Gokaldas Exports hosted a conference call on Oct 30,2021. The company in the call was represented by Mr Sivaramakrishnan Ganapathy-Managing Director and Mr Satya Murty-CFO.

Key takeaways of the call

Gokaldas exports staged a strong comeback in Q2FY2022 post the disruptions faced in Q1FY22 due to production loss. The company delivered highest revenue growth of 29.8% YoY in Q2FY2022 with revenues at Rs 446 cr. The export growth stood at 34.6% YoY due to less focus by the company on domestic market.

The company expects that the revenues will be sustained in coming quarters on back of healthy order backlog.

The company reported EBITDA of Rs 54 cr and PAT of Rs 28.6 cr in Q2FY2022 both of which are highest ever reported by the company.

Retail apparel sales was robust in the company's largest market US with a year-to-date growth of 6% over 2019. E-commerce sales was also up by 41% over 2019. The European markets in 2021 is also steadily improving.The company is well positioned to leverage on retail sales growth.

China's global competitiveness in textiles has been negatively impacted owing to trade restrictions, increased cost structure and strategy of global retailers to diversify their sourcing base. India has emerged as an alternate sourcing destination owing to India's strong textile ecosystem (availability of raw material, competitive labor cost) and stable government policies.

The export demand for garmenting was strong and is facing supply constraints. The company is engaging with new customers who are keen to come on board but at the moment the company does not have the capacity to cater to these new customers.

The company has a strong order book exerting pressure on the existing capacity.

Expansion: During Q2FY2022, the company set up two units in Karnataka which is expected to be ramped up the next six months. The company has also initiated work on new green field unit that is expected to be commissioned in early FY2023. The company is scouting for addition capacity and is looking at Tamil Nadu.

The two new units in Karnataka would be in ramp up mode, it could lead to higher expenses and lower the overall EBITDA margin initially.

Bangladesh: The company plans to take a call on Bangladesh expansion by the end of financial year.

The company has brought back 24,000 employees and recruited additional 4000 employees across factories in Q2FY2022.

The company is hampered by a severe supply chain constraint in the form of availability of containers and shipping capacity affecting the flow of raw materials and finished goods. With the growth in supply chain constraints, the company had to plan for higher inventory to the tune of Rs 107 cr which is disproportionate to the business growth. This along with delay in receipt of ROSCTL led to increase in amount deployed in working capital. The company expects that it has to live with higher inventory levels till supply chain stabilizes.

Raw material prices are also going up. The company's endeavor is to pass on most of the increase in raw material prices and absorb the balance through efficiency improvement.

CAPEX: To sustain growth the company will incur a CAPEX of Rs 340 cr over next 4 (by FY2025) years for new capacity creation, modernization and new ventures. This will drive growth in near future. Apart from growth in India, the company will explore opportunities in low-cost countries (Bangladesh) for sustainable growth. The capex will have potential to generate incremental revenues of Rs 1350 cr p a.

QIP: The company raised around Rs 300 crore through QIP(Qualified Institutional Placement). With the QIP money coming in, the company expects finance cost to come down.

Gokaldas Exports is mainly into woven garments. However, its customers are present in both woven and knitted garments. The company is planning to enter the knitted garments segment mainly to cater to its existing customers and also to new customers.

Debt: Net Debt as on Sep 30,2021 stood t Rs 217. With the recent capital infusion, the company expects to have surplus of Rs 50 crore by end of FY2022. The company expects net debt for next 2 years (FY2023 and FY2024) to be around Rs 200 cr considering Rs 110 cr CAPEX in next two years each.

Management Commentary:

commenting on the performance Mr Sivaramakrishnan Ganapathy- Managing Director said "Unfettered after a severe lockdown in Q1, we displayed an extraordinary level of agility and customer responsiveness to step up our production to peak levels across all units.

We set up two new units in Tumkur and Bommanahalli in Karnataka in the quarter, which will ramp up in the next six months. We also initiated work on a new greenfield unit in Madhya Pradesh, which will be commissioned in early FY23. We provided a safe work environment to bring back our 24 ,000 people after the lockdown and recruited about 4 ,000 additional people across all our factories in the quarter.

We were hampered by a severe supply chain constraint in the form of availability of containers and shipping capacity, impacting flow of raw materials and finished goods.

We are committed to ensure that our customer service remains at its best. We are working on augmenting our capacity further which could support our future growth. We reaffirm our relentless focus on quality, production efficiency, on -time delivery, design and innovation to deliver superior outcomes to all our stakeholders