MANAGEMENT DISCUSSION AND ANALYSIS

Global Economy

The Global economic landscape continued to witness a wave of uncertainty and volatility during the fiscal. A host of factors such as a rapid fall in oil prices, unbrdictable exchange rates, weakening of most currencies against the dollar and intensified political risks were few of the factors at play.

Economies of America and Europefaced challenges such as infrastructural bottlenecks, increased financial risks and political tensions during the fiscal. While the U.S economy displayed initial signs of revival, the slowdown in China weakened the pace of growth in commodity exporting nations. Increased geopolitical uncertainty related to the Russia-Ukraine and Middle East conflicts, as well as increased concern about the economic and political future of the Euro Area and European Union further added onto the global instability.

The growth of Emerging economies during the fiscal remained moderate despite an unfavorable investment climate and a weak external demand. The recent apbrciation of the U.S dollar put a significant brssure on the corporate sector of countries that borrow in dollars but have assets or earnings in other currencies. Uneven global events and weak global demand conditions destabilized the export performance to a large extent.

Despite these bottlenecks, we believe that the emerging markets and developing economies offer ample opportunity for growth in the longer term and we remain confident of our ability to capitalize on these long-term opportunities.

Indian Economy

India started the fiscal year 2014-15 on a buoyant note, driven by the establishment of a new Government, which further brought in overall optimism for the Indian economy. Factors such as the government's pro-investment attitude, accelerative move towards resolving structural bottlenecks and bringing in socio-economic reforms made India an attractive economic destination during the fiscal. Other Government initiatives such as the 'Swachh Bharat Abhiyan', 'Skill India' scheme, and the 'Make in India 'and' Clean Ganga campaigns aimed at triggering economic development through various sectors in the country.

Additionally, the Government's strong impetus on improving ease of doing business in India coupled with a higher focus on making India a global manufacturing hub is likely to fuel the growth in consumer sentiment, thereby boosting the manufacturing sector, going forward.

Although there is a lot of hope pinned on the Indian economy and the new Government, the actual improvement on the ground in terms of uptick in the economic activity is still muted and possibly still some quarters away. The Indian economy was estimated a GDP growth of 7.8%, as compared to 6.6% in the brvious year.

Several socio-economic changes are visible. This combined with a gradual financial recovery will drive a profoundly strong Indian economy, moving it from the club of 'Fragile Five' to one of the most promising economic powerhouses, globally.

Company Performance

In the backdrop of a challenging and fluid environment, your Company delivered a healthy performance during the year demonstrating the strength and resilience of its business model.

Our net revenues stood at Rs. 3,886 crore, registering a growth of 4%,mainly attributable to improved apparels revenues which were underpinned by a growing customer base, continued contribution from the home products & accessories segment. Net profits increased by 21% to Rs. 29 crore in FY15 as against Rs. 24 crore in FY14.

Apparel revenues, which stood at Rs. 3840 crore in FY15,contributed to 99% of the overall revenues. Home Product & accessories Revenues during the fiscal stood at Rs. 46 crore in FY15 amounting to 1% of the overall revenue.

In terms of geography, turnover of our UK business amounted to 61% for the year, while our European business was at15% followed by South America and Asia at 9% and 7% respectively and ROW contributed about 8%.

Material costsfor the fiscal stood at Rs. 3,337 crore compared to Rs. 3,164 crore in FY14, registering an increase of 5.5% over last year in line with the overall growth in revenues. However due to the combined impact of price reduction & product mix changes Gross profit that stood at Rs. 549 crore compared to Rs. 584 crore in FY14.

On the operational front, your Company augmented its distribution network in the Middle Eastern, Australia and LATAM during the fiscal. Business from repeat customers accounted for 89% to the overall revenues, reflecting on the Company's well entrenched relations with Retailers and clients. New customer additions during the fiscal stood at 34 as against 41 in the brvious fiscal. Stable contribution from new customer additions along with underlying growth from repeat customers led to improved financial performance

During the year we also commenced our Agency business. Given our well established relationships with some highly regarded international brands we believe there is opportunity for us to leverage our global brsence to introduce these brands to some emerging markets.

As you know, the fiscal year 2013-14 saw large fires gutting the garment and textile factories in Bangladesh that severely disrupted the Company's operations in the country. However, the

Company has now once again re-established its footprint and is reinforcing business operations in Bangladesh. In an endeavor to further strengthen our brsence in Bangladesh & Sri Lanka, we have outlined plans to increase the production capacity at each facility, thus further optimizing our cost competitive position in the industry.

Over the last two years, PDS has not only expanded its base into the underpenetrated markets of Bangladesh, Belgium, India, Pakistan, Myanmar, China, Sri Lanka &Turkey but has also efficiently leveraged its strong foothold in the existing markets of Asia, Europe, UK and the Middle East. PDS enjoys a global trading network spanning over 18 markets, thus enabling a faster, efficient and highly flexible distribution and logistics solution to satisfy end-customers' needs and demands. Riding on its extensive distribution network and deep market understanding of geographies, the Group continues to enjoy a prime position in the global supply chain management and will work on ways to enhance this even further.

PDS has created a benchmark for itself in Compliance and Ethical Sourcing practices in select key markets. In 2014, your Company invested in Navex Global, the trusted Ethics & Compliance expert, to ensure the highest level of transparency, ethics, and social compliance in its supply chain system. The strength of our client base is a clear reflection of the established quality standards of PDS and we will continue providing the best-in-class service to our global diverse customer base, going forward.

As in every organization and even more so for an asset light company like yours, employees play a key role. While operating an asset light business model, the progress and advancement of the business operations becomes highly reliant on the workforce of the Company. PDS, as at March 31, 2015, had a total employee base of 2300, of which over 2000 are sourcing and distribution businesses-related workers and over 300 are product development and design-related workers. Employee cost during the year stood at Rs. 221 crore as against Rs. 233 crore in the brvious year.

A combination of various strategic initiatives taken over the last few quarters has resulted in higher profit before tax for the Company that stood at Rs. 34 crore compared to Rs. 27 crore in FY14. Cash profits, without considering the impact of exceptional items and MTM currency losses (outstanding positions are hedged), stood at Rs. 51 crore in FY15.

Our balance sheet remained healthy with a cash position of Rs. 177 crore and total debt, as of March 31, 2015 at Rs. 475 crore (mostly towards working capital).

An analysis of the Strengths, Weaknesses, Opportunities and Threats that your Company faces is possibly the best way to discuss your Company's business

Strengths

Professional Management team with rich Industry experience

Adiverse management team comprising of senior professionals with extensive expertise and deep understanding of global markets in consumer goods design, development, sourcing and distribution. The team, having experienced multiple business cycles, is well positioned to guide your Company through changing trends in the marketplace.PDS offers dedicated and determined individuals the opportunity to run their own business units within the cultural and financial framework of the group, thus enabling the Company to balance excellence in entrebrneurship with growth.

Strong Brand-Name

The quality, transparency and reliability of our operations combined with anenduring customer satisfaction delivered have all established your Company as a global organization and a strategic manufacturing partner to major brands and retailers. Our diverse product range, including fashion apparel, children's wear, accessories, footwear, home decor &textiles along with our niche product development and design capabilities have further helped in lending more strength to brand PDS.

Design-led Company

PDS boasts of a dedicated in-house product development, design, sampling, and technical teams comprising of over 150 highly qualified in-house designers. The talented and experienced team of professionals develops over 1,000 new styles and over 10,000 samples per month.

Global brsence

Your Company is brsent in most key markets and manufacturing locations across the globe. Our global footprint besides minimizing time to market, spurs innovation and helps us understand and connect every aspect of our customers. We have built a solid association with a number of manufacturers in countries including Bangladesh, Cambodia, China, India, Morocco, Myanmar, Pakistan, Sri Lanka, and Turkey. Over the years, PDS has consistently expanded its supplier network which today stands at over 1000 suppliers across the globe. We are also leveraging our strong brsence in key markets of Asia, Europe, UK and Middle East to further diversify and expand outreach.

Financial Strength

PDS on the back of a strong balance sheet and proven pedigree over several years has in place large limits with several banks in the geographies wherein it operates. These are particularly helpful towards connecting quality small manufacturers with large global brands.

Weaknesses

Concentrated Revenue Mix

Your Company enjoys a dominant market share in the Europe and UK regions. In FY15, 76% of revenues came from these geographies. The Company recognizes the need to diversify its market share and has implemented steps to improve revenue contribution from regions such Asia, Australia and Middle East. Revenues from Europe and UK will continue to expand but the focus will be on improving the contribution of other regions.

Seasonality in Business

The industry experiences seasonal demand wherein sales volumes are typically higher in the second half of the year. A clear spike is observed at the time of late autumn holiday and Christmas shopping season. To brpare for seasonal sales, our team supplies products to customers well in advance to ensure they reach customers in a timely manner. This usually translates to higher operating costs in the first half of the year. Like with any industry player, it is always challenging to correctly estimate and brpare for demand at a specific time of the year.

Opportunities

A range of scalable businesses

Your Company's strategy of encouraging entrebrneurship and creating a facilitating environment for businesses to grow means that at any given time there are several high potential opportunities. These businesses enter the PDS fold post a detailed evaluation and deciding on targets in conjunction with the business leader. As in any business case, there is possibility of failure; however the potential of our business leaders, the close scrutiny and initial assessment conducted and the highly enabling environment and infrastructure all make us optimistic about the future.

Mature Businesses showing results

Several of our businesses are brsently less than 3 years old in a growth phase. Our experience has shown in line with our strategy, post completion of 36 months, businesses achieve stability and deliver strong growth and profitability on a sustained basis. As many of our growth businesses cross the three year hurdle, your Company can be expected to show improved profitable growth.

Changing Preferences

The global markets, particularly the advanced emerging economies, have witnessed a massive revolution in lifestyle standards, purchasing brferences and buying trends in the last two decades. Increasing consumerism, emerging lifestyles, rising incomes, a younger set of consumers and a clear shift in buyer mindsets have driven higher consumption of branded products. Changing brferences and healthier retail environment will continue to be on the rising trend creating several opportunities.

Threats

Cyclical Nature of the Industry

The apparel industry is cyclical in nature. Factors such as disposable incomes,consumer spending, shifting consumption patterns, inflation and changes in fashion trends continue to play a significant role in the performance of the industry. Uneven economic conditions and uncertain economic prospects can lead to increased volatility in the sector.

Lack of Economic Growth

Your Company's operational and financial performance significantly relies on the global economic conditions. Uncertainty about worldwide economy poses a risk as consumers and brands postpone their spending due to factors such as lower disposable incomes, unemployment, declines in income, financial market volatility amongst others. Barring the headwinds in the European economies, the economic growth in the USA, China, Japan and other emerging markets is expected to remain healthy in FY16. The developing countries in the Asian continent are expected to report healthier growth rates, going forward.

Outlook

Overall, the year in retrospect witnessed several challenges on the global economic environment front. Despite these temporary headwinds, we strongly believe that factors such as declining oil prices, increasing spending power and improving macroeconomic outlook amongst others will boost consumption and growth, which in turn will reflect positively on the sectorin the longer term.

As we look ahead in the future, there is significant opportunity for the Company to grow and we will be taking several steps in reinforcing our competitive advantages, while simultaneously adding substantial value to our resilient business model.

We will strive for profitable growth with a consistent thrust on strengthening our design and development capabilities, enhancing our sourcing and manufacturing base and building our connect with global brands. We repose great confidence in our design team's capabilities and the infrastructure we possess and are optimistic of churning out an even more extensive range of designs in the years ahead. Our endeavor will also be to gradually enhance our connect with brands in developed markets like Australia, Middle East and Latin America besides Western Europe. Through our Agency business, we will also look to introduce some of these brands in markets where they are not brsent currently

We will also look to strategically strengthen our sourcing and manufacturing capabilities. As part of this endeavor we propose to expand our infrastructure by 10,000 new machines over the next 3-4 years. The investments will create additional capacity for the Company to increase its operations base and will assist in the medium-term growth plans.