The company is in a sweet spot having manufacturing facilities in Africa as well as India. The agressive expansion in MP, TN and Karnataka will ensure growth of at least 30% cagr for the next three years
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Only 5% of the exports goes to UK, 80% to US. Management on CNBC confirmed this. They feel that they can double exports to UK from current levels. But this means only 5% incremental sales to Gokaldas. So this news is not such a big deal for Gokaldas
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I believe most of the concern at Gokaldas (and the Textile sector) is the Tariff. So I’ll focus on it.
The textile sector suffered a major disappointment with the announcement of India’s tariff at 25% versus the expectation of 15% compared to other countries’ 20% creating a huge disadvantage to Indian exporters.
However, long-term, how Tariffs play out remains to be seen. If the Tariff stays (unlikely), it would be considered in the normal cost structures, and the cost would be added or lead to Shrinkflation (eg, Parle G @ Rs5)
In either case, it doesn’t lead to the business losing money over time.
Yes, the business prospects vis-à-vis other countries are hampered.
At the same time, India’s competitive strengths (cheaper labour compared to China, better policy & stable regime v/s Bangladesh, etc aren’t insignificant in the face of these challenges.
The government acknowledges that Exporters are stuck in the crossfire of negotiations and could help with incentives in the form of Rebates or forgo Duties and Taxes.
Piyush Goyal ji is already looking at the textile sector concerns.
Besides, the UK FTA has opened up another large market where some business can be diverted over time.
And Macros aside, the company’s diversification through the Acquisitions de-risks to a certain extent
And I like the management extending the conference call to nearly 2 hrs in a challenging environment, when most would have preferred to wrap in an hour.
The Macros are challenging. The Indian think-tank, as well as the Management, looks like they are doing what they can. And the valuations are at par or below the 5-year average valuations.
There might be pain in the short term, but I believe the long-term story isn’t done.
Disc - Invested/ Biased. No recent transactions.
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