Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated revenue grew by 80% year-on-year to INR 940 crores, indicating strong growth.
- Revenue excluding newly acquired entities grew by 11.2% year-on-year, showing recovery in demand.
- India's exports grew by 4.2%, implying a market share gain for Gokaldas Exports Ltd (BOM:532630, Financial).
- New manufacturing unit in Madhya Pradesh is ramping up to full capacity and will reach optimal levels by Q3 FY '25.
- The company is currently at a net cash position of INR 58 crores as of June 30, 2024, indicating strong financial health.
Negative Points
- Disruption of production led to delays in shipment and order cancellations, impacting EBITDA by INR 12.6 crores.
- Continuing airfreight costs at Atraco, the recently acquired entity in Africa, resulted in a nonrecurring cost of INR 8.6 crores.
- Huge shortfall in manpower availability in April and May due to elections, leading to production reschedulings and overtime work.
- The U.S. retail market remains cautious, with retailers optimizing inventory holding levels due to a volatile market.
- ROCE has been impacted due to several investments underway, with many yet to yield their full payoff.
Q & A Highlights
Q: Given the recent developments in Bangladesh, do we expect any business to come to India? Can we capitalize on that opportunity?
A: Yes, we can capitalize on the opportunity. However, it's a long-term structural adjustment. While Bangladesh remains attractive due to cost economics and duty-free access to Europe, brands are likely to diversify to avoid over-reliance on Bangladesh. Gokaldas Exports is well-positioned to benefit from this trend in the long term, especially with our new capacities in low-cost regions like Madhya Pradesh and Ranchi.
Q: What are you hearing from your customers regarding the U.S. economy and inflation? Also, how are freight costs impacting the business?
A: Customers are prepared for a slow market uptake, but unless there's a severe recession, we don't foresee major issues. Our order book is strong, and we are operating at full capacity. Freight costs have increased but are mostly borne by customers. We sell FOB, so logistics costs don't significantly impact us.
Q: How is the integration of newly acquired entities going? Can we expect normalization of margins?
A: Integration is ahead of schedule. Issues like worker unrest at Atraco and manpower shortages in India have been addressed. We expect margins to return to double digits by the second half of the year, driven by strong order books and full capacity utilization.
Q: Can you elaborate on the strategic rationale and financial expectations for the investment in Bombay Rayon?
A: The investment aims to secure fabric supply and reduce lead times, enhancing our competitive edge. We plan to invest up to INR 350 crores through an OCD structure, with a potential merger by FY '27. The unit has a peak revenue potential of INR 1,800 crores and an EBITDA margin of around 12%.
Q: What are the utilization levels and average realizations for Gokaldas, Atraco, and Matrix?
A: Gokaldas: 6.6 million pieces at INR 781 per piece; Atraco: 8.78 million pieces at INR 285 per piece; Matrix: 1.7 million pieces at INR 618 per piece. Total: 17 million pieces at an average of INR 510 per piece.
Q: How do you plan to utilize the output from the new Tamil Nadu fabric processing unit?
A: We aim to consume at least 50% of the output internally, with the rest sold in the market. This unit will help us expand our knit business and reduce lead times for customers.
Q: What are the plans for the Madhya Pradesh facility?
A: The first unit is fully booked and will reach full capacity by Q3. Construction of the second unit will start post-monsoon, with an expected annual revenue of INR 175 crores per unit.
Q: How will the price-led growth in the U.S. retail market impact Gokaldas Exports?
A: While U.S. retail sales have grown by 3%, this growth is price-led, not volume-led. We face price pressure due to a demand-supply mismatch, but we expect pricing power to return next year.
Q: Which countries are likely to benefit from the diversification of supply chains away from Bangladesh?
A: India is the most likely beneficiary due to its capacity and potential for growth. Other countries like Vietnam and China have limited scope for further expansion.
Q: What is the expected revenue run rate for the second half of the year?
A: We expect to top INR 1,000 crores per quarter in the second half, leading to an annual revenue of around INR 3,900 to INR 4,000 crores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
