IGI Logo

Long term story intact; capacity expansion to drive earnings

Gokaldas Exports reported a revenue increase of 4.4% QoQ to INR6.1bn, driven by excellence in execution and optimal utilization of capacity. EBITDA decreased 5.6% QoQ to INR723mn, with margin at 11.8% during the quarter. The company reported a PAT of INR394mn in 1Q. Net cash position further improved QoQ to INR2.2bn aided by reduced working capital days. Gokaldas Exports delivered a resilient performance despite challenging macro-economic business environment and seasonally weak 1H. The company expects near term uncertainties on account of inflation and recessionary sentiments. However, order book for 2HFY23 (still in progress) is attracting reasonable traction aided by falling raw material prices. Despite the near term headwinds, the company is well placed to sustain its growth journey aided by structural drivers like a) shift of business away from China b) increasing consolidation of supplier base across most brands c) announcement of PLI d) supply side instabilities in countries like Sri Lanka, Pakistan and Myanmar. The company’s decision to invest consistently towards modernisation and superior supply chain efficiency is likely to benefit the company in the long run. Further, FTAs with UK/EU over time is likely to increase the addressable market size and we believe Gokaldas exports is ideally positioned to capture this market backed by strong management leadership of Mr Sivaramakrishnan Ganapathi. Maintain BUY with revised target price of INR530/sh (refer exhi. 3/4).

* Revenue growth continues, aided by improved execution: Gokaldas Exports reported a revenue increase of 4.4% QoQ to INR6.1bn, driven by excellence in execution and optimal utilization of capacity. Newly commissioned manufacturing units in Karnataka and Tamil Nadu are ramping up well. EBITDA decreased 5.6% QoQ to INR723mn, with margin at 11.8% during the quarter. The company reported a PAT of INR394mn in 1Q. Net cash position further improved QoQ to INR2.2bn aided by reduced working capital days due to inventory management and early realization of receivables.

* Resilient performance amidst challenging business environment: Gokaldas Exports continued its growth trajectory, despite challenging macro-economic business environment. Seasonally H1 is relatively weak for the Indian apparel industry, as brands source synthetic apparel for Autumn/Winter, while India is strongly rooted in the cotton fibre ecosystem. Further, company witnessed supply chain disruptions from China during the quarter given dependence for imported fabrics and trims. Delays in raw material supplies due to lockdowns in China affected factory operations. However, the company was able to mitigate these risks in co-operation with suppliers and customers.

* Near term uncertainty amidst recessionary fears: US monthly apparel store sales have increased consistently resulting in retail offtake being higher than the Q1 of past years. However, the present trend may slow down in the near term, on account of inflation and recessionary sentiments. Large brands are wary of slower consumer off take in the upcoming seasons. They are also battling higher levels of inventory from last year. This may likely impact imports in the short run. Recent decline of cotton and crude oil prices (20% from the recent high) will likely ease price pressure on the textile value chain enabling companies to steer through difficult times.

* Gokaldas Exports to continue its growth journey: Gokaldas Exports is well placed to sustain its growth journey aided by structural drivers like a) shift of business away from China b) increasing consolidation of supplier base across most brands c) announcement of PLI d) supply side instabilities in countries like Sri Lanka, Pakistan and Myanmar. The company’s decision to invest consistently towards modernisation and superior supply chain efficiency is likely to benefit the company in the long run. Further, FTAs with UK/EU over time is likely to increase in addressable market size and we believe Gokaldas exports is ideally positioned to capture this market backed by strong management leadership of Mr Sivaramakrishnan Ganapathi.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer