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Performance on expected lines; recovery anticipated from H2FY24 onwards...

About the stock: Gokaldas Exports (GEL) is one of India’s leading apparel exporters with an annual capacity of 36 million+ pieces. Gokaldas focuses on manufacturing complex garmenting products that insulate it from other price based competition.

* Impressive clientele of leading international brands with ‘GAP’ and ‘H&M’ being major contributor to revenues. US contributes ~80% of sales

* Under the leadership of the new MD (post exit of Blackstone in FY18), Gokaldas has scripted a successful turnaround of its business operations

Q3FY23 Results: Numbers were in line with I-direct estimates on revenue front while EBITDA and PAT came in above I-direct estimates due to favourable product mix, higher-than-expected other income and low tax rate.

* Reported revenue growth of 19% YoY to | 1613.2 crore. CSM was up 23% YoY to | 1328.6 crore while domestic formulation was up 2% YoY to | 285 crore

* Gross margins grew 73 bps YoY to ~47.2% while EBITDA margin expanded 387 bps YoY to 25.7%. Absolute EBITDA was up 40% YoY to | 415.1 crore

* PAT increased 58% YoY to | 351.8 crore, driven by strong operational efficiency

What should investors do? Since our initiation report, the stock price has appreciated ~6.5x. GEL witnessed a significant re-rating on the back of consistent outperformance despite various headwinds.

* Demand headwinds in key markets in H1FY24 could subdue revenue growth. However, we believe GEL is a long term play in the apparel export space. Hence, we maintain our HOLD recommendation on the stock

Target Price and Valuation: We value GEL at | 440 i.e. 14x FY25E EPS Key triggers for future price performance:

* Charted out capex of | 350+ crore over the next three years, which will have potential to generate incremental revenues worth ~| 1300 crore

* With the recent fundraise (QIP: | 300 crore), the company has strengthened its balance sheet with repayment of ~| 300 crore debt, post which GEL has become net debt free (net cash surplus: | 369 crore)

* Enhanced government focus on apparel exports and China +1 strategy of

Alternate Stock Idea: Apart from GEL, in our textile coverage we also like KPR Mill.

* KPR Mills is among select vertically integrated textile players having one of India’ largest knitted garment manufacturing capacity of 157 mn pieces

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