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Strong order book, capacity expansion to drive earnings

Gokaldas Exports reported a revenue increase of 12.4% QoQ to INR5.9bn, driven by increased exports, deep engagement with key customers and augmentation of capacity. EBITDA increased 29.1% QoQ to INR766mn, with margins at 13.1% during the quarter on account of increased volume, efficient utilisation and improvement in operating levers. The Company reported an adj. PAT of INR491mn in 4Q. FY22 revenue increased 48% YoY on account of a growing order book, robust capacity expansion and a rapid ramp-up of production. EBITDA for FY22 doubled to INR 2.1bn while margins improved 320bps to 11.5%. Relatively muted price movement in woven fabric and increased focus on domestic sourcing allowed the company to be more cost effective. Gokaldas reduced its gross borrowings by INR3bn during the year, driven by equity capital raise and generation of operating cash flows. This has resulted in a net cash position of INR1.2bn. The company is well placed to sustain its growth journey given strong recovery witnessed in the US clothing industry, shift of business away from China and consolidation of supplier base across most brands. Price increase across most US brands addresses concerns of margins pressure. Further, India and European Union’s decision to set up a “trade and technology council” to boost bi-lateral trade is likely to expand the total addressable market for Gokaldas exports. We believe Gokaldas exports is ideally positioned to capture this market backed under the strong leadership of Mr Sivaramakrishnan Ganapathi. The company continues to remain optimistic about its order book for FY23. Maintain BUY with a fair value of INR610/sh (refer exhi. 3/4).

Stellar quarter driven by strong operating efficiency: The Company reported a revenue increase of 12.4% QoQ to INR5.9bn, driven by increased exports, deep engagement with key customers and augmentation of capacity. EBITDA increased 29.1% QoQ to INR766mn, with margin at 13.1% during the quarter on account of increased volume, efficient utilisation and improvement in operating levers. The company reported a PAT of INR491mn in 4Q.

Long-term client relationship aids FY22 performance: Gokaldas Exports’ FY22 revenue increased 48% YoY on account of a growing order book, robust capacity expansion and a rapid ramp-up of production. North America accounted for 84.3% of revenues vs 70.4% in FY21. on account of strong recovery witnessed during FY22. The company nurtured its long-term relationships with global marquee brands by continuously upgrading skills, technology and processes. Revenue contribution from customers added in the last 5 years stood at 15% vs 14.4% in FY21.Further, export sales under 40 PLI codes stood at INR 1.1bn vs 0.9bn in FY21. EBITDA for FY22 doubled to INR 2.1bn while margins improved 320bps to 11.5%. Relatively muted price movement in woven fabric and increased focus on domestic sourcing allowed the company to be more cost effective. Adj. PAT for FY22 stood at INR 1.1bn vs INR 265mn in FY21. Gross borrowings reduced by INR3bn during the year, driven by equity capital raise of INR 3bn and generation of operating cash flows. This has resulted in a net cash position of INR1.2bn.

Well placed to sustain the growth journey: Gokaldas Exports is well placed to sustain its growth journey given strong recovery witnessed in the US clothing industry. Shift of business away from China on account of trade environment and cost differences has weakened the export competitiveness of China’s products benefiting countries like India. Further, increasing consolidation of supplier base across most brands will enable Gokaldas to emerge stronger as the company has invested consistently towards modernisation and boasts superior supply chain efficiency. Price increase across most US brands addresses concerns of margins pressure. India and European Union’s decision to set up a “trade and technology council” to boost bi-lateral trade will expand the total addressable market for Gokaldas exports. We believe Gokaldas exports is ideally positioned to capture this market backed by strong management leadership of Mr Sivaramakrishnan Ganapathi. We maintain BUY with a fair value of INR610/sh (refer exhi. 3/4).

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