Gokaldas Exports

Gokaldas Exports reported a total income of INR1,003 crores in Q2 FY26, marking a 7% year-on-year growth. India operations demonstrated robust performance with a 14% YoY growth, significantly outperforming the 2% decline in overall Indian apparel exports. However, Africa operations faced headwinds, declining by 24% YoY, primarily due to uncertainties surrounding the AGOA rollover. Consolidated Q2 volumes were 12.97 million pieces at an average realization of INR 700.

The imposition of a 50% penal tariff by the U.S. on Indian apparel significantly impacted Q2, resulting in a INR12-15 crores hit. The company mitigated this by engaging in bilateral discussions with customers to share the tariff burden, with Gokaldas absorbing up to 15% and passing some to its supply chain. Management expressed hope for an early resolution of these tariffs, which are currently making business at 50% tariff practically unviable. If the 50% tariff continues through Q3, the bottom line may show a lower performance than Q2.

Despite a 24% decline in Q2 due to AGOA uncertainty, the sentiment for Africa has reversed. Management anticipates Africa revenue to exceed USD 50 million in H2 FY26, driven by a low reciprocal tariff of 10% and strong conviction for AGOA renewal. The region is expected to contribute as much as 30% to international revenue in the years ahead, up from the current 20-22%. The company has also added new customers in Africa, contributing to the positive outlook for stronger growth in the next fiscal year.

Gokaldas Exports is actively diversifying its revenue base, with a focus on the U.K. and European markets. The U.K. and EU currently contribute 13-14% of revenue and are expected to grow by another 4-5% within a year, potentially reaching 20% in the foreseeable future. The company aims to reduce its U.S. business contribution from the current 70% to 60% or under, leveraging new trade deals like the India-U.K. FTA, which offers a 12% duty advantage over China.

The company spent INR110 crores on capex in H1 FY26, with INR75 crores allocated to new capacity additions across three facilities in Bhopal, Bangalore, and Jharkhand, and INR20 crores for Kenya expansion. An additional INR35 crores was for modernization and upgrades. These new facilities are in ramp-up stages, expected to take over a year to reach full potential, and the company projects a capex of INR150 crores by FY28 to sustain growth.

Q2 EBITDA remained flat YoY at INR84 crores, while PBT declined due to higher finance and depreciation costs, partly attributed to new capex and Ind AS treatment of capitalized lease assets. Consolidated depreciation for Q2 was INR43 crores (INR23 crores normal, INR20 crores Ind AS). If penal tariffs persist in Q3, bottom-line performance may be lower than Q2 despite potential top-line growth. However, under normalized tariff conditions (20% tariff), the company targets an EBITDA margin of over 12% in FY27, with a top line of approximately INR4,500 crores at 90-95% capacity utilization.

While U.S. retail sales showed a robust 7% growth in Jan-Jul 2025, management anticipates potential demand contraction from Spring '26. This is due to expected price increases of 4-6% being passed on to consumers, which could impact purchasing behavior. Retailers are factoring this into their order placements, but the company maintains a strong order book due to existing relationships and sophisticated product offerings, which helps secure business.