Detailed Rationale

Crisil Ratings has upgraded its rating on the long-term bank facilities of Gokaldas Exports Limited (GEL, part of Gokaldas group) to ‘Crisil A+/Stable’ from ‘Crisil A/Positive’; the short-term rating has been reaffirmed at ‘Crisil A1’.

 

The upgrade reflects steady and sustained improvement in the business and financial profile of Gokaldas group in the past fiscal. The performance improvement follows stabilisation and reorientation of operations of the acquired entities after acquisition namely, Atraco group and Matrix Design and Industries Private Limited (MDIPL) and the resultant business synergies. The group’s revenues grew by ~81% YoY during nine months period ending 31-Dec-2024 and would continue to grow at over 10-15% in the current fiscal supported by a healthy order book and consistent scaling up in both GEL’s standalone business as well as in the acquired entities. However, profitability witnessed a decline in fiscal 2025 owing to higher employee costs associated with scaling up and stabilization of Madhya Pradesh plant and followed by increase in operating expenses in Atraco's Kenya operation due to appreciation in the Kenyan Shilling against USD. Moreover, in the current fiscal, the profitability may not see a major improvement given the uncertainty with regards to increased landed price for the US customers and pass on associated with US reciprocal tariff. Hence, this would remain a key monitorable. The group’s working capital management is quite efficient with gross current asset (GCA) days of less than 130 in the past two years and would be sustained at similar levels over the medium term. This also helps with low reliance on bank debt for working capital requirements.

 

Financial risk profile of the group is expected to remain strong with a comfortable capital structure. The inflow of funds from qualified institutional placement (QIP) helps the group to maintain strong liquidity. Cash and liquid investments likely to remain around Rs 350 crores by end of fiscal 25.   

 

The ratings continues to reflect the established market position of GEL and its long track record in the apparel industry. The ratings also consider the comfortable working capital cycle, well-established customer base and geographic reach, and strong financial risk profile of the group. These strengths are partially offset by the limited size of operations and exposure to intense competition and fluctuations in foreign exchange (forex) rates

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of GEL and its wholly owned subsidiaries, All Colour Garments Pvt Ltd, SNS Clothing Pvt Ltd, Vignesh Apparels Pvt Ltd, Gokaldas Exports Acharpura Pvt Ltd, Sri Susumyuta Knits Private Limited, Gokaldas Exports FZCO, Nava Apparel LLC-FZ and its stepdown subsidiaries (Atraco Logistics LLC, Ashton Mumbasa Apparel EPZ Ltd , Atraco Industrial Enterprise) and Matrix Design and Industries Private Limited. This is because all these entities, together referred as the Gokaldas group, operate in the same industry, and have operational and financial linkages

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position, long track record in the apparel industry and improved performance supported by Atraco and MDIPL:  GEL benefits from its established relationships with reputed global apparel retailers in North America and Europe, recurring orders and steady increase in wallet share with key customers. The company has a strong business profile, marked by presence across the manufacturing value chain and posted revenue from operations expected to go by more than 60% in fiscal 2025 in comparison to fiscal 2024 mainly supported by incremental volumes in the standalone business of GEL and incremental revenues from the acquired entities. Despite uncertainty in the market due to US tariffs, the overall business risk profile is expected to remain stable for GEL. However overall profitability impact due to introduction of new tariffs against Indian imports in USA and its impact on GEL’s profitability will remain a key monitorable.

 

Comfortable working capital cycle: Gross current assets ranged between 85 and 175 days over the three fiscals ended March 31, 2025, driven by receivables of 20-50 days and inventory of around 104 days. GCAs are likely to be at 130-140 days over the medium term, despite the acquisition, backed by efficient control over inventory and receivables.

 

Well-established customer base and geographical diversification in revenue: GEL has longstanding relationships with its customers and suppliers. Customers include reputed global apparel retailers in North America and Europe. Fashion wear contributed to 48% of sales in fiscal 2024, as compared to 46% in fiscal 2023, followed by outerwear (26%) and bottom wear (16%). Over 90% of revenue came from exports, with Northern America accounting for 84%, followed by Asia at 11%. The complementary product, customer and geographic profiles of the Atraco group and MCPL, diversity in geographical reach and clientele will support the overall business risk profile.

 

Strong financial risk profile: The capital structure is aided by a limited reliance on external debt and strong networth.  Expected gearing though is likely to remain below 0.8 time as on March 31, 2025 and the same is expected to improve over the medium term. Debt protection metrics are also comfortable, with expected interest coverage and net cash accrual to total debt (NCATD) ratios at 5 times and 0.4 times, respectively, for fiscal 2025. The metrics are likely to remain strong over the medium term.

 

Weaknesses:

Presence in a highly fragmented industry: The industry is highly competitive, marked by presence of several large and mid-sized players. Such fragmentation limits the pricing flexibility and bargaining power of players. Threat from large integrated players, in the form of capacity additions, also curtails growth. Moderate entry barriers and complexity of operations have attracted innumerable entities to the textile exports business.

 

Vulnerability of operating margin to US tariffs and forex rates: As the group derives bulk of revenue from the international market, any sharp unfavorable fluctuation in forex rates can adversely affect realisations and accrual. Hence, operating margin remains susceptible to fluctuations in forex rates.

Liquidity: Strong

Bank limit of Rs 366 crore was utilised negligibly, at around 10.57% in the last 12 months ended Jan'25. Net cash accrual of Rs 213 crore was reported for fiscal 2024, against nominal debt obligation. The group had unencumbered cash and liquid assets worth more than Rs 407 crore as on December 31, 2024. However, considering the borrowing levels of the other entities, the net debt of the group is expected at 140 to 150 crore. Low leverage, large net cash accrual, available cushion in the bank limit and unencumbered cash and liquid assets support liquidity.

Outlook: Stable

Crisil Ratings believes the overall credit profile of GEL should improve, backed by inherent strength in business and synergies from the acquisitions concluded recently.

Rating sensitivity factors

Upward factors

• Improvement in scale of operation and operating profitability sustained at over 10% percent resulting in larger accruals.
• Sustenance of financial and liquidity risk profile.
• Stabilization of acquired entities over the medium term.

 

Downward factors

• Substantial revenue de-growth or operating margins less than 7%
• Higher reliance on external debt to fund capex or acquisitions, exerting pressure on the financial risk profile, with expected debt to Ebidta of above 1.5 times.

About the Company

GEL was formed as a partnership firm by Mr Jhamandas H Hinduja in 1978 and converted into a public limited company in 2004. The company manufactures and exports readymade garments for men, women, and children, and caters to several leading international fashion brands and retailers. In fiscal 2018, Clear Wealth Consultancy Services LLP, led by Mr Mathew Cyriac, acquired a 39.94% stake in the company, from Blackstone FP Capital Partners (Mauritius) VB Subsidiary Ltd. The latter holds 10.09% stake in the company. The company has more than 30 manufacturing facilities in and around Bangalore.

Any other information: Not Applicable