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Steady quarter...

Gokaldas Exports’ (GEXP) Q1FY24 consolidated EBITDA at INR 602mn, down 17% YoY, was slightly below our expectations. Revenue at ~Rs5bn was down 16% / 2% YoY / QoQ owing to continued demand softness and inventory liquidation in the company’s end-market (US). Management maintains its guidance of demand revival in the US H2FY24 onwards as, by then, retailers will place fresh orders for spring / summer of CY24. Despite dull revenue growth, GEXP has maintained its tight control on costs resulting in healthy gross / EBITDA margins of ~50% / 12% during the quarter. With operating leverage benefits likely in the coming quarters, we raise our FY24E/FY25E EBITDA estimates by 2-3% and value GEXP at a higher target price of INR 595/sh (earlier: INR 560). Maintain BUY. Key risk: Prolonged slowdown in US markets.

Tight control over costs

Consolidated revenue is down ~16% / 2% YoY / QoQ to ~Rs5.1bn owing to persisting dull demand scenario in major consuming markets (US, UK, EU, etc.) as retailers’ trim inventory levels and control purchases. Management continues to expect demand revival H2FY24 onwards, led by moderating inventory levels and reduced economic uncertainties. Further, GEXP is in advanced discussions with a few potential clients and expects conversion in FY24 itself. Consolidated EBITDA declined ~17% YoY to INR 602mn while EBITDA margin at 11.7% was flat YoY. Management indicated that, it may not look to grow revenues through margin dilution, but expects to receive operating leverage benefits as and when revenues grow on demand revival. Further, gross margins expanded by ~350bps QoQ owing to: 1) lower input costs, and 2) change in product mix (higher outerwear vs fashion wear). Management expects gross margins to improve by 50-100bps YoY in FY24.

Capex on track

As per management, the newly commissioned Bhopal unit shall be optimally utilised in next ~3 quarters and will likely contribute ~INR 1.5bn/annum on stable operations. Similarly, the fabric processing unit in Tamil Nadu is expected to be commissioned by FY24-end and shall contribute ~INR 3.5bn/annum in a steady state of operations. Management is awaiting improvement in the global demand scenario before proceeding with Bangladesh capex. On UK FTA, management said, Indian garment players shall be more competitive and receive access to an additional ~USD 5bn market on its successful passage.

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