Very few Indian apparel companies are truly multinational. And PDS Multinational Fashions Ltd. is ahead of all of them. It is one of the world’s largest design-led platform offering product development sourcing, virtual manufacturing and supply chain platforms. Having more than 200 clients, the company works with leading retailer and brands like Zara, Walmart, Amazon, Mango, Top Shop, Jack Wills, Superdry, Myntra and many more.
The company has 50 offices across 22 countries, 3,000 employees and over 5,000 associates and factory workers. With sales and design operations in UK, Belgium, Germany, US, Canada, Turkey, India, Sri Lanka etc., the company also has sourcing, manufacturing presence across India, Bangladesh, China, Sri Lanka, Turkey, Myanmar, Cambodia, Egypt, Jordan.
Sanjay Jain, CEO of the company shares how the company is growing with its strength of strong designing, entering into US market and exploring sourcing from Egypt and Jordan.
Congratulations Sanjay for taking charge of PDS. It has been only 5 months with the company. Having assessed your new role, what is it that you bring to the table based on your previous position as CEO of Future Retail Ltd. and Group CFO of Future Group, where in your core focus was on Indian retail.
My experience has been in leading transformation across various companies and helping them unlock their intrinsic value. As part of Future Group, I spearheaded transformation, growth agenda and introduction of commensurate systems and processes. Also prior to that, I led acquisitions of various companies in 7 countries including France and US.
Given PDS global footprint and entrepreneurial business model, this is where I come in. I am primarily responsible for driving growth, transformation, operational excellence and shareholder value creation initiatives across the company and its subsidiaries. My focus is on developing business strategies, ensuring alignment with the short and long-term objectives of PDS.
PDS platform is based on a unique business module which is driven through entrepreneurship. This entrepreneurship model provides access to various brands and retailers across geographies. Our USP is our asset light platform entrepreneurial model. We have created a platform wherein individuals lead respective businesses (i.e business heads). These business heads also own a minority stake in their respective businesses. They are incentivised through profit share based on their stake in the company and their performance. On one hand, these businesses benefit from the size and scale of the PDS platform, and on the other hand, they can collaborate with other business teams to derive synergies (for example, a UK based design and sales team collaborating with Bangladesh manufacturing business) in order to meet a customer’s specific requirement.
In Q4 of FY ’21, PDS’s Profit After Tax (PAT) stood at Rs. 148 crore for FY ’21 as against Rs. 81 crore in FY ’20. While the revenues from operations for the full year ended 31st March, 2021 stood at Rs. 6,213 crore as compared to Rs. 6,648 crore in FY ’20. What was the strategy that led the company’s profit to grow to 83 per cent despite less revenue?
Notwithstanding the adverse impact of Covid in key markets, PDS has successfully managed credit risk along expansion in margins over last year. Agility and speed of PDS decision making was demonstrated when the pandemic hit the world. We put in place stringent review mechanisms to safeguard the businesses from any lasting disruptions. We have also introduced review mechanisms for monthly, quarterly and annual business performance. Further we have processes for consistently tracking, monitoring and taking corrective actions based on our risk management framework (6Cs). We have also created a new revenue stream through PPE business. With a quick time to market, PDS successfully launched PPE masks across leading retailers.
Along with the momentum from the new revenue stream, cost optimisations helped reduce our operating expenses by 13 per cent, thereby, improving our margins and profitability. Our increased focus on working capital management (reduction in our working capital days from 10 days (FY ’20) to 5 days (FY ’21)) also added to improved cash flows helping reduction in debt (reduction of net debt from Rs. 186 crore to Rs. 59 crore) and further enabling reduction in finance costs. All of these are factors contributing to margin improvement. This has translated into enhanced returns for stakeholders with Return on Capital Employed (RoCE) and Return on Equity (RoE) increasing to 22 per cent in FY ’21.
The capital employed in PDS is largely attributable to our investments in the manufacturing facilities and working capital. For efficiently managing our working capital, as part of our risk management framework, we chose to work with a diversified base of customers and vendors. No single customer and/or vendor contributes a significant portion of business. Our terms with our vendors are largely in line with our terms with our customers. We further work towards focusing on pre-sold orders which reduces our inventory risk. Close and frequent monitoring of our working capital components and proactively taking corrective actions have enabled us to foresee eventualities, if any. All these factors help us to squeeze our working capital and generate cash for the business.
You have claimed to have reduced overheads by 13 per cent last year… what were the areas/department where you reduced the overheads and how you did this?
Reduction of 13 per cent in operating expenses was observed primarily due to decrease in expenses such as office expenses, rent, travelling and conveyance, bank charges, miscellaneous expenses, etc. Reduction in overheads is one of the many ongoing endeavours of PDS to help improve our profitability. Continuous tracking and monitoring of expenses along with taking efficient control measures have helped us achieve this reduction.
UK is your biggest market with 50 per cent share in your business and UK, Europe put together is around 80 per cent. Is it planned strategy or naturally developed over the years?
UK and Europe are the largest markets in the world. Over the years, our business was created in the European geography. We continue to focus on capturing larger share of customer wallets, increasing penetration and reaching out to new customers in these geographies. PDS has recently onboarded senior industry leaders to further strengthen its position in this region. We are also currently strengthening our team in the US and leveraging the strength of PDS platform and looking forward to service more customers. Besides, we are in active discussions with leading retailers in the US. At the same time, we are making in-roads in Australia also.
We work with 25+ top global brands and retailers while overall we have a clientage of 190+ retailers and brands.
We are focused on working with a large base of customers (retailers and brands) resulting in lower customer concentration. Also working with leading retailers and brands helps us evaluate and manage credit risk. This enables PDS create a robust and defensible business model. With buyers looking to consolidate, this gives more opportunities to PDS enabling larger share of their wallets and increasing penetration.
We can service orders faster using our vast network of manufacturing partners/ vendors globally depending on the requirement of the customers. Given our limited exposure in creating manufacturing capacities ourselves, we are not limited by capacity constraints. Other than operational advantages, even strategically we have a portfolio of investments in new age sustainability and technological solution companies, which can provide enhanced value to our customers and vendors.
Around 60 per cent of your sourcing is from Bangladesh and 10 per cent is from China, 5 per cent from India? Do you think in the future, there will be any change in this ratio? Is there any chance that sourcing from India will increase?
We are currently associated with 500+ vendors globally. As an agile organisation, we keep monitoring, and try to stay ahead of changing industry dynamics and are open to explore opportunities across the prominent sourcing nations.
There are various parameters while deciding a sourcing location based on the customers’ requirements, product, pricing, quantity, timelines etc. Our current sourcing operations are a derivation of these parameters. We are also building our sourcing partners in geographies like Jordan and Egypt which are focused on specialised categories and cater primarily to the US market.
As we grow into new geographies, we look forward to build network of manufacturing partners in regions such as Egypt (c.70 per cent of apparel production is exported to US) and Jordan (caters to c.70 per cent of US’ sports and leisurewear). As a platform, we keep exploring partnering opportunities to even consolidate our buying to enable economics of scale benefits.
How PDS and Pearl Group utilise each other’s strengths on a larger as well as micro-level?
PDS demerged from Pearl Global in 2014. Since then, both companies operate independently without any linkages. We have taken few steps to turn around our manufacturing facilities especially the Bangladesh operations. We are focusing on collaboration with our existing businesses to increase capacity utilisation in these facilities. Further we are closely monitoring costs, efficiencies and working towards increasing EPMs (earning per minute) by focusing more on large orders than smaller ones.
How has been your experience after having acquired 50 per cent stake in Yellow Octopus?
We are quite excited with the acquisition of Yellow Octopus since it truly fits our vision of sustainability and circular economy. Yellow Octopus is focused on providing commercial sustainability solutions in the fashion industry with an aim to transform fashion industry from linear to circular economy model, which has further strengthened PDS value proposition. Yellow Octopus works with leading brands to buy the unsold inventory, return products and distributes these products to smaller retailers in Eastern Europe and Africa subsequently, further strengthening PDS’s ESG Agenda. Our existing customers (retailers and brands) can also benefit from Yellow Octopus since all leading players are focusing on ESG and sustainability.