Gokaldas Exports Ltd Management Discussions.

Global economic overview

The global economy witnessed a steady decline in 2019 fuelled by a sharp downturn in industrial production, weakening trade relations between China and USA, demand slowdown in China, and other geo-political tensions. This moderated global GDP growth from 3.6 per cent in 2018 to 2.9 per cent in 2019. The global economy, affected by the outbreak of the Covid-19 pandemic is expected to decline in 2020.

The Covid-19 pandemic is the most impactful global health crisis of our time and the greatest challenge the world has faced since WW II. In order to limit the spread of Covid-19, World over countries implemented various measures such as lockdowns, closure of nonessential business, and travel restrictions. These measures sharply curbed consumption and investment, restricted labour supply and production, disrupted financial and commodity markets, global trade, supply chains, travel and tourism. Covid-19 and its response had an unprecedented impact on the world economy disrupting billions of lives and jeopardizing decades of developmental progress. IMF in its world economic outlook (WEO) June 2020 estimates global growth to shrink 4.9% in 2020. However, on the back of various macroeconomic support measures by many countries WEO anticipates global growth to be 5.4% in 2021, in effect reducing nearly 6.5% from the GDP compared to its pre Covid-19 projections.

Overview of key global economies

Most of advance economies like the US, EU, UK, Japan and Canada experienced Covid-19 outbreaks, of varying intensity GDP in these economies expected to contract sharply in 2020 due to disruption of domestic demand and supply, trade, and finance. However, as per WEO growth in 2021 expected to rebound on the back of unprecedented support from fiscal, monetary, and financial sector policies. Central banks in these advance economies implemented policy measures like rates cuts, additional liquidity measure to the both government debt and corporates loans. (Source: World Economic Outlook June 2020, IMF)

Global Economic Growth

Real GDP (YOY) 2019 2020 2021
World 2.9 (-)4.9 5.4
Advance and Economies 1.7 (-)8.0 4.8
US 2.3 (-)8.0 4.5
EU 1.3 (-)10.2 6
Japan 0.7 (-)5.8 2.4
UK 1.4 (-)10.2 6.3
Canada 1.7 (-)8.4 4.9
Emerging/Developing economies 3.7 (-)3.0 5.9
China 6.1 (+)1.0 8.2
India* 4.2 (-)4.5 6

* forecast based on the fiscal year basis (Source: IMF World Economic Outlook)

Indian Economic Overview

Indias GDP growth slowed down to 4.8 per cent in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand. In 2019-20, fiscal deficit was budgeted at Rs 7.04 lakh crore (US$ 99.56 billion) (3.3 per cent of GDP), as compared to Rs 6.49 lakh crore (US$ 91.86 billion) (3.4 per cent of GDP) in 2018- 19. Inflation increased from 3.3 per cent in H1 of 2019- 20 to 7.35 per cent in December 2019-20 due to temporary increase in food inflation. The Government undertook some of the reforms during 2019-20 to boost investment, consumption and exports such as IBC, easing credit, NBFC reforms etc. India improved its ranking from 143 in 2016 to 68 in 2019 under the indicator, "Trading across Borders", monitored by World Bank in its Ease of Doing Business Report.

As a preventive measure to contain the spread of Covid-19 pandemic, India imposed a strict lock-down for a period of 2 months starting from 24th March, 2020. The loss of economic output during lock-down squeezed the supply and demand and subsequently led to loss of income, which caused decline in consumption resulting in further loss of output. Indias real GDP growth rate was 4.2% (PE) in FY20 as per National Statistical Office, compared to 6.1% in FY19. (Source: Macroeconomic report June 2020, Department of Economic Affairs)

Outlook of Indian Market

High-frequency indicators such as purchasing managers indexes fell to all-time lows in April 2020, reflecting the bleak outlook. Migrant workers have gone home to their villages after losing their jobs in the cities and will be slow to return even after containment measures are relaxed. GDP expected to contract by 4.5% in FY20 before rebounding by 6.0% in FY21. (Source: World Economic Outlook June 2020, IMF)

Global Apparel Market

The Global apparel market stood at nearly US $ 1.8 Tn. US, EU, China & Japan are four major apparel consumption markets and constitutes nearly 60% of global apparel consumption. Additionally, markets like India, Russia and Brazil also been growing rapidly The total market size of these seven countries combined stood more than 70% of the global apparel consumption. Among these markets, Chinese market expected to surpass both EU & US to become worlds largest apparel consumption market by 2023. In 2018-19, India was the 5th largest textiles and apparel exporter globally, followed by Bangladesh and Germany with their exports worth USD 35 Bn and USD 34 Bn respectively (Source: Textile Time April-May 2020, CITI)

Consequent to the Covid-19 pandemic, the global apparel market is expected to decline from $672.3 billion in 2019 to $659.7 billion in 2020 at a compound annual growth rate (CAGR) of -1.9%. The decline is mainly due to economic slowdown across countries owing to the Covid-19 outbreak and the measures to contain it. The market is then expected to recover and grow at a CAGR of 8% from 2021 and reach $809.8 billion in 2023. Asia-Pacific was the largest region in the global apparel market, accounting for 32% of the market in 2019. Western Europe was the second largest region accounting for 28% of the global apparel market. Africa was the smallest region in the global apparel market. (Source: www.businesswire.com)

Country/Region Value 2018 Share 2018(%) CAGR (2018- 2025)(%) Value 2025 (P)
EU-28 427 23 1 458
United States 348 18 2 400
China 231 12 10 450
Japan 100 5 1 107
India 74 4 12 164

Global Textile and Apparel Trade

Global textile and apparel trade estimated to be US $ 865 Bn in 2019 and has grown at CAGR of 4.7% since 2009. Overall textile (includes fibre, yarn, fabric and others) share stood at ~58% and apparel stood at ~42%. The covid-19 pandemic impact on overall textile and apparel trade estimated to have 32% decline in 2020. It is further estimated that that the trade will grow at 6.4% CAGR for the next 9 year and reach US$ 1,025 Bn by 2029. (Source: Textile Time April-May 2020, CITI)

Indian textile and apparel industry

The textiles and apparel industry in India can be broadly divided into two segments - yarn and fibre and processed fabrics and apparel. The domestic textiles and apparel market was estimated at US$ 100 billion in FY19.

The textile industry of India is one of the major income generators and has around 45 million workers all over the country. In FY19, growth in private consumption was expected to create strong domestic demand for textiles. Growth in demand is expected to continue at 12 per cent CAGR to reach US$ 220 billion by 2025. Indias textile and apparel export is expected to increase to US$ 82.00 billion by 2021 from US$ 22.95 billion in FY20. (Source: IBEF,Imarc,Televisory)

Indias domestic textile and apparel market is worth over USD 100 Bn as of 2018-19 and is expected to grow at a CAGR of 12 per cent to reach to a size of USD 223 Bn by 2025-26.

India is the 5th largest textiles and apparel exporter globally, with its exports worth USD 40.4 Bn in 201819. Indias textiles and apparel exports are expected to reach USD 70 Bn by 2025-26, growing at a CAGR of 12 per cent. The exports have grown at a five per cent CAGR since the year 2005-06.

Impact of Covid-19 on the Textiles and Apparel Industry in India

The spread of the virus is having serious implications in India and companies have started feeling the impact owing to uncertainty in demand, supply chain disruptions, decline in raw material prices having implication on livelihood of workers as well. As estimates suggest, for the Indian textile and apparel industry, there is a 12-15 months slowdown causing at least a 30 per cent shrinkage in the FY21 market size globally.

To support the industry, the Government of India has launched several measures including INR 3 lakh crore (USD 39.7 Bn) collateral-free loans for businesses, including Micro, Small and Medium Enterprises (MSMEs), barring global tenders for government procurement up to INR 200 crore (USD 26.4 Mn), infusing more liquidity into banking and non-banking institutions, deferment of EPF/ESI payments, amending the definition of MSMEs by increasing the investment limit and including annual sales turnover as an additional criterion. The Reserve Bank of India has also announced several stimulus measures to ease down the financial stress on the companies in the sector.

Turning crisis into opportunity, the textiles and apparel industry in India came to the forefront to help India combat Covid-19. Major shortages of masks and personal protective equipment (PPE) were being reported across the country, posing much danger for frontline workers who attend to Covid-19 patients. What followed then was a remarkable collaboration between Governments at the Central and State levels, textile and apparel industry players and workers to revamp existing production lines to manufacture a completely unknown product, from scratch.

Personal Protective Equipment (PPE)

The spread of Covid-19 has dramatically increased the global demand for PPE. The World Health Organization (WHO) has estimated the requirement for 89mn medical masks each month along with 76mn examination gloves and 1.6 Mn medical goggles. To meet the rising global demand, WHO estimates that the industry must increase manufacturing capacity by 40%. Indian apparel industry rising up to the challenge and turning the crisis into the opportunity has increased its domestic PPE kits production to 4.5 lacs PPE kits/ day.

On PPE export front, Indian government lifted the export ban in July 2020 as many exporters sought to attract buyers from the US, Europe and other countries who are moving away from China. Global PPE market size stood at US $52 Bn in 2019 and expected to reach $92.5 Bn by 2025, growing at a CAGR of 8.7% during 2020-2025. (Source: Textile Times April-May 2020, CITI)

India advantage from the sectoral growth drivers

The Covid-19 pandemic: Due to the outbreak of the pandemic, textile companies are keen to develop new products like anti-viral fabrics, masks and other goods that cater to the recent boom in demand for hygiene products worth several hundred crores.

Raw material abundance: India is the largest producer of jute and cotton and the second-largest producer of silk. Due to the high abundance of raw materials and cheap labour costs, the cost of manufacturing textile and apparel is significantly lower than many other competing countries.

Youth population: India has one of the worlds largest young populations. The countrys median age is estimated at around 28, younger than most large countries. This age group represents one of the biggest consumer group of textiles and apparel and is expected to drive consumer sentiments.

Digital penetration: An increasing penetration of the internet has resulted in online retailing witnessing strong growth in the country. Consumers are now opting for ease of shopping, multiple options, better discounts, and easy return policies. The growth in online sales has enabled the textile industry to reach consumers across the length and breadth of the country.

Comparative Factors of Production

Countries Labour Wages USD/month Power Cost USD/Kwh Water Cost Usc/m3 Lending Rate Per cent(%) Average Production Efficiency Per cent(%) EODB Ranking Rank
China 550-600 0.15-0.16 55-60 6.0%-7.0% 65%-70% 31 (91)
India 160-180 0.10-0.12 16-20 11%-12% 50%-55% 63(132)
Bangladesh 110-120 0.09-0.12 20-22 12%-14% 45%-55% 168(129)
Vietman 190-200 0.08-0.10 50-80 7.0%-8.0% 65%-70% 70(99)
Ethiopia 80-90 0.03-0.04 30-40 8.5%-9.0% 30%-35% 159(127)

Change in consumer preferences: Due to a change in buying habits and awareness generation through social media, consumers are now shifting from need- based clothing to aspiration-based clothing. Contrary to a previous trend, where Indian consumers purchased fashion items as and when required, buying clothes has become more than a basic need; it is now a reflection of aspiration. Though basic textiles continue to represent a part of the consumers basket, the demand for aspirational clothing has increased significantly in recent years. (Source: Televisory, Business Wire)

Government initiatives

Indian government has come up with a number of export promotion policies for the textiles sector Initiatives taken by Government of India are:

• Under Union Budget 2020-21, a National Technical Textiles Mission is proposed for a period from

2020-21 to 2023-24 at an estimated outlay of Rs 1,480 crore (US$ 211.76 million). In 2020, New Textiles Policy 2020 is expected to be released by the Ministry of Textiles.

• As of August 2018, the Government of India increased the basic customs duty to 20 per cent from 10 per cent on 501 textile products, to boost the Make in India project and support local production.

• The Government of India announced a special package to boost exports by US$ 31 billion, creating one crore job opportunities and attracting investments worth Rs. 80,000 crore (US$ 11.93 billion) during 2018-2020. As of August 2018, it generated additional investments worth Rs 25,345 crore (US$ 3.78 billion) and exports worth Rs 57.28 billion (US$ 854.42 million).

• The Government of India has taken several measures which include the Amended Technology Up-gradation Fund Scheme (A-TUFS). The scheme is estimated to create employment for 35 lakh people and enable investments worth Rs 95,000 crore (US$ 14.17 billion) by 2022.

• The Cabinet Committee on Economic Affairs (CCEA), Government of India has approved a new skill development scheme named Scheme for Capacity Building in Textile Sector (SCBTS) with an outlay of Rs 1,300 crore (US$ 202.9 million) from 2017-18 to 2019-20. As of August 2019, 16 states have signed pacts with the Ministry of Textiles to partner with it for developing the skill of about four lakh workers enrolled under the scheme. (Source : Ibef)

The Companys overview

Gokaldas Exports Limited (GEL) is one of the leading apparel manufacturers and exporters in India, occupied with design, manufacture and sale of an extensive range of apparel (outerwear, active-wear and fashion- wear) for men, women and children for all seasons. It caters to the needs of several leading international fashion brands and retailers. These manufacturing facilities are complemented by GELs integrated ancillary units which provide services like laundry, embroidery, printing, quilting and poly-wadding for the manufactured garments.

GEL has three wholly owned subsidiaries that has operating facilities with a production capacity of 30 million pieces of garments in a year.The facilities are equipped with cutting-edge infrastructure and state- of-the-art machines for sewing, cutting, printing, embroidery and finishing which enables GEL to service multiple bulk orders in a timely manner. GEL also has design, testing, fitment and quality inspection laboratories that provide support in delivering products of high quality while meeting the stringent expectation standards set by its customers.

Business profile

Gokaldas Exports Limited believes that its ability to produce new designs and samples, and execute the designs developed by its customers, have helped the Company in expanding its product portfolio. The Company has positioned itself as a multi-product global enterprise ensuring that its products include a diverse mix of apparel which can cater to the consumer needs of both international and domestic markets. The composition of the product portfolio is depicted below.

Customer service and excellence

GELs major customer base are large apparel players of the key markets of the USA, Europe, and Asia which are well trusted by the consumers. Its long-standing relationship with these major customers has been one of the most significant factors contributing to its growth and persistent relevance. Commitment to quality and dedication towards customer service have been the corner stones of the Companys brand value. Over the years, GEL has steadily developed a robust base of international retailers of apparel and has continually received repeat business from such customers. GEL has serviced 35 customers covering exports to about 60 countries during the year. GEL believes that it enjoys the good-will of its clientele due to its ability to offer inhouse designs and samples, timely response, and the capacity to cater to various order sizes. It is a preferred vendor partner for its valued customers and wishes to continue the same.

Strategic focus areas

GELs long-term strategic objective is to continue to create value for all its stakeholders which can only be achieved by delivering quality products to its customers, consistency in customer service excellence and building consistent operational efficiency The short and medium term goals of the Company is to continue investment behind modernisation and upgradation of its business infrastructure, cost effect capacity expansion, sustainable improvements in cash flow and returns for its stakeholders.

GELs focus is on maintaining its market position as one of the preferred players in India in the segment it operates.

Operational Efficiency

During the year, GEL has enhanced its operating efficiency across its value chain. The initiatives undertaken by the management has resulted improvement in on-time delivery to customers, sewing efficiency higher by 1.8%, wastage reduced by 0.5% during the current year.


GELs operating history in the apparel manufacturing business has helped it gain significant expertise, consumer preference and its comfortable position among the largest exporters of apparel manufacturers in India. Some of the strategic advantages it has are as follows:

• GELs key customer base are reputed international brands from USA, Europe, and Asia which are large and growing market.

• The Company is adding new customers to reduce revenue concentration risks.

• The Company is diversifying its product folio and widening geographical reach to locations that offers duty free access to apparels from India

• The Company can leverage its in-house design, testing, fitting and quality inspection facilities.

Risk management


External risk factors

• The company derives a significant portion of the revenue in USD and is exposed to risks related to foreign exchange rate fluctuation. In any case, it has a defined foreign currency risk management policy to manage such risks and its impact.

• Changes in regulations or applicable Government incentives could adversely affect the operations and growth prospects. During the year, the Government withdrawn 4% MEIS benefits retrospectively with effect from 7th March, 2019 through a notification issuing on 4th January 2020. This change in regulation has let the company to forego Rs.41 Crores of export earnings during the year. Such downward change in regulation adversely affects the profitability of the company.

• Majority of the Asian countries have free trade agreements with the large consumer markets of the EU which makes them more competitive than India for exports to the EU.

• Increase in the wage costs and rising inflation could cause a decline in the companys profitability. During the year, the companys profitability was impacted due to retrospective implementation of the minimum wage revision in the state of Karnataka. The company prepares and makes adequate plan well ahead of the event to reduce the impact of such risks.

Internal risk factors

• The companys business has been heavily dependent on export and any reduction in the consumer base of international customers could affect profitability. The company has recognised this risk and have diversified its customer base to the US, EU and Asia.

• The company depends on timely receipt of its supply of raw materials from overseas market. Any delay in receiving raw materials could adversely affect the delivery timeline. The company mitigated these risks by building a lasting relationship with suppliers over the years ensuring better retention coupled with better credit management and block booking of materials.

• The apparel manufacturing market is highly dynamic and success is dependent on anticipating consumer preferences or industry changes. The companys strength lies in identifying these changes and quickly modify its products based on customer preferences and changing market scenarios. Successful implementation mitigates this risk.

Human resources

GEL believes that its competitive advantage lies with its people. The people at GEL bring to the fore their enhanced expertise, multi-sectoral experience and heightened technological knowledge.

The HR structure of the Company is designed to break away from obsolete hierarchy and the aim of the Company is to promote competitiveness and individual growth. All decisions of the Company are inkeeping with the personal and professional goals of its employees thereby achieving an ideal work-life balance and enhancing their pride of association. The employee count of GEL stood at 26597 as on 31st March, 2020. The average age of the Company is 35.

Internal control systems and their adequacy

The Company has adequate internal control systems for financial reporting and control and the control systems are working effectively. The company has put internal control frameworks in place and delegation of authority is clearly spelt out with policies and procedures clearly documented. The company has appointed an independent internal auditor who monitors and reviews transactions independently and reports directly to the audit committee consisting of entirely independent directors, on a quarterly basis. The internal auditor conduct audits on all key business areas as per a pre-designed audit plan. They review and present reports on the systems and procedures at place for internal control at various departments. They perform an independent assessment of functioning of compliance procedures set under various statutes. All significant audit observations and follow-up actions are reported to the audit committee along with the internal audit report and management response. The minutes of the audit committee are reviewed by the Board.

Financial highlights

The financial statements have been prepared in compliance with the requirements of the Companies Act. 2013, and as per Generally Accepted Accounting Principle in India including Indian Accounting Standards (IndAS)

Analysis of the profit and loss statement of Consolidated Financial Statements (Figures in Rs. Crores unless otherwise stated)

Revenues: Revenues from operations reported a 16% growth from Rs. 1174.52 crore in 2018-19 to reach Rs. 1365.24 crore in 2019-20. Other incomes of the Company accounted for a 2.5 % share of the Companys revenues reflecting the Companys dependence on its core business operations.

Expenses: Total expenses of the Company increased by 20% from Rs. 1112.72 crore in 2018-19 to Rs. 1,336.67 crore (IndAS-116 impact adjusted in expenses for comparative purpose). Raw material costs, accounting for a 49.4 % share of the Companys revenues increased by 5.7 % from Rs. 523.26 crore in 2018-19 to Rs. 691.95 crore in 2019-20 owing to an increase in the operational scale of the Company. Employees expenses accounting for a 33.4 % share of the Companys revenues which remained flat (increased by 0.4 % from Rs. 394.96 crore in 2018-19 to Rs. 467.42 crore) in 2019-20. The company has taken many cost-efficient measures in the operation to manage employee costs. The marginal increase in the employee costs was due to retrospective implementation of the minimum wage revision to the extent of 10% in the state of Karnataka.

Analysis of the Balance Sheet Sources of funds

• The capital employed by the Company increased by 3.7% from Rs. 628.41 crore as on 31st March, 2019 to Rs.651.58 crore as on 31st March, 2020 owing to increase in capital expenditure behind modernisation and upgradation of technology, plant and machineries at factories. The return on investments from such expenditure has reflects in improvement in productivity in the operations. Return on capital employed, a measurement of returns derived from every rupee invested in the business increased by 110 basis points from 9.2 % in 2018-19 to 10.3% in 2019-20 due to better management of assets and working capital.

• The net worth of the Company decreased by 5.7% from Rs. 240.38 crore as on 31st March, 2019 to Rs. 226.61 crore as on 31st March, 2020 owing to decrease in hedge reserves, essentially reduced due to effective portion of gain and loss on hedging instruments from mark to market. The Companys equity share capital comprising 4,28,25,663 equity shares of Rs. 5 each, remained unchanged during the year under review.

• The company does not have any long-term debt. The short term borrowing of the Company marginally increased by 2.7 % to Rs. 390.95 crore as on 31st March, 2020. Net debt-equity ratio of the Company stood at 0.66 in 2019-20 compared to 0.76 in 2018-19.

• Finance costs of the Company decreased by 9.2 % (if adjusted with interest on lease liability under IndAS-116 for comparative purpose) from Rs. 32.90 crore in 2018-19 to Rs. 29.9 crore in 201920 following the repayment of liabilities. The Companys interest cover (IndAS adjusted) stood at a comfortable from 1.7x in 2018-19 to 2 x in 201920.

Applications of funds

• Fixed assets (gross) of the Company increased by 29% from Rs. 159 crore crore as on 31st March, 2019 to Rs. 205 crore as on 31st March, 2020 owing to an increase in investment on plant and machinery. Depreciation on fixed assets increased by 30 % from Rs. 19.22 crore in 2018-19 to Rs. 25.00 crore in 2019-20 (adjusted with IndAS depreciation) owing to an increase in fixed assets during the year under review.

Working capital management

• Current assets of the Company increased by 79 % from Rs. 521.56 crore as on 31st March, 2019 to Rs. 562.86 crore as on 31st March, 2020 owing to the growing scale of business of the Company contributed by inventory and surplus money parked in the form of mutual fund . The current and quick ratios of the Company stood at 2.23 and 1.09, respectively in 2019-20 compared to 2.88 and 1.43, respectively in 2018-19.

• Inventories including raw materials, work-inprogress and finished goods among others increased by 10.1 % from Rs. 262.69 crore as on 31st March, 2019 to Rs. 289.24 crore as on 31st March, 2020 owing to inventory held that could not be dispatched due to disruption in supply during Covid-19 .

Despite growing business volumes, trade receivables have decreased by 11.2% from Rs.161.70 crore as on 31st March, 2019 to Rs.143.53 crore as on 31st March, 2020. The Company reduced its debtor turnover cycle from 59 days in 2018-19 to 41 days in 2019-20. This improvement could be achieved by resorting better realisation process engaging with some of the major customers.


• The company adopted many cost austerity measures like efficient use of material, reduced outbound logistic costs, however, this reduction was compensated by increase in salaries and wages in factory due to increase in the minimum wage revision for the workmen. These factors offset the improvement in EBITDA margin despite increase in the overall revenue of the company by 17%.

Key ratios

Particulars 2018-19 2019-20
EBITDA/Turnover (%)* 7.7 8.0
EBITDA/Net interest ratio* 3.54 3.68
Net Debt-equity ratio 0.76 0.66
Return on equity (%) 10.64 13.41
Book value per share (Rs.) 56.14 52.92
Earnings per share (Rs.) 6.08 7.10

Cautionary statement

Investors are cautioned that this discussion contains statements that involve risks and uncertainties. Words like anticipate, believe, estimate, intend, will, expect and other similar expressions are intended to identify such forward looking statements. The company assumes no responsibility to amend, modify or revise any forwardlooking statements on the basis of any subsequent developments, information or events. Besides, the Company cannot guarantee that these assumptions and expectations are accurate, or will be realised as actual results, since performance or achievements could differ materially from those projected in any such forward- looking statement.