Gokaldas Exports hosted a conference call on Aug 02,2021. The company in the call was represented by Mr Sivaramakrishnan Ganapathi-Managing Director and Mr SatyaMurty-CFO.

The company had a strong order book but severe production constraints in the quarter Q1FY2022. The company had the best opportunity, but incurred a loss of Rs 2.6 cr on Total income of Rs 243 crore and EBITDA of Rs 20 crore.

During April 29 to Jul 04, the company's operations were severely impacted due to second wave of Covid.Post easing of restriction from July 5, 2021, the company has stepped up production to peak levels and is working towards clearing the order backlog at the earliest and ramping up the business for continued growth. The company is maintaining a robust order book for the next 6 months which is at its all time high. All the company's customers are seeing growth in their respective businesses.

The company's largest market continues to be US where monthly apparel store sales more than pre covid level for 4 months in a row now. Year to date sales in 2021 is higher by 75% when compared to 2020 and 2% higher by 2019. Online sales of clothing and accessories is also growing strongly and continuing its momentum in 2021 with sales registering 50% growth over pre-covid level 2019.

European Union apparel import data also indicates that 2021 is catching up with 2019 steadily.

On supply side China is losing market share continuously over the years and this has accelerated in recent times. Going forward the decline might be gradual. Covid has played havoc in some of the supply countries including Vietnam, Cambodia and Bangladesh. India with its large population offers a route to diversify large buyers from supply chain disruption.

Government of India has announced extension of ROSCTL till FY2024 which provides policy clarity to exporters for the next 3 years helping the growth of the sector.The rates are 3.5-4% for apparels. The Mar 31, 2021 incentive of ROSCTL which the company has considered in Q1FY2022 is little over Rs 4 crore. In the current year the company has taken the benefit at the eligible percentage.

PLI scheme supporting Medium scale enterprises will also support growth of the sector. The government has reviewed discussion of FDA with Europe. This will help labor intensive textile export from the country. All of these will provide sustainable advantage to textile industry in India. The company is keen to leverage the PLI scheme and benefit out of the scheme.

The company is in the process of clearing backlog from Q1 and is gearing up for fall holiday season and summer holiday season orders. The company has ramped up the manpower at its existing units to the maximum levels. The company is working towards completely recovering the lost delivery in Q1 in next 2 quarters.Orders that were supposed to be delivered in Q2FY22 have also been realigned so the same can be delivered on time.

Capacity Expansion: The company has started pre commercial runs in new Tumkur unit. Plans to ramp up to full capacity by end September to early October. This will add 4.25% to the company's existing capacity. The peak revenue for the plant will be around Rs 80 crore per annum.

The company is in the process of completing formalities for its new unit in Bhopal where the construction of the premises will commence shortly. This will add 6.5% incremental capacity. The same is expected to be commissioned by Q4FY2022 and the peak revenue expected is around Rs 150 crore per annum.

The company is also looking to improve productivity in the factories which will increase the capacity by another 4%.

Additional land is available both in Tumkur and Bhopal and can plan for phase 2 expansion in both the places.

The company plans to diversify geographically in line with customers requirement both domestically and outside in order to reduce the disruption to minimum levels.

The company intends to explore options in Bangladesh for growth.

The capex for FY2022 and FY2023 is around Rs 120 crore. This includes for new capacities and around Rs 25 crore for modernization of existing plants. A green field project will involve a cost of Rs 40 crore and generate revenues of Rs 150 crore and margin of 10%.

The company plans to build upon FY2021 performance and increase the margins while delivering growth in FY2022.

The company is benefiting from supplier consolidation. In FY2021, the company's export sales declined by 8-9% while the global demand fell by 25%. Effectively the company has gained market share in a declining market.

The loss of market share by China has been happening for 4-5 years now and the ban of Xinjiang cotton has only accelerated the loss of Market share by China. With this countries like India, Vietnam, Bangladesh and Cambodia have benefited.

The company has benefited from China +1 strategy of the global brands. The business from both existing and new clients is good with new client's business growing at a faster rate. However, even large existing clients are looking to enhance their quantum of orders.

The company has a total labor force of 24,000 and has added around 2000 people in the month of July 2021. The company will also add labor in its new Tumkur unit.

Container availability for export business continues to be a problem along with higher inbound logistics cost. The company does not bear the outbound freight, which is handled by clients.

On input cost inflation, the management indicated that it has been able to manage the same due to its large buying capacity and been able to secure reasonable prices.There was no one time cost except the inventory cost which the company had to carry and the labor cost which the company had to incur in Q1FY2022.

The company's man-made fibre mix is around 35-40% and the balance is cotton.

Tax: The company has a carried forward loss of Rs 64 crore. For FY2022, the company does not anticipate any tax outflow. The company might come to tax bracket in FY2023.

Interest cost: The company has Rs 7 crore interest expense which is normal and Rs 3 crore on account of INDAS.