Given the current context - where Small and Mid-caps have risen quickly (more because of higher interest in the space & valuations re-rating), it could normalise to long term (factoring in the risks)
While I have been quite bullish here (personal bias), trying to be value conscious as well now.
As the price of Gokex settles, a lot of the Earnings (that would increase) as well as the Valuations (Re-rating due to company’s improved prospects) might have been priced in.
With this, I’ll pause with another appeal to seniors to kindly share their thoughts
(having shared the context) Views invited
@Ruchit_Shah - What is Gokek’s value in your opinion?
Imo, this is an early start. The sector is coming from a downturn and the market trying to discount the real numbers is yet to start. Whether is it peak valuations or not, depends upon the investor’s time horizons. There are some triggers that are yet to be achieved such as FTA or even sector consolidation. Peak valuations are often made at peak margins and my understanding says that we are far from froth. Likely, the game is just starting.
West has been diversifying from China. Indian manufacturers haven’t been able to gain anything and the current numbers are not close to the potential. Gokek’s and the Ministry’s are focussed on the same geographies/params. The froth will likely be there once all the triggers are in place.
Disclaimer: I’m invested in Gokaldas Exports. Me & my family members may be invested in other stocks whose names may or may not be mentioned here. This isn’t a BUY/SELL recommendation.
Given the specific situation (as detailed above),
I would discuss the relevant factors i.e. numbers to get to the Valuation.
And happy to hear contra opinions here.
@wiseunwise shared the approach of Reverse DCF above.
It looks like a good way to look at Valuations.
I’m assigning the numbers that look rational to me.
Earnings
Atraco’s current earnings are 30% & 35% of Gokex’s revenue & profit’s resp
Adding a conservative 30% to last yr’s Profits of 173Crs, comes to 225Crs.
Let’s take 2 scenario’s of discount rates 15 & 20% (reasonably high benchmarks)
No of Yrs & Terminal Multiples go hand in hand
A. No of Yrs
Once the FTA’s are in place, the growth should sustain for a long time.
Let’s take the 5/10/20 yrs as scenario’s
B. The Terminal multiple – the average P/E from last 3 yrs, is around 20.
The way Gokex has progressed, by now, it looks like a formidable player.
So P/E of 20 looks like a conservative benchmark.
I’m assigning terminal P/E of 20 on a 5/10 yr period & 15 on 20 yr period
We get a Implied growth rate of 10/ 15% depending on the Discount rate.
The Management has guided for 20% growth rate for long term
(The MD, Siva Ganapathi ji looks conservative in his approach & quite credible, so far)
Onto the FTA, the Textile minister, and Geopolitical context.
The closure of FTA has been widely speculated since a while now.
I have been following Piyush Goyal ji’s mentions on newspapers since a while now, and surely there’s prominence to FTAs.
Also, G20 seems to have gone well, and further consolidates Inda’s position globally.
And daily we are looking at corporates validating India’s manufacturing Renaissance.
So India’s Textile manufacturing growth looks quite assured.
Given all of the above, I’m quite comfortable with the company’s current Valuation.
Disclaimer: Invested & Biased. Imho, the discussion’s primary focus is Valuation.
And in that regard, would humbly request to kindly highlight any apparent mistakes/ flaws in the approach/ thinking to avoid going wrong on a high conviction bet.
Company was expecting Fed rate cuts, which haven’t happened - this will likely impact consumption in US, specially in apparels without discounts (which is how the industry made money in near term).
Looking at all thes numbers and commentaries - are we looking at a few subdued quarters unless export economy picks up ?
Disclaimer: Invested with a small tracking position, and biased.
While it’s not the UK or the EU FTA, signing of India EFTA (Switzerland, Norway, Liechtenstein and Iceland) indicates that UK and EU FTA are realistic possibilities. Deepening trade relations is going to be a positive for garment manufactures from India.
What’s your views on current valuations ?
It has corrected 20-25% from highs and results too have improved compared to Q2 and management guidance of doubling revenue in 2026.
To me valuations look alright especially after acquisition numbers are accounted for. Bet is on management execution and they have done well so far. It can still double from here if execution remains intact and some demand tailwinds come back.
