Established in 1985, Gokaldas Exports (GEL) is one of India's leading apparel exporters with an annual capacity of 30 million pieces (~215 garmenting lines). Gokaldas focuses on manufacturing of complex garmenting products and designs that insulate it from other price based competition. Its functions comprise of cutting, sewing, embroidery, quilting and printing. It has an impressive clientele of leading international brands with 'GAP' and 'H&M' being the major contributor to revenues. Under the leadership of the new MD (post exit of Blackstone in FY18), Gokaldas has scripted a successful turnaround of its business operations. Though revenue CAGR remained flattish over FY07-FY17, several initiatives undertaken by the new management has translated into robust revenue CAGR of 15% in FY18-20. The growth has been on the back of acquisition of new marquee customers and improved on-time delivery performance to customers. Furthermore, enhanced operating efficiencies and reduced wastages, transformed the company from a loss making unit into a profitable one. Gokaldas Exports being the preferred vendor for global brands appears well poised to attain sustainable growth given the opportunity size of India's apparel exports (~ USD 16 billion).
Steady FY20 performance amidst challenging scenario
Despite various headwinds, Gokaldas delivered steady performance in FY20. Revenue grew by 16% YoY to Rs. 1365 crore vs. decline in India's apparel exports by 4.1% to USD 15.4 billion. The outperformance was on the back of: a) increased throughput at existing factories by ~9%, b) customer addition (added 7 new customers in FY19) leading to 8% incremental revenues and c) enhancement of capacity (added ~15 lines). Also GEL has diversified its revenue streams by reducing over-dependence on spring summer season (cotton garments contribute ~65% of revenues). The efforts were visible with GEL reporting robust topline growth of 21% YoY in H1FY20 (seasonally weak period for exports).In Jan 2020, garment exporters witnessed a major setback with complete withdrawal of 4% MEIS scheme retrospectively from March 2019. The same impacted the topline and PAT by ~Rs. 41.0 crore for FY20. Furthermore, company lost production of over 8 days in Q4FY20 impacting the revenues to the extent of Rs. 30-40 crore. While the industry was grappling with liquidity and supply chain constraints, Gokaldas exports during the challenging times reduced its net debt by ~ Rs. 35 crore (Net D/E: 1.0x) with improvement in NWC days by ~20 days to 85 days (vs. industry norm of 150 days), signifying inherent strength of the business model.
Valuation & Outlook
For FY21E we anticipate Gokaldas to report revenue de-growth of ~9% YoY. However significant cost control measures through reduction in corporate overheads and employee expenses would result in better margins in FY21E. Currently company has ~ 215 manufacturing lines with each line having potential to generate ~Rs. 6-7 crore revenues. At the current capacity, company can generate peak revenues worth Rs. 1500 crore. We expect company to add 50 incremental garmenting lines over FY20-23 and bake in revenue worth Rs. 1800 crore by FY23E (revenue CAGR: 10% in FY20-23E). The capex for the same is expected to be in the range of Rs. 75-80 crore over the next three years (mainly funded through internal accruals, gross block A/TO: ~4.0x). On the back of enhanced scale and cost optimization measures, we expect company to clock in double digit EBITDA margin by FY23E, translating into EBITDA CAGR of 37% over FY20-23E.With significant improvement in operating margins and stringent working capital policy (NWC days: 90), we expect company to generate 13% RoCE by FY23. Net D/E ratio is expected to remain below 1.0x.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Gokaldas_Instinct_Sep20.pdf
Shares of GOKALDAS EXPORTS LTD. was last trading in BSE at Rs.60.3 as compared to the previous close of Rs. 63.7. The total number of shares traded during the day was 10760 in over 164 trades.
The stock hit an intraday high of Rs. 65.15 and intraday low of 59.9. The net turnover during the day was Rs. 663342.