Q1FY24 Review: Gokaldas Exports: Recovery expected in H2FY24

9 Aug 2023 , 12:43 PM

GEXP had a weak but in-line Q1 with revenue/PAT declining 16%/17% YoY, since brands in the US and UK were stuck with higher inventory amid macro slowdown. On the earnings call, management stated that Q2 may see YoY revenue decline, though it is optimistic about a recovery in H2FY24. While FY24 Ebitda margin may remain similar to Q1 levels (11.7%), GEXP reiterated 150bps expansion in the medium term. FY24 capex guidance of Rs1.45bn has been maintained. Analysts of IIFL Capital Services cut FY24 EPS by 5%, as they bake in a more gradual demand recovery profile but largely maintain FY25 EPS. In the long run, GEXP should benefit from China +1, supplier consolidation, supply-side issues in a few other exporting countries, currency tailwinds and signing of FTA with key markets. Analysts of IIFL Capital Services roll forward to Sep’24 and raise the target multiple to 17x, which yields Rs637 TP. Maintain BUY. 

Weak but in-line performance: 

Sluggish demand environment in developed markets resulted in 18% YoY decline in apparel exports from India in Q1, with GEXP faring slightly better at 16% decrease. Consequently, PAT declined 17%. GEXP’s cash generation remained robust, with net-cash position rising by Rs1bn QoQ to Rs4.33bn. The company reiterated Rs1.45bn capex guidance for FY24. 

Growth to resume in Q3FY24; medium-term story intact: 

Key takeaways from the earnings call: 1) Q3 should see reasonably good growth YoY as interactions with customers are encouraging. 2) 50-100bps YoY gross margin expansion due to mix change and lower raw material costs. 3) No change to capex guidance, since GEXP does not want to grapple with capacity constraints when demand recovers. 4) FTA with the UK could open up at least US$1bn in annual exports for Indian players. 

Cut FY24 EPS by 5% but maintain FY25 EPS; new TP Rs637: 

Analysts of IIFL Capital Services now assume 10% YoY revenue decline in H1FY24, followed by 20% growth in H2, which translates into 4% revenue growth for FY24. They build in 23% revenue growth in FY25, aided by new capacities and improved demand. Based on this, they cut FY24 EPS by 5% but maintain FY25 EPS. With FY24 likely to see full tax rate (already seen in Q1), analysts of IIFL Capital Services build in 10% EPS decline in FY24 followed by 34% EPS growth in FY25. The stock is trading at ~17x 1YF PE.