Global private equity (PE) major Blackstone, which has been at the receiving end for having acquired India's largest publicly-held apparel exporter Gokaldas Exports at a steep cost in 2007, has of late been turning around the Bangalore-based company. On an annualised basis for FY14, sales have grown 16 per cent at around Rs 1,100 crore, operating profit has seen a positive swing of as much as Rs 100 crore, and the stock has shot up four times during the past 12 months over FY13 levels.
However, the recovery has been painstaking and in the works since April 2011 when Gokaldas' founding family members exited totally from managing the company and Blackstone roped in one of its senior professionals - Gautam Chakravarti - to lead the company. Chakravarti is an industry veteran having worked with Unilever, Reliance Industries and then with Blackstone, during which he was deputed as CEO of Gokaldas. He, along with Gokaldas' chief financial officer Sumit Keshan, who has vast mergers and acquisitions experience in Wipro and Deutsche Bank, has been fine-tuning the strategy, resulting in a slow turnaround in a difficult-to-operate terrain.
According to available information, the company has driven in operational efficiencies across the business and has shed 2,000 people in the recent past and now the headcount is about 30,000 churning out two million garments a month. Right-sizing of costs, driving productivity improvements and focusing on profitable orders are among the key parameters, which are working in favour of Gokaldas Exports in addition to better demand from the US and European Union markets.
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"We did a thorough overhauling of how we were addressing orders and how they were being delivered. While we are on the bread-and-butter business of large apparel exports, we made inroads into customer requirements and offered value-added products due to which we were able to charge top dollar for those differentiations. Competing with Bangladesh apparel exporters on the mass market is not an easy option and so we had to differentiate on various parameters which improved our order profitability," a senior official of Gokaldas Exports told Business Standard.
Gokaldas works with a clutch of best known marquee brands including Nike, Levis, Lee, Abercrombie & Fitch, Benetton, Marks & Spencer, and Guess, among others, and has over the past two years been deriving more value-added orders from customers. "Global customers are looking at us for niche products such as specialised swim wear, fashionable rain jackets, sleeping bags in addition to the regular products such as varieties of tops and bottoms. We have focused on such value-added products, which have been giving us better returns," the senior official added.
The top line growth has been achieved through improved orders from its existing customers. "From a macro perspective, there is positive traction in the US as well as in certain European countries. This is supporting our aggressive marketing strategies in these geographies, in addition to our focus on LatAm countries and Russia," the company said in a statement adding that the overall demand pattern is likely to be stable in the short to medium term, with operating costs at similar level as this quarter.
For the first quarter of FY15, while revenue grew by six per cent on a year-on-year basis to Rs 274 crore, earnings before interest, taxes, depreciation and amortisation (Ebidta) at Rs 18 crore saw a positive swing of Rs 17 crore over the year-ago quarter, translating into a 6.5 per cent Ebidta margin.
Gokaldas also saw a steep increase in minimum wages as announced by the Karnataka government, which came into effect from April 2014, which has made a big impact on the industry's competitiveness as a whole. "Besides, due to the delay in announcement of the Foreign Trade Policy, some of the exports' incentives' continuance has been delayed," the management of Gokaldas added.
While the net loss has shrinked significantly, the margins are expected to be better once the export incentives are restored with the announcement of the Foreign Trade Policy expected in the near future, as well as other initiatives being undertaken by the company.
As a result of these improvements, the Gokaldas stock has given a good platform for its erstwhile promoters to cash in to an extent, while investment bankers are keenly looking at whether the growth can be sustained and if there is a strategic buyer interested in this asset.
