Gokaldas Exports Limited

Gokaldas Exports reported a consolidated total income of INR3,915 crores for FY25, marking a significant 63% year-on-year growth, primarily driven by the contributions from acquired entities Atraco and Matrix Designs. Excluding these acquisitions, the company achieved a healthy 19% year-on-year growth in its Indian exports, outperforming the overall Indian export market growth of 10% during the same period. For Q4 FY25, the company delivered a total income of INR1,035 crores with an EBITDA margin of 13.7%, demonstrating improved performance across all business units.

The company faces near-term challenges due to new US tariffs, including a 10% tariff (paused for 90 days) and a revised 30% tariff on Chinese apparel, which could dampen demand and raise retail prices. This tariff uncertainty^🌐 is leading to cautious order placement from customers, impacting the order book for Q2 FY26. Management anticipates potential margin pressure of a 'few percentage points' (around 2% or slightly higher) in H1 FY26 as suppliers may need to absorb some of these increased costs, compounded by a general softness in global demand.

To mitigate tariff-related uncertainties and broaden market exposure, Gokaldas Exports is actively diversifying its business. The company's European business is now moving into the double-digit realm, with increased engagement with UK-based customers in preparation for the India-UK FTA. This FTA is projected to increase India's exports to the UK by an additional $1 billion. Ongoing trade talks with the US and EU are also seen as future opportunities, with apparel being a high-priority sector due to its labor-intensive nature.

Gokaldas Exports is expanding its manufacturing capacity with three new factories in Madhya Pradesh, Karnataka, and Jharkhand, all slated to come on stream in Q3 FY26. These new units are expected to incrementally contribute INR325-350 crores annually to the company's revenue. Additionally, the expansion of Atraco with 500 new machines is complete and will contribute in FY26. The integration of Atraco and Matrix Designs has progressed well, with most legacy headwinds now behind the company, and the strategic investment in the BTPL fabric processing unit is also progressing well, with capacity utilization now crossing 50%.

The company's effective tax rate (ETR) for FY25 stood at 27%, with Q4 FY25 ETR at 33%. The standalone tax rate for Gokaldas was 25%. The expected tax-free profitability contribution from Atraco did not fully materialize in FY25. An 'extraordinarily high' depreciation of INR42 crores was recorded in Q4 FY25 due to the capitalization of African lease assets under Ind AS, which is an aberration. The realistic go-forward depreciation for African units is estimated at INR2.5 crores per quarter, bringing total realistic depreciation to about INR32.5 crores.

While Gokaldas primarily focuses on cotton-based exports (75% of business), it also produces non-cotton garments, often sourcing fabric from the Far East (Vietnam, Taiwan, Korea, China). The lack of a robust local fabric ecosystem for synthetics in India increases lead times and costs, though the company remains competitive. Management notes that the global apparel trade is dominated by polyester (60%) and other man-made fibers (67-70%), presenting a significant opportunity for India to develop its synthetic textile capabilities.

The African Growth Opportunities Act (AGOA), which allows Kenya to export duty-free to the US, is set to expire in September 2025. Post-expiry, goods will face normal tariffs (10% reciprocal tariff plus underlying ad valorem duty). Despite this, Gokaldas is booking orders beyond September, indicating that brands are still comfortable sourcing from the region. Management believes the US administration may view the tariff regime for Africa more favorably due to Africa's trade deficit with the US.