Gokaldas Exports Ltd.- Q4 Results Analysis & Conference Call Highlights

2nd May, 2022

Report Covers:

• About the company
• Results and Conference Call Highlights
• Financials
• Conclusion
• Initial Coverage on the company (attached)

Research Analyst: Gunjan Kabra (info@gunjankabra.com)

Healthy Order Book, Sector Tailwinds and Capacity Expansion to drive growth.

1. About the company

• Leading Apparel Exporter in India
• Annual Capacity: 30 million pieces per annum
• Product Category: Casual Wear, Bottom Wear, Outer Wear and Sports Wear
• Geography Wise Sales- US (61%), Europe (13%), Asia (24%) & Others (2%)

2. Q4 FY22 Results and Conference Call Highlights:

A. Why margins improved in the current quarter?

• Operating efficiencies improved
• Able to pass on the prices
• Fabrics prices haven't increased in tandem to cotton prices
• Also, partly Q3 and Q4 are good quarters as there is increased sale of outerwear       (High Realization Products). Essentially, cost remains the same and EBITDA Margins improves.

Going forward,

• The company has been able to pass on the increase in raw material prices in last few quarters. 90% of the time, the company has been able to pass on the margins, guided by the management.
• Employee Cost increase linked to inflation is expected to happen from Q1 FY23. This happens every year in April (Throughout the year, it remains static). The increase would be around 4-5%. The management plans to offset this increase by high productivity yield which the company has been able to do in last few years.
• Automation/ Upgradation of machineries are few measures helping them

B. Demand Scenario

• Full Capacity Utilization order book visibility for H1 2023
• Can do a better run rate than the current Rs.500 crores as guided by the management.
• Production issues in Sri Lanka and Pakistan not helping them much in more order enquires as they aren't directly competing with these countries in the product mix.
• The global economy is quite volatile, need to closely watch the US / UK/ Europe inflationary environment. But, till now, the company isn’t facing any such issue.
• Also, apparel players have been able to pass on the increased price to final customers.

C. PLI scheme approval

The company received an approval in the government PLI Scheme. The Madhya Pradesh expansion is under PLI Scheme. The incentive would start reaping in from FY25. The company plans to invest Rs. 149 crores under the PLI Scheme.

D. Product Mix on RM Basis

• Cotton- 60%
• Linen, Viscose- 10-12%
• MMF- 28-30%

E. Capacity Expansion Plans:

Capex in Bangladesh: The company is deciding whether to lease or build its own capacity. Mostly, they plan to opt for leasing method.

F. Other Insights: The company has generated 15% revenue from new customers. 40-45% of the client base has long term relationship.

3. Financials

4. Conclusion

Overall, the management sounded positive in the conference call. Overall, production cost in China is going up and also labor demographics there is aging and cost is increasing in Vietnam too. There might be issues like hike in raw materials and demand issues in the US due to inflation in short term but we think the apparel segment in India can do really well in long term. With government focus on exports of apparels/textiles, small base of apparel exports, India, being cost competitive in the cotton value chain globally and low investments require to expand in apparel segment can aid well for apparel exports in India in next 3-5 years.

The COVID accelerated China plus one and supply-side consolidation trend, the company has been able to gain market share and increase exports. This company is expected to do well as it is quite agile in handling product varieties, timely delivery (important metric) and maintaining margins and at the same time, we need to closely watch the geo-political issues and inflationary environment in the US.

We continue to maintain positive outlook on the company.

To view our initial coverage on Gokaldas Exports Ltd.

Outlook Interpretation –

Positive – Expected Return of 12%+ on annualized basis in the long term Neutral – Expected return in the range of +/- 12%

Negative – Expected return in negative

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