Business Daily from THE HINDU group of publications
Saturday, Sep 02, 2006
Business Daily from THE HINDU group of publications Saturday, Sep 02, 2006 |
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Markets
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Stocks Deeptha Rajkumar
Growth drivers The company plans to set up 4 factories as part of its capacity expansion. Improvement in its product mix to reflect in improved margins. The company is looking to broadbase client base.
Mumbai , Sept. 1 The counter of textile company Gokaldas Exports has been witnessing investment-based buying on the bourses in the recent past. The company, which has appreciated by almost 13 per cent month-on-month, ended 7.26 per cent higher at Rs 633.90 on the BSE today. The stock has gained ground by almost 6.77 per cent week-on-week. Touted as a good long-term bet, sound fundamentals appear to be driving interest in the company's stock. Primarily an export company (99.5 per cent of its revenue is from exports), the safeguards levied on China on certain key categories (such as outerwear and bottomwear) have improved Gokaldas Exports' competitive advantage, say analysts.
Outlook buoyant
Market sources maintain that company outlook is buoyant, with Gokaldas planning to increase manufacturing capacity from around 22 million pieces in fiscal 2006 to around 30 million pieces over the next 12-15 months. When contacted Mr Rajendra Hinduja, CFO at Gokaldas Exports, that the company is well poised in the apparel sector. Talking of the company's future plans, he said that Gokaldas is to set up four factories/plants in the near future as part of its capacity expansion. "We will be setting up a factory in Chennai SEZ, one for structures suits in Bangalore, a plant in Mysore for bottomwear and the fourth one in Hyderabad for bottoms and tops," Mr Hinduja told Business Line. The company's capacity expansion plans is part of its bid to diversify its product mix. The improvement in its product mix is expected to reflect in improved margins in the foreseeable future. Currently, the company has a domestic retail brand, "the Wearhouse." However, it is not looking to scale up the brand in the near future. It is exploring the possibility of supplying apparel to domestic retailers such as Shoppers Stop, Pantaloon and Metro.
Client base
Gokaldas derives 86 per cent of its revenues from outerwear and bottom wear and 78 per cent of its revenues from its top five customers. The company, however, is looking to broadbase its client base. "We are always looking to add new clients. Our most recent additions include Levi's and Next, a big name in the European market. We also hope to add on Jamboree and several others soon," Mr Hinduja said. The CFO said that the company is looking at 20-25 per cent growth every year. On the China factor he said that given that most buyers are looking to divide their sourcing base, India will continue to score high as an alternative to China.
Biz model
Despite good fundamentals, analysts believe the company is not able to fetch better margins. "The company has scale, however margins remain a little lean i.e., around 11 per cent. This can largely be attributed to the company's business model, which is contract manufacturing. As such their costing is open," said an analyst tracking the company. However, marketmen maintain that the stock is a good long-term investment bet. One could look at 15-20 per cent returns. In the near term, valuations seem a bit stretched. Post-dismantling of quota on textile exports, the country's apparel exports have jumped 22 per cent.
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