Q4FY23 Review: Gokaldas Exports: Macro weakness to weigh on H1 performance

30 May 2023 , 11:48 AM

Although GEXP saw 24% revenue growth and improved profitability as well as FCF generation in FY23, it was a year of two halves with 72% YoY revenue growth in H1 — followed by 6% decline in H2. The H2 weakness was led by brands in the US and UK being stuck with higher inventory amid a macro slowdown. On the earnings call, management stated that while demand seems to have bottomed out, significant recovery looks likely only in H2FY24. In the interim, GEXP would focus on expanding wallet share. Management also reiterated 100-150bps Ebitda margin improvement over 2-3 years. In the medium term, management expects 20%+ top-line growth.

Ebitda and PAT beat despite revenue miss: 

While Q4 saw 11% YoY revenue decline, tight cost control kept underlying Ebitda decline at 16%. FY23 was a strong year for GEXP at 24%/32%/39% revenue/Ebitda/PAT growth, considering the strong H1 that made up for the H2 macro weakness. The company’s capex stood at Rs1.35bn. FCF stood at Rs2.33bn — the highest in many years.

Near-term headwinds; healthy long-term prospects: 

Key takeaways from earnings call: 1) GEXP managed to grow revenue by 24% in FY23 vs +1% growth in apparel exports from India. 2) Demand situation should improve in H2FY24 (after a modest H1). 3) Revenue from 2 recently added customers should commence from FY24. 4) New plants in MP and TN should contribute Rs3bn to revenue by FY25. 5) GEXP reiterated 100-150bps Ebitda margin expansion opportunity in the next 2-3 years. 

Cut EPS by 4-7%; new TP Rs528: 

Analysts of IIFL Capital Services now assume 8% YoY revenue decline in H1FY24 followed by 25% growth in H2. This translates into 7.5% revenue growth for FY24. They build in 20% revenue growth in FY25. PAT estimates see 4-7% cut. With management stating that FY24 would see full tax rate, analysts of IIFL Capital Services build in 8.5% EPS decline followed by 30% EPS growth in FY25. The stock is trading at ~15x 1YF PE.