin business, and we would be right.

However, we note how both gross margins and operating margins have steadily been improving over the years. There are two important points to consider:

There is more to the margin profile than meets the eye.
Margin profile and return ratios are going to look much better from FY23.

1. Management’s Take On Margins

While their topline is 6000 Cr., the management looks at the gross margins as the revenue base. The 6,000 Cr. is the mechandise value of the goods they serve on the platform.

2. Margin Profile and Return Ratios in FY23

PDS has slowly started to fulfil some of the manufacturing contracts in house, padding the margin profile. In 2018, they made investments to create two state of the art manufacturing facilities in Bangladesh. In subsequent annual reports, they’ve mentioned that these two factories need about 3-4 years to break even from the high initial investment. The reason why I call them state of the art will become clear in the next section.

From being a new segment in 2018, manufacturing is now 6% of the topline.

These two plants are expected to turn profitable in the next 4 quarters, and the overall RoCE and margin profile will look a lot better. Let’s not make the mistake of assigning a multiple to a loss making component.

Durable Competitive Advantages

Aside from being a genuine economy of scale which is needed to thrive in such a cut-throat environment, PDS is actually a thought leader in sustainability.
In the west, there is a huge campaign surrounding the waste that is generated through various industries. In retail, 92 million tonnes of waste is produced each year, along with CO₂ emmissions. Brands are trying to clean up their supply chain to make sure:

Workers are paid living wage.
Factories have limited environment pollution.
Water consumption is moderated.

We have seen this play out in various chemical companies, renewable energy, etc. and ESG metrics are incredibly important to foreign funds investing in emerging markets.

When PDS built the two factories in 2018, here’s how forward looking they were with their design:

Since investments in manufacturing was recent, we made sure they were completely sustainable - high automation, new technology.

The environmental impact of these factories are minimal, they are 21st century factories. Solar panels, glass panelling reducing ambient temperature, comfortable for workers.

Any waste is recycled using boilers to generate electricity.

Salaries for workers are above industry normal, closing in on living wage.

This was planned in 2018, well before sustainability became a trend. Not only is this something they’ve perfected, but they’re passionate about this if you listen to the management speak. They recently acquired a majority stake in a company known as Yellow Octopus in the UK. What Yellow Octopus does:

Yellow Octopus management is incredibly passionate about sustainability.

Partnered with ASDA and George in the UK.

If you think of Paypal for payment solutions within one ecosystem, Yellow Octopus offers the same function in sustainability.

Stock exits - assist retailers with excess inventory, customer returns.
Take back - We created the first digital take back app in the world https://regain-app.com/
Re-commerce - Most advanced recycling right now is re-using. Prolonging life cycle of products.
Impact investing - We invest in new innovations in circular fashion. Connect the dots

PDS Venture Capital Fund

The third business vertical is investing in a plethora of early pre seed sustainability startups.

Investment Thesis, Peers, and Valuations

The summary so far is that we have an end to end solutions provider, working at global scale with several marquee clients. They’re investing heavily on forward looking ideas that may pan out in the next few years to arrive at ever improving return ratios.

Today, they’re trading at a P/Sales of about 0.5x, and an EV/EBITDA of 10. (This is including a loss making component in the earnings!)

Risks

They have 100 subsidiaries. A lot of these have to do with the many ventures in the fund, manufacturing facilities, land deals, etc. Complex structure of subsidiaries would leave a bad taste for many investors. (Was a sticking point in the SIS thread, many similarities as some subsidiaries haven’t been audited by the main auditors.)
Low operating margins could wipe them out if there’s an even tighter run ship.
Risk from labour reforms in Sri Lanka / Bangladesh that could impact profitability.
Retail risk is seasonal, forecasting demand is crucial during holiday season to prevent overstacking inventory / loss of revenue from underestimating demand.
The largest revenue share comes from UK and EU customers, even though top 10 clients only account for 6-7% of the revenue each.
The stock is fairly illiquid with a 50 day average volume of 9000 shares, or about 1 Cr. daily turnover.
There is no analyst coverage from what I can tell. Investors are currently in this alone, and will have no external help on predicting revenues and working out pricing / valuations.

This is a work in progress thread.

To come:

Management discussion - Lots of recent senior hiring, will be addressed in the next post.
Venture fund composition - Many companies in this venture fund which include global e-commerce marketplaces, and sustainable companies that have partnered up with Nike / Adidas. These deserve their own post. This will underscore just how much attention they give to sustainability.
~~Summary from annual reports~~

Disclosure: Invested.

Inviting @Investor_No_1, @sahil_vi, @Lynch, @Malkd and regulars for comments. Thought you may find this interesting as we’ve had discussions on similar spaces to what PDS operates in.

Chins · October 13, 2021, 3:54pm

Here’s the summary of the annual reports:

AR 2015:

Bought Navex Global - Ethics and compliance expert
Asset light is a keyword they like
2300 employees, 2000 sourcing, 300 product development
Run your own business unit within the cultural/financial framework of the group
150 people develop 1000 new styles and 10,000 samples per month
Want to diversify geography
Seasonal business - sales higher in H2, higher operating costs in H1.
New businesses will be profitable after 3 years → going forward
Goal - expand infrastructure by over 10,000 machines over 3 years (FY18)
34 new clients, 89% repeat business.

AR 2016:

Improve efficiency in trading model, accelerate manufacturing vertical.
Setting up manufacturing factories in Bangladesh over the next two years.
Estimation of demand is key for H2. Overestimation → overstocking, underestimation → loss of revenue.
23 new clients, 95.6% repeat business.

AR 2017:

Bangladesh manufacturing plants will be in from operation April 2018. Named GSS and Progress.
Progress has 2500 machines, 50 lines, 15 million units / year - Trousers, Chinos, Jeans
GSS - 1500 machines, 30 lines - formal shirts, casual shirts.
Both plants are completely green certified - focus on sustainability.
Design Hub in UK - 150 designers, 10,000 styles every month.
Factories audited every three months - complete compliance in supply chain.
All orders are presold before processing production. Partnering only with AAA+ rated customers.
Manufacturing will aim for better penetration in US markets.
Large upfront costs for Capex, benefits will be seen 3 years from now.

AR 2020:

EBITDA margins up to 5% now.
Design hubs now in China, UK, Europe, India and Sri Lanka
In house manufacturing now contributing, helps address specific requirements of customers
Contribution from manufacturing now 4.9% compared to 3.8% in FY19.
16 new clients, 98% repeat business.

2021

1 million pieces of garments per day.
36 million pieces annual capacity.
24 investments in sustainability and consumer tech brands.

2021’s AR is the most informative report the company has put out, would recommend reading it for greater business clarity.

Current client demographic:

Chins · October 14, 2021, 9:20am

Venture Fund Investments

(in Lakhs)

Style Theory - They are a Softbank backed platform company in Singapore. Their business model is that buying formalwear is expensive for women, especially as gowns are often worn only once. They allow women to rent gowns for a night, working on a subscription basis, and also let people rent their own designer clothes out for a passive income.
With over 400,000 users, the more people they onboard, the larger the choice of apparel on offer.

Common Objective - Is a platform company that connects businesses with sustainable designers and providers. They’ve onboarded some huge clients, https://www.thereformation.com/ is an example of an incredibly popular high street brand they’re working with. They too run a subscription based business model, and have over 23,000 users.

Made in Africa - is a luxury fashion brand that’s run by the son of the late UN Secretary General, Kofi Annan. Looks to be in the early stages right now.

Clinova Limited - Is basically WebMD with an inbuilt e-pharmacy aggregator, giving you OTC treatment suggestions for various ailments. Apps like these are popular in the UK due to long waiting periods to visit the NHS, and private clinics are incredibly expensive.

Evrnu is a brand that is addressing the waste in the textile industry by making new clothing fibres out of rubbish. They’ve got funding and are working with several large brands like Adidias and Levi’s, and have been featured by the New York Times and WSJ.

Fertifa is a new digital fertility clinic.

Zwift is an online cycling trainer / game, with over 3 million users.

eSports has been gaining traction over the years, and more so after the pandemic. This is a huge win for Zwift. They currently have over 500,000 downloads on the Google app store.

War Paint is make-up for men, and has found so much success that high street brands are moving towards the same concept.

Materra is a sustainable cotton agriculture firm that reduces water and fertilizer use by 80%. They’re started by former Imperial College engineers.

Monolith AI is an optimization product used in automotive and energy design.

Alacrity is a legal data analytics service.

M-XR - PDS’ management has spoken about how Covid has moved the industry into doing their sampling digitally, reducing lead time by about 4-6 weeks. M-XR is an innovator in this space, working on 3D realistics captures for the fashion and gaming industries.

More importantly, they’ve been given a grant by Epic Games, the creators of Fortnite and the Unreal engine, to develop their 3D capture engine.

https://www.m-xr.com/case-study/epic-games/

Atterley is based out of Edinburgh, but is a global fashion e-commerce platform.

There are lots more brands that are a part of the portfolio. As someone who’s invested in RPSG Ventures, this VC looks like it’s taken investing in disruptive brands to a global scale.

Inviting comments from board members as this is a lot of material to break down. I can’t even decide which of their investments is the strongest, as all are in unique subspaces and have strong financial backing.

Some questions:

Some of these investments are intuitive. PDS management has spoken about being a client for their own investee companies, and using new age tech to improve operating efficiencies. 3D sampling for example in the image below. On the other hand, why are they investing in companies like Zwift and Caidr which have no relation to fashion or apparel sourcing?

Can we work out ownership in these companies? I was excited about one of RPSG Ventures’ investments until I realised they only own 1% of the company. If it were to become a coveted unicorn, a 1% stake only translates to 75 Cr. Winners work similar to our portfolios, and we’d like adequate position sizing in each. Finding out the endgoals of these investments, timeframes that PDS is thinking about, and selection would shed a lot of light on this vertical.

Investor_No_1 · October 14, 2021, 3:44pm

@Chins - I am humbled by you seeking my thoughts…
I haven’t gone into details but as you asked so would give whatever initial thoughts I have -

First, as always, appreciate your in detailed posts
First thing which caught my attention is it is not a simple business to understand. I am not able to understand it in direct reads. I have to put deeper thoughts to understand the essence of what basic things they do…
The first thing they mention in their website is that they manage supply chain for brands & retails. That would imply it to be a supply chain management company but then in very next paragraph they mention they have multiple factories - that would imply they are a manufacturing company…while first is a hardcore process oriented firm with different perspective than an asset heavy manufacturing firm.
How can a manufacturing firm be considered a platform company. I did not go into details of other thread on platform business you mention, my bad, but it seems many firms or all firms can be considered platform business but in any case a supply chain management firm may still work as a good platform but someone with asset heavy factories/manufacturing may not have the full power of asset light platform structure.
One risk you mentioned - labor laws etc. is something I do not understand much but it looks like a significant risk. But will similar risk not be for Dixon/Amber which does backend manufacturing for brands…Can they also claim that they manage supply chain for those brands they manufacture for? Maybe this comparison would make me understand this company better…
Its mentioned they have 100 subsidiaries…don’t know what to say in this case. Never ventured into such unknown water with significant percentage allocation…so someone who has done that can comment better…but this is a very important aspect of unknown…

All above may be not as important as my second point for me personally that I am not able to easily understand this business, what makes it what it is, its real strengths and threats easily…I am sure I would be able to do that if I put in more time and efforts but usually I would do that -

If either it belongs to an industry or sector that interests me
It belongs to a business house/promoter of interest or repute
I have some edge to understand the business better by deep dive than others and I believe I am ahead of the curve. (I do not think I have this edge in any business yet except some technology or unfortunately unlisted digital ones which will eventually list at mind boggling valuations)

So, I would conclude this can be a really good business, specially if it had been asset light, supply chain management focused, digital platform based simpler one…it may yet be a good business but I would take really long time to understand it…would be reading this thread to do that…

Guarndian_Nettings · October 14, 2021, 4:40pm

management recently started doing concalls…and the insights were pretty interesting…
Being myself from textile manufacturing business…i feel this business model is cery interesting and highly scalable…

i am invested in this one and i am glad a thread on this one has started…

posting the concall link….

kalpesh4430 · October 15, 2021, 11:16am

I have briefly gone through presentation and con-call,
I have few questions to understand business better,

Efficient manufacturers already have factories booked, who needs platform support is those who cannot sell production capacity (less efficient players), PSD can make them little more efficient by leveraging their knowledge/collaborations etc, will that be enough?
Whenever brand/retailer comes to platform for their supply chain managements, they expect to save costs (otherwise why choose platform against existing setup?).
In the processes platforms will further squeeze manufacturer(who is already less efficient)/ suppliers as they have to make profit for themselves and save costs for brands/retailers.
Is this sustainable for manufacturers/suppliers?
Starting manufacturing business for a platform can be seen as backward integrations, if they do value added products.
In this case their factory is running at 100% capacity and still they cant break even?? seems they are in difficult highly competitive business, they are claiming now focused on increasing efficiency and these factories will be in profit soon. How much??
Can it stand up against Chines startups like Shein? seems difficult

Mr Sanjay Jain recently joined as CEO, he seems intelligent person and understands how to do business, I would be comfortable if he purchase some shares.

I’m trying to gauge company can grow how much, for how long.

Margins can increase a little in next few years as manufacturing business comes in positive territory, and management has guided for 15% CAGR for next 4-5 years.

I’m neither positive nor negative on business, just seeking more clarity…

Disc. : Not invested

Chins · October 15, 2021, 11:29am

I thought it would be nice to tell a story today. To understand the competitive landscape, management vision and business strategy, we start with the story of Li & Fung.

Two brothers, with an education spanning Princeton, MIT and Harvard Business School, turned their family run business into the world’s biggest supply chain company. They connected firms to a large network of factories, and weren’t simply middlemen, but broke large orders into pieces and sourced them from different factories in their network.

LF Route

This ingenuous system revolutionized retail outsourcing in the 1990s. L&F could guarantee deliveries of massive orders in weeks, where previously it would have taken months. Likewise, factories throughout L&Fs network began to recognize huge increases in profitability through the uptick in utilization. Importantly further, L&F’s system broke up each order into a unique supply chain for that specific experience that was cobbled together for this one order, nearly erasing the ability for a customer to go direct to their suppliers and cut out the intermediary.

Factories became so reliant on this network, that L&F offered incredibly exploitative terms to these factories, which had a carry over effect of horrible working environments and negligible pay.

In the 2000s, L&F went through a string of acquisitions, buying more than 50 companies for over $6 billion in those days. These included shipping companies, huge retail brands, jewelry companies, furniture, you name it. The stock did incredibly well at this time.

In the next decade, this empire slowly hit disaster after disaster. Rising costs of labour in China forced L&F to look for cheaper manufacturing in Indonesia and Bangladesh. However they didn’t have the expertise in these regions and could not replicate their earlier revolutionary success.

Three large scandals hit their supply chain:

A fire (2012 Dhaka garment factory fire - Wikipedia) broke out, trapping workers and killing over a hundred people, injuring over 200 more. This was at a factory servicing L&F, and had been flagged as a high risk working environment.
The Rana Plaza collapse - where a building collapse in a garment factory killed over a thousand workers
Increased media coverage and protests lead to many retailers cancelling contracts with L&F. Here’s an excellent read on Li & Fung: https://www.nytimes.com/2013/08/08/world/linking-factories-to-the-malls-middleman-pushes-low-costs.html

A culmination of these factors lead to the downfall of L&F, and from its peak in 2010, it lost > 95% of its stock value:

With this information in mind, let’s revisit some of the management’s comments:

They’ve set up two state of the art factories in Bangladesh. They’ve made sure the workers are comfortable by having special glass panelling put in, which reduces ambient temperature. They’re using high automation and new technology. They’ve invested in solar plants and these factories do not produce any waste, as it’s converted into electricity.

We also know they have their network factories audited every three months, and every single investment they’ve made has been revolutionary in terms of sustainable clothing, from dealing with returns and take backs, new generation cotton, new generation recycled fabrics, etc.

I had a conversation with a friend who’s worked in a sourcing company. The key learning for me was that sourcing companies are misunderstood. Intuition tells us that they offer services, are middlemen, and therefore have no moat. The truth is that being able to deal with customs, different cultures across borders, form relationships with factory owners in community driven environments, deliver goods on time reliably are incredibly understated, and forms a moat that few can replicate at scale. Li & Fung’s story tells us exactly this; a global sourcing empire failed to conquer Bangladesh. If they were simply middlemen, they wouldn’t have failed.

PDS has set itself up to be Li & Fung’s anti-thesis. Management speaks about these disasters and codes they follow in Bangladesh. Until recently, most of their growth was organic and mostly debt free. They’ve taken L&F’s biggest weaknesses and have turned it into a core strength - sustainability across the supply chain. They’ve found success in sourcing from markets such as Bangladesh and Cambodia. The closing line from the conversation was that we’re fortunate that one of Li & Fung’s contenders is listed in India.

As a closing remark, PDS has hired two senior officials to spearhead expansion into the US markets. One of them, Eric Leddel, has the following background:

@kalpesh4430 I hope this goes someways in answering your first two questions. They’re incredibly relevant, and I’ll write about the two plants in Bangladesh and the rest of the management shortly.

Lynch · October 16, 2021, 6:27am

Excellent research and write up as always @Chins!

I have to admit my level of research yet is not as comfortable on this yet, but just putting in my initial thoughts (more from a qualitative perspective) from reading through your thread and a basic go through on Screener. I still have to go through the ARs and Conference calls, so might be missing elements of understanding the business.

There are aspects that I really like about the business (mostly from points you have detailed) and some aspects are for me still questions.

Areas I like:-

I agree with your points on a strong competitive advantage - though I would not call it a MOAT as I do not know if there are potentially other players in the field with similar businesses. Overall - the kind of relationships they have, the cost advantage, supplier relationships - there is good scope to play out a thesis of unorganised to organised - in obviously a very legacy and cluttered industry where supply chain is critical
Your post in Li & Fung and the conversation was insightful. I was in the camp which misunderstood this, and the points there definitely point to a supply chain benefit which in my opinion would be large for both stakeholders for them - the suppliers and the brands
I love the ROCE profile and the core business model of the ‘platform’ business. I am though still not sure about growth, and it would be interesting to understand from any industry experts if this is a newer phenomenon or something that has existed for long. I can see the main promoter owns a stake another company Pearl Global - might be interesting to study that in the future
Basic scuttlebutt on Google reviews etc show some good stuff with good reviews - still to be seen in much detail
The venture investments look very exciting from an initial read - some slightly unrelated to core business as you mentioned - but could be big kickers for future valuations if some work out assuming reasonable stakes

There are areas that I am not too keen on as well:-

The biggest one for me is growth. My general feel is that with their client concentration and business model and the industry they are in (I am not generally a fan of the same) - will growth be restricted by the growth of their clients and the industry? I would want to understand if they have any competitive advantage in the space - versus the companies they mention in Europe are 3-4x their size. I actually think the aspect pointed out by @kalpesh4430 could be a positive here? Could there be big potential to move from unorganised to organised - or are there some huge barriers/other players?
Another concern was that I do not see why they had to get into manufacturing - if the core business had the strength to grow the profit pool for a long time. It might be tempting to increase margin profile, but then for me they become another textile player, not the aspect I am excited about in the business
I do not like that they compare themselves to Dixon and Indiamart within the company data. It shows me a management very aware about stocks/valuations - and I generally prefer owners concentrating more on the business whilst the market takes care that all the right steps are recognised. That said, I also don’t think the growth profile for them matches the initial one for Dixon 2-3 years back (before its valuations went through the roof) or that for Indiamart currently - I think textiles, digital and consumer durables are very different market opportunities

I have focused a bit more on my concerns as you have detailed the positives very well already. Additionally, I do agree with @Investor_No_1 on the fact that this for me seems to be a bit more than a supply chain company rather than a platform company (unless they have a far superior tech product?) - this for me comes from their foray into manufacturing when they could have maybe concentrated more on the ventures/platform development.

That said, without any in depth research, the promoter team seems to be smart and recognise the business for both value drivers and growth drivers. From a valuation perspective them moving into manufacturing is not ideal, but I can see the attraction of increased margins. The ventures piece also shows that they possibly realise the over reliance on a slower industry, and are trying to build in growth kickers. I still have to do even a basic analysis to understand promoter credibility though.

I think in summary I do like the initial look of the company, but with some strong counter points versus the thesis to be answered. My general averseness to be very wary of new investments in the small/midcap space in the current exuberant environment is also acting like a major driver for me to tread more with caution than positivity whenever I analyse new businesses currently. Look forward to the rest of this collaboration, if we can understand aspects better.

Disclosure : Still basic research on the company, not invested yet. Not a SEBI registered advisor.

kalpesh4430 · October 16, 2021, 8:26am

@Chins nice informative post.

my thought -
Li & Fung created value in the market by providing services that were not available back then.

Its just they couldn’t do it sustainable way for very long term(Slowly deteriorating moat over time),
Reasons -

Labor rates & compliance cost increased in china, so their western clients(Brands/retailers) must have found doing business with them is not as profitable as before
their chines suppliers/manufacturers couldn’t match their rate expectations.

So it must be double whammy for them, as both sides couldn’t agree to each other.

So their moat may be was “executing large orders within short period at cheapest cost” advantage.
This advantage came with sweat of chines labors who worked in bad conditions, and cheap salaries, non-compliance with regulations etc etc.

Does PDS has this kind of moat?
If they go by satisfying all the compliance, they will never be able to beat someone like Shein,

Shein works with new business model (C to M) where entire supply chain gets almost real time information, Factories are directly connected to customers through ERP, their prices are 50% cheaper than amazon for same products in USA, India has banned them for some reason.

Everyone is saying western developed world is moving from products bad for environment to good ones even if they cost higher, and governments are supporting it with making new rules & regulations.

But looking at success of Shein, its clear that consumer always want cheaper cost, 90% of them don’t care whether it is good or bad for environment. Capitalism always work that way.

I think success of PDS like companies depends more on government strict regulations than anything else.
But again, will they be able to do it with win-win for everyone in the chain? middle man always cost something to both sides.

These are my views for now, may change if I get additional information like their hidden moat, customer/supplier reviews etc.

Not Invested

Chins · October 18, 2021, 8:01am

@Investor_No_1, @kalpesh4430 and @Lynch, thank you for taking the time to read the thread and posting your takes on the business.

I got in touch with the management and will be meeting them later this week. This is a great opportunity to put our questions to them.

In no particular order, here are the broad themes I want to cover:

About the diversification plans: they’ve been talking about addressing the geographic risk (UK/EU concentration) since 2015, yet in that time, UK/EU concentration has gone up from some 75% to almost 90%.
Their main driver of business is the plug and play platform model, why are they going into new apparel product launches (Norlanka - Lilly + Sid India, etc), and acquisitions such as Collective Apparel UK.

What makes customers buy from them, what do they see their advantage as? (I want to validate my own thesis)
Some of @Lynch’s points they’ve spoken about in the past:

During an interview given during the initial covid outbreak, they mentioned consolidation in the industry with the large players on both sides (sourcing and apparel) gaining market share. Can ask them for a follow up.

On the Bangladesh manufacturing plants:

They’ve said in the past that the plants have a really high upfront cost, and they haven’t broken even just yet because they’re still investing in adding new lines. They’ve gone from 700 → 1500 —> 2500 machines over the years.

We can ask them for an update, and ask them more about the return ratios expected in various scenarios.

On the venture fund and investment rationale in companies like Zwift, etc.
Where they see themselves in five years. My expectation is that with increasing return ratios and the Bangladesh manufacturing facilities breaking even, cash flows will improve and maybe they’re investing in new product/textile brands to utilise the cash. Can ask them what their ambitions are.

Please let me know if you can think of other questions.

Cheers

kalpesh4430 · October 19, 2021, 11:31am

That’s great,
As I have not yet fully understood their business model, my suggestions would be -

Do they have any advantage that customers cannot leave easily?
How sustainable their business model against new age startups?
Do they have any kind of Pricing power?
How scalable in next few years?

Thanks for asking!!!

Lynch · October 20, 2021, 1:35pm

Thanks for the work @Chins.

My questions would only be to judge whether they see themselves growing and evolving further, and on understanding the space from a competition standpoint.

What is the competition intensity in the platform model globally? What makes a buyer/supplier choose them or the competition?
Do they have a tech team in house?
What do they anticipate as future levers of revenue and profit growth?

Mostly similar to your existing question list

Discl : Not invested

Chins · October 24, 2021, 4:03pm

Interestingly, Edelweiss wrote about PDS four days ago!

https://www.edelweissresearch.com/Research/Download/11905

It’s nice to have written this thread before, so I got to compare my investment thesis with what Edelweiss has written about, and there is consensus.

Some new perspectives to read about in the report:

Edelweiss has interacted with global retailers, and has noticed a surge in demand for procurement services. They think we’re on the cusp of a global outsourcing wave.
They’ve interacted multiple times with the PDS management, and have shared some really nice details about the business model, and how they interact with customers.

Should have mentioned that PDS was listed as a demerger from Pearl Global in 2014.

Harshad_Bhagwan · October 30, 2021, 4:54am

In September and October PDS had done 3 acquisitions most for sustainable clothing. Here are the links to two of the recent.

vivek2 · October 30, 2021, 11:17am

In cash from operations don’t we need to include tax expenses?

Mkrishnan · November 1, 2021, 4:42pm

why cash flow was so decreased is there any big acquisition they made ?

Chins · November 1, 2021, 5:41pm

On tax: would check figures against the annual report / quarterly results, since it looks like they’ve omitted it only in the investor presentation.

Want to also point out to interested readers that the current losses in various subsidiaries are around 110 Cr. This is to say that the question of breakeven in Bangladesh is extremely non trivial.

As a hypothetical experiment, if PDS were to simply shut down loss making subsidiaries, the PAT would be around 250 Cr (nearly double), making the PE ~14. Key investment triggers have to be on how profitable Bangladesh can be, and when the breakeven occurs.

vivek2 · November 1, 2021, 7:05pm

Yep annual report contains tax deductions in the cash flow statement

Chins · November 5, 2021, 12:32pm

PDS now owns 5% of a deeptech virtual wardrobe / imaging company called BigThinx.

https://www.bigthinx.com/

vivek2 · November 8, 2021, 9:00am

I’m trying to understand this business; I’m confused about its subsidiary structure is it due to the nature of the business model or I’m missing something can someone help me with this.