Apparels stock Gokaldas Exports has given exceptional returns to its investors in the past 3 years. The stock has rallied as much as 477 percent in 3 years, jumping from around ₹66 in January 2020 to currently trade around ₹381.
Up 477% in 3 years, ICICI Direct sees another 47% jump in Gokaldas Exports; here's why
Going ahead, brokerage house ICICI Direct sees the stock rising another 47 percent in the next 12 months. The brokerage has initiated coverage on the stock with a ‘buy’ call and a target price of ₹560, implying a potential upside of 47 percent.
Gokaldas Exports (GEXP), under its new management (since FY18), has witnessed significant changes including robust revenue growth, marquee client additions, richer product mix, higher margins, etc., leading to robust shareholder returns, noted the brokerage.
ICICI Direct further said that the company has also reduced over-dependence on the spring-summer season (outerwear accounted for 41 percent of FY22 revenue vs 23 percent in FY18), which is another key positive.
In order to prepare itself for the next leg of growth, GEXP has planned a capex of ₹370 crore over FY22-FY25, which ICICI Direct believes should boost the topline by ₹800-900 crore (over FY23-25E) on stabilisation of units. In addition, GEXP could benefit from the operating leverage benefits and will likely improve its EBITDA margin by 100bps over FY22-FY25E, it added.
"We initiate coverage on the stock with a BUY rating and target price of ₹560/share, valuing the stock at 17.5x FY25E EPS. We believe GEXP deserves to be valued at a higher multiple vs its current 1-year forward P/E multiple (15x) owing to healthy PAT growth of 18 percent CAGR over FY22-25E and stable RoEs (return on equity) in the range of 16-18 percent," said the brokerage.
Stock price trend
The last 1 year was mostly muted for the stock with it giving just 8 percent returns to its investors. However, from its 52-week low of ₹301, hit in July 2022, the stock has recovered around 26 percent.
Just in January till date, the stock has risen nearly 5 percent after a 5 percent decline in the previous month December. However, it had added 5 percent each in November and October 2022.
About the firm
Gokaldas Exports designs, manufactures, and sells readymade garments and related products in India and internationally. The company’s products include high fashion garments, outerwear, bottomwear, casualwear, and sportswear, such as shorts, trousers, and jackets for men, women, and children. It serves international fashion brands and retailers. The company also exports its products to approximately 50 countries. It was founded in 1979 and is based in Bengaluru, India.
The company’s customers include prominent international brands like GAP, Carhartt, Columbia Sportswear, Puma, JC Penney, etc. It generates revenues from exports to North America (84.3 percent of revenues), Asia (11.3 percent), Europe (4.2 percent) and the balance from South America, Australia and Africa (0.2 percent).
In the September quarter, the firm has posted a 60 percent jump in its net profit at ₹46 crore versus ₹28 crore in the year-ago period. Meanwhile, its revenue has advanced 29 percent to ₹576 crore as compared to ₹445 crore in the same period last year.
ICICI believes India – with its stable economy, abundant cotton availability, cheaper labour vs China, and control over covid – is well placed to wrest a chunk of the apparel market share from China and other competitive economies. Hence, India’s textile and apparel industry stands to benefit in the medium term. Further, the government of India’s (GoI) signing of FTAs with various countries (UK FTA likely in H1CY23) and incentive schemes will likely boost the domestic textile ecosystem and catalyse further growth, it added.
India well placed to wrest market share: Over the past few years, China’s market share in the global apparel market has been declining due to higher production costs, trade barriers, persistent Covid issues, etc, noted ICICI Direct. As a result, the global apparel supply chain was primarily realigned to countries like Vietnam and Bangladesh owing to lower factor costs and geographical proximity to China while India’s export sales stagnated. However, the brokerage believes, India – by virtue of its inexpensive labour vs China, stable economic conditions, sufficient availability of raw materials, etc. – is well placed to gain from the shift of supply-chain from China.
FTAs and other policies shall act as catalysts in increasing exports: In an effort to improve India’s exports, GoI is actively pursuing bilateral trade agreements with potential countries, which is another positive for the stock. It successfully concluded free trade agreements (FTAs) with the UAE and Australia and is in final discussions with the UK, which is expected to be completed in H1CY23, informed ICICI.
Ongoing/planned capex to enhance scale: In order to service larger export orders and upgrade its designing capabilities, GEXP is executing a capex of ₹370 crore spread over FY22-FY25, said ICICI Direct. The majority ( ₹160 crore) of the total capex is allotted towards setting up of new capacities and projects. The company plans to enter the knitwear segment with its integrated knit fabric processing unit in Tamil Nadu at a capex of ₹130 crore. It expects GEXP to generate operating cashflows of ₹600 crore over FY23E-FY25E, which will allow the company to fund its capex through internal accruals.
Strengthening existing and new client engagements: Over the last few years, GEXP has not only strengthened its existing client relationships but also added a few marquee clients like Walmart and M&S, noted the brokerage. In FY22, 44 percent of its revenues came from customers who have been associated with the company for >10 years vs 38 percent in FY21. Moreover, the contribution from customers with the association of <5 years has improved significantly from just 1.8 percent in FY18 to 15 percent in FY22, it added. The top-5 clients are GAP, Columbia, Carhartt, H&M, and Puma. They together account for 70-75 percent of revenues. ICICI Direct expects GEXP to onboard more customers (like C&K, Tommy Hilfiger, etc.), as it continues to leverage the China+1 theme in the US and Europe markets.
On the back of a healthy order book and ramping-up of newly commissioned units, the brokerage expects revenue, EBITDA, and PAT CAGRs of 19 percent, 23 percent, and 18 percent, respectively, for FY22-FY25E. It also forecasts stable RoEs of 17 percent, 16 percent, and 18 percent in FY23E, FY24E and FY25E, respectively.
It also expects GEXP’s sales volume CAGR at 12 percent over FY22-FY25E vs -1 percent over FY19-FY22E.
GEXP has witnessed a sharp rise in realisation over the past four years driven by the sale of high-value/high-margin products. Over FY19-FY22, realisation CAGR was at 17 percent and, despite a high base, it estimates realisation of 7 percent over FY22-FY25E led by a better-yielding product mix.
5 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.