Gokaldas Exports soars 6%, nears record high on hopes of biz revival in H2

The management said they are optimistic about revival of the business in H2FY24, and are bullish on the long-term prospects of the company

Shares of Gokaldas Exports moved higher by 6 per cent to Rs 557.80 on the BSE in Friday's intra-day trade, in an otherwise weak market. In the past two days, the stock of the garments & apparels manufacturer has rallied 11 per cent after the management said they are optimistic about the revival of the business in the second half of the current financial year (H2-FY24), and are bullish on the long-term prospects of the company.

The stock was quoting close to its record high level of Rs 558.95, touched on July 18, 2023. In comparison, the S&P BSE Sensex was down 0.46 per cent at 64,854 at 01:07 PM.

The long-term prospect for the industry remain strong with the continuing shift of global sourcing away from China, supplier consolidation towards efficient and well-capitalized players, and supply side instabilities in several countries, the company’s management said in the Q1-FY24 earnings conference call.

Favourable currency, production-linked incentive (PLI), and free trade agreements (FTAs) with key markets should drive the company to a strong future. The India-UK FTA negotiations have made good progress. India is also negotiating FTA with Canada and EU. All of these moves have the potential to open up large markets for preferential trade, Gokaldas Exports said.

Major brands are consciously liquidating excess inventory holdings and controlling their purchases. The management anticipates the demand to be sluggish for H1-FY24 with momentum picking up subsequently.

The company’s new manufacturing unit in Madhya Pradesh started commercial production, and the management expects the production to ramp up in the next nine months. The project work at fabric processing unit in Tamil Nadu is in advanced stages. The company is also progressing well on onboarding new customers.

Brokerage firm Sharekhan has maintained a 'Buy' recommendation on Gokaldas Exports with an unchanged price target of Rs 635. The company has registered a strong earnings CAGR of over 50 per cent in the last five years and is now focusing on the next league of growth by expanding capacities to grab opportunities of industry tailwinds such as China + 1 strategy and likely signing of an FTA with the UK.

"Thus, we expect the double-digit earnings growth trajectory to sustain, which will help in improving cash flows and return profile over the next three to four years," the brokerage firm said in Q1-FY24 result update. Gokdaldas Exports had posted soft numbers in Q1-FY24 with a double-digit decline in revenue and PAT, while Ebitda margin improved on a YoY basis.

Despite dull revenue growth, Gokaldas Exports has maintained its tight control on costs resulting in healthy gross / Ebitda margins of ~50 per cent / 12 per cent during the quarter. With operating leverage benefits likely in the coming quarters, we raise our FY24E/FY25E Ebitda estimates by 2-3 per cent and value the stock at a higher target price of Rs 595/share (earlier: Rs 560), analysts at ICICI Securities said.