Q2FY24 Review: Gokaldas Exports: Banking on a healthy H2 after a weak H1

1 Nov 2023 , 02:50 AM

Q2 was a weak quarter for GEXP. Revenue declined 12% YoY, similar to the decline in apparel exports from India, since US retailers grappled with high inventory. Ebitda, after removing Rs52mn one-off costs related to acquisition of Atraco and start-up costs of MP unit, declined 20% YoY. Management sees flattish YoY revenue in FY24 despite a 14% decline in H1 considering improved order book and a favourable base in H2. Management called out Rs80mn one-off costs in Q3FY24. Analysts of IIFL Capital Services cut FY24/25/26 EPS estimates by 12%/7%/0%. They estimate that EPS accretion in FY25 could be >25% from Atraco acquisition (management expects deal closure by end of Q3FY24). While analysts of IIFL Capital Services are yet to build the acquisition in their forecasts since regulatory approvals are pending, their TP for GEXP, based on 19x pro-forma 2YF EPS, comes to Rs986 (vs. Rs933 earlier). Maintain BUY considering long-term tailwinds from China + 1, vendor consolidation, potential gains from FTA with the UK and EU, and robust execution. 

Weak Q2 led by revenue decline and higher costs: 

GEXP’s revenue declined 12% YoY as US retailers grappled with high inventory. Ebitda, after removing Rs52mn one-off costs, declined 20% YoY to Rs522mn. Reported Ebitda decline was sharper at 28%. Reported PAT declined 48%. The company saw an increase in cash balance to Rs5bn as of end-Q2 vs. Rs3.3bn as of end-FY23. 

Cautious management commentary: 

Key takeaways from the earnings call: 1) US apparel imports were down 23% YoY, India’s apparel export fell 12.5% YoY in September; 2) The management expects flattish YoY revenue growth in FY24, aided by a rebound in H2; 3) GEXP could incur Rs80mn one-off for acquisition of Atraco and start-up of MP unit in Q3FY24; 4) RoSCTL scheme (which offers 3-3.5% benefits) is valid till March 31st, 2024. The industry is engaging with the government to extend this but in the event of a revocation, there could be a short-term hit. In the mediumterm, GEXP expects the industry to pass this on to customers. 

Cut PAT by 12%/7% for FY24/25: 

Analysts of IIFL Capital Services cut EPS by 12%/7% for FY24/FY25 on higher costs. Atraco acquisition can be significantly EPS accretive (25% in FY25) as highlighted in their note. The stock trades at 29x 1YF PE on a standalone basis and 22x on pro-forma basis.