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Industry tailwinds to aid long term earnings trajectory

Gokaldas Exports (GEXP) delivered an adj. PAT of INR326mn, broadly in line with JMfe. The company delivered robust EBITDA margins of 11.7% during 1Q as increase in minimum wage and DA in Karnataka was offset by superior productivity. GEXP remains hopeful of market conditions improving from 2HFY24, in time for summer/spring’24 collection. Near term demand is expected to remain muted as global retailers are consciously liquidating excess inventory holdings and controlling their purchases. Despite near term uncertainty, long-term prospects for the industry remain intact with a continuing shift of global sourcing away from China, supplier consolidation towards efficient / well-capitalized players and supply-side instabilities in several competing nations. The commentary from global retailers highlights increased focused on reducing the excess inventory on books (refer exhi. 3). We believe Gokaldas Exports is well placed to benefit from these industry tailwinds under the leadership of Mr S. Ganapathi. The company continues to progress with its capex plan despite near term uncertainty in time to meet the additional demand. GEXP expects revenue of ~INR500mn during FY24 from MP plant while the company expects ~INR3bn revenue from new plants during FY25. Further, FTAs with UK/EU over time are likely to increase the addressable market size and is likely to benefit Gokaldas Exports. Maintain BUY. (refer exhi. 4).

* Margins remain robust aided by superior productivity: Gokaldas Exports reported sequentially flat revenue of INR5.1bn during 1QFY24 in line with current sluggish market condition where apparel imports by major buying countries i.e. US, UK, and EU have declined. EBITDA decreased by 14.1% QoQ to INR602mn, with margin at 11.7% during the quarter (superior productivity offset the impact of an increase in minimum wage and DA in Karnataka). The company reported a PAT of INR326mn in 1Q.

* Demand revival likely from 2HFY24: Gokaldas Exports expects demand revival from 2HFY24 in time for summer/spring’24 collection. Demand for 1HFY24 is expected to remain muted as global retailers are consciously liquidating excess inventory holdings and controlling their purchases.

* Net cash position increases QoQ: Gokaldas Exports net cash position as at 1Q end increased from INR3.3bn to INR4.3bn aided by cash from operations to the tune of INR0.5bn (excl. WC changes) and working capital release of INR0.6bn. The company’s liquidity position remians strong and sufficient to meet its current obligations

* Long term drivers in place to aid the industry: The long -term prospects for the industry remain intact with a continuing shift of global sourcing away from China, supplier consolidation towards efficient / well-capitalized players and supply-side instabilities in several countries. Further, government incentives and support from state governments for low cost locations, PLI and FTAs with key markets should drive increased textiles trade.

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