IGI Logo

Tariff impacted quarter; operationally above estimates

Gokaldas Exports reported consol. EBITDA of INR646mn, higher than JMfe of INR540mn. EBITDA was down ~7% YoY given higher staff costs (+14% YoY) partially offset by lower other expenses (-11% YoY). Key takeaways from the call are – 1) Company witnessed a tariff impact of ~INR120-150mn in 2Q (only ~1 month of ops were impacted) - ~INR150mn/month impact of current tariffs sustain 2) company is undergoing bilateral discussions with multiple clients - undertook a maximum tariff burden of 15% on some orders 3) Company believes 2H revenue for Africa business should exceed USD50mn given a) tariff advantage to Kenya even without AGOA, b) customers believe a trade deal between Kenya and US could come soon and c) Gokex has added new customers in Kenya with one customer already onboard 4) company expects US retailers to take any price hikes post the holiday season (to the tune of ~4-5%) depending on how the holiday season sales turn up. Near-term challenges persist but the long-term outlook for the company remains stable given a) excellent execution b) increasing addressable market with UK FTA in place c) Africa business to remain at an advantage with lower tariff on Kenya and d) ongoing FTA negotiations with the EU-27 and bilateral discussions with the US. Given the near-term uncertainty and incorporating BTPL consolidation in FY27, we revise our earnings by -58% / -9.6% / 3.5% for FY26E / FY27E / FY28E. Maintain BUY.

* Margins squeeze given tariff impact: Consolidated revenue for the quarter came in at INR9.8bn, up 6% YoY. Gokaldas Exports reported consol. EBITDA of INR646mn, higher than JMfe of INR540mn. EBITDA was down ~7% YoY given higher staff costs (+14% YoY) partially offset by lower other expenses (-11% YoY). Net debt as at end of 1HFY26 stood at INR2.44bn, up INR860mn during the half year – driven by equity investment in BTPL and capex investments in subsidiaries. Company witnessed a tariff impact of ~INR120-150mn in 2Q (only ~1 month of ops were impacted). In case the current tariff system persists, company expects ~INR150mn/month of impact going ahead. Company believes 3Q to be the worst effected quarter with revival in top-line and margins to be seen in 4Q as Africa business will kick in in 2H given strong order book.

* Near-term challenges persist; long-term outlook stable: Company is undergoing bilateral discussions with multiple clients. Given that ~20% is applicable to most competitor countries, only some degree of tariff burden will be there. On the additional 30% tariffs, company is doing partnerships with customers and has taken a maximum tariff burden of 15% on some orders. In case of 15% burden share, some part is also passed on to the suppliers of Gokaldas. Atraco revenue in 2QFY26 stood at INR1.48bn (EBITDA margin of negative 4-5%) compared to INR1.92bn in 2QFY25 (EBITDA breakeven). Company believes 2H revenue for Africa business should exceed USD50mn given a) tariff advantage to Kenya even without AGOA, b) customers believe a trade deal between Kenya and US could come soon and c) Gokex has added new customers in Kenya with 1 customer already onboarded. In the longer term, sourcing diversification is a key theme for all customers, and with a likely tariff rationalization, India would remain one of the top contenders among its Asian peers.

* Cautious approach with capex; new expansions to aid capacity constraints: The Company is cautious with capex spending in the near-term and had guided for a capex of INR1.5bn for FY26 with INR1.1bn incurred in 1HFY26. The ongoing capacity expansions in Madhya Pradesh (1,100 machines), Karnataka (750 machines) and Jharkhand (200 machines with 2 shifts) are expected to materialize in 2HFY26.

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

SEBI Registration Number is INM000010361