Gokaldas Exports Q4 FY26 earnings call

Gokaldas Exports reported a total income of INR4,065 crores for FY26, achieving a 4% growth over the previous year despite significant disruptions. The year began with a 50% reciprocal tariff, which was later reduced to 10% by February 2026, and was further impacted by the Middle East war increasing raw material costs. The company absorbed over INR90 crores in discounts to customers to mitigate the tariff burden, successfully sustaining its EBITDA margin at the prior year's level.

India operations demonstrated strong resilience, growing by 10% Y-o-Y in FY26, while the overall Indian apparel exports declined by 1.4%. In Q4 FY26, India business grew by 2%, and Africa business expanded by 17% Y-o-Y, supported by the extension of AGOA. Management anticipates significant growth in Africa, targeting $115-120 million in revenue for FY27, up from $80 million in FY26.

The company invested INR170 crores in FY26 for new capacity creation, with total capacity, including new additions and pipeline projects, projected to reach 104 million pieces. Key ramp-ups include the Kolar Gold Fields facility in Karnataka reaching full utilization in Q1/Q2 FY27 and a second unit in Madhya Pradesh achieving full capacity by Q3 FY27, with 1,000 machines becoming operational. Additionally, two new factories are planned with an estimated capex of INR80-100 crores, expected to add INR300 crores in revenue at steady state.

The merger of BTPL is expected to conclude in Q3 FY27, with the acquired entity aiming for EBITDA breakeven in H1 FY27 and positive EBITDA of 6-7% in H2 FY27. In Q4 FY26, BTPL recorded INR190 crores in revenue but incurred an EBITDA loss of 4-5%. Management projects BTPL's revenue to exceed INR1,000 crores in FY27, with potential for further capacity expansion requiring INR50-60 crores capex to reach 100 lakh meters per month.

Net debt increased by INR395 crores in FY26, primarily due to capex investments, BTPL acquisition, and higher working capital. Working capital saw an overall increase of almost INR200 crores, partly due to advanced raw material imports for Q1 FY27 orders and customer mix. The company aims to reduce working capital by INR75-100 crores in FY27 for Gokaldas and Atraco operations.

Management expects a 'couple of percentage point improvement' in overall margins Y-o-Y for FY27, with Africa targeting 8-10% EBITDA in H2 FY27. Long-term (FY28) India EBITDA margins are projected at 13-13.5% and Africa at 10-10.5%, with BTPL aiming for 12% in FY28 and 14% in FY29. The removal of the 50% penal tariff in mid-February is expected to lead to margin inflation, though H1 FY27 margins may still be impacted by sharper pricing strategies adopted earlier.

Gokaldas Exports is selectively adding new premium customers, securing two for India and two for Africa in FY26, which will contribute revenue from FY27. The company is not factoring in benefits from potential FTAs with the UK and EU until they materialize, with the EU FTA process anticipated to conclude around 2027 due to parliamentary ratifications. The potential for Section 301 tariffs post-July 2026 remains a watch item, though Africa is exempt.

Labor availability varies across India, with strong availability in Central India and Ranchi, but challenges in the South and NCR, necessitating reliance on migrant labor. Labor cost inflation is occurring, with recent wage increases of 35% in Haryana and 25% in UP. While India's labor costs are lower than Vietnam ($210 vs $250-400), productivity remains a key focus. The global textile landscape sees a shift from China to Vietnam, with China's strong fabric ecosystem offsetting its higher labor costs.