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Gokaldas Exports - Q2FY21 Company Update - ICICI Securities

Posted On: 2020-10-25 23:46:24

Gokaldas Exports delivered a strong performance with healthy profitability growth in Q2FY21 and strengthened b/s through debt reduction. Post a 32% fall in revenue in Q1FY21, it has seen a swift recovery in Q2FY21, posting de-growth of 5.9% YoY to Rs. 340.5 crore (up 46% QoQ). The base quarter (Q2FY20) included MEIS income worth Rs. 8.7 crore that was reversed in December 31, 2019. Adjusting for the same, the decline in revenue would have been 3.6%. The decline was also owing to the company cutting down low margin domestic business and pivoting to exports markets (exports grew by 8% YoY in Q2FY21). Gross margins improved 208 bps YoY to 48.3%. Furthermore, significant cost saving initiatives (employee expenses, other expenses down 17%, 4% to Rs. 101 crore, Rs. 31 crore, respectively) led operating margins to expand 474 bps YoY to 8.4%. Despite other income declining 65% YoY to Rs. 4.4 crore (base quarter had forex gain worth Rs. 7.5 core), healthy operational performance led the company to report PAT of Rs. 8.7 crore vs. Rs. 4.1 crore (up 111% YoY). Better working capital management (release of cash worth Rs. 65 crore) led to OCF worth Rs. 131 crore in H1FY21 vs. Rs. 55 crore in H1FY20. Hence, net debt declined by ~Rs. 78 crore to Rs. 125 crore (D/E: 0.7x).

Valuation & Outlook

Currently the company has ~215 manufacturing lines with each line having potential to generate ~Rs. 6-7 crore revenues. We expect Gokaldas to add 50 incremental garmenting lines in FY20-23 and bake in revenue worth Rs. 1800 crore by FY23E (revenue CAGR: 10% in FY20-23E). On the back of better than anticipated cost control measures (that according to the management is sustainable in nature), we revise our earnings estimates upwards for FY22, FY23E by ~ 10%, ~ 12%, respectively. With significant improvement in operating margins and stringent working capital policy (NWC days: 90), we expect the company to generate 14% RoCE by FY23E. Net D/E ratio is expected to remain below 1.0x. Gokaldas trades at reasonable valuations of 3.1x FY23E EV/EBITDA and 4.7x FY23E EPS. We reiterate BUY rating with a revised target price of Rs. 100 (6.0x FY23E EPS, previous TP: Rs. 75).

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Shares of GOKALDAS EXPORTS LTD. was last trading in BSE at Rs.79.85 as compared to the previous close of Rs. 81.15. The total number of shares traded during the day was 152471 in over 2248 trades.

The stock hit an intraday high of Rs. 86 and intraday low of 77.4. The net turnover during the day was Rs. 12598330.

Source: Equity Bulls

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