PDS Limited Faces Profit Pressure Despite Revenue Uptick
PDS Limited, a global sourcing and manufacturing giant for apparel, has announced its financial results for the third quarter and nine months ending December 2025 (Q3 FY26). While the company managed to eke out a 1.5% year-on-year revenue growth in the third quarter, reaching ₹9,591 Crores for the nine-month period, its profitability took a hit. Profit After Tax (PAT) for Q3 FY26 declined by a sharp 18% year-on-year to ₹37 Crores.
Financial Performance: Mixed Bag
The consolidated revenue for the nine months of FY26 grew by 6% year-on-year to ₹9,591 Crores. However, the pace slowed down considerably in the third quarter, with growth at just 1.5% YoY. This deceleration was partly attributed to specific vendor issues, including the bankruptcy of Gerry Weber and the ongoing restructuring at Matalan, which impacted business performance. Additionally, around $15 million (approximately ₹140-150 Crores) in sales were deferred due to customer caution during the quarter.
Despite the revenue growth, several cost factors ate into profits. Employee expenses saw a 9% YoY increase, influenced by the integration of the Knit Gallery acquisition and variable payouts. Other operating expenses climbed 21% YoY, driven by Knit Gallery costs and higher license fees. Finance costs also rose due to increased factoring and Knit Gallery-related borrowing. The company's order book growth has moderated to 6-7% year-on-year, reflecting a cautious global apparel market.
On a brighter note, PDS Limited demonstrated significant operational efficiency improvements. Gross margins expanded by an impressive 236 basis points year-on-year in Q3 FY26, and by 45 basis points for the nine-month period, thanks to better procurement and a favourable product mix. EBITDA margins also saw a modest expansion of 28 basis points in Q3 FY26.
Strategic Moves & Debt Reduction
Financially, the company has made substantial progress in deleveraging. Net debt has been drastically reduced to approximately ₹70 Crores as of December 2025, a steep fall from ₹374 Crores in March 2025. This has brought the Net Debt-to-EBITDA ratio down to a healthy 0.2. The company maintained its working capital efficiency, keeping it at around 7 days. Operating cash flow generation for the nine months of FY26 was robust at ₹644 Crores, and normalized Return on Capital Employed (ROCE) stood at a healthy 28%.
The company is integrating its recent acquisition, the Knit Gallery manufacturing unit, with plans for it to achieve 40% to 50% growth next year with commensurate margin improvements. PDS is also actively pursuing substantial Sourcing-as-a-Service contracts, with bids potentially worth around $1 billion. New key customers like Walmart, Target, PVH, and T.J. Maxx have been onboarded in the U.S. business, which is now targeting breakeven or profitability in the fourth quarter of FY26.
Outlook & Investor Concerns
Management expressed confidence in a medium-term recovery, anticipating improved market visibility within the next one to two quarters. This optimism is fueled by anticipated structural shifts in the industry and vendor consolidation. Primark, PDS's largest customer, shows a 10% to 15% growth visibility for the upcoming financial year (FY27).
However, investors will be watching closely for execution on these recovery plans. The global apparel market remains restrained, characterized by value-led demand, shorter order visibility, and tight inventory controls by retailers. Geopolitical factors and tariff uncertainties also continue to add complexity to sourcing decisions.
Peer Comparison
In the Indian apparel sourcing and manufacturing space, PDS competes with players like Gokaldas Exports and others. Gokaldas Exports, for instance, has also been focusing on expanding capacity and diversifying its customer base. While specific real-time performance data for all competitors during Q3 FY26 is not directly comparable without their full reports, the overall sector trend points towards navigating challenging global demand while seeking growth through scale and efficiency. PDS's significant debt reduction and focus on high-value Sourcing-as-a-Service contracts differentiate its strategic thrust, though competitors might leverage different strengths in manufacturing or design services. The recent onboarding of major US retailers by PDS suggests an ability to capture market share in a competitive environment.
Key Events & Leadership Shift
Besides the financial results, PDS announced a leadership transition. Rahul Ahuja is moving from his operational role to become Strategic Advisor, while Sadik Sunasara has been appointed Group Chief Financial Officer (CFO). The company also completed an internal merger of its Design Arc vertical with Poeticgem to streamline operations and optimize costs.