Gokaldas Exports Ltd (NSE: GOKEX) Q1 2026 Earnings Call dated Aug. 06, 2025
Corporate Participants:
Unidentified Speaker
Diwakar Pingle — Investor Relations
Sivaramakrishnan Ganapathi — Vice-Chairman and Managing Director
A Sathyamurthy — Chief Financial Officer
A Sathyamurthy — Chief Financial Officer
Analysts:
Unidentified Participant
Jignesh Kamani — Analyst
Monish Ghodke — Analyst
Raman KV — Analyst
Vishal Mehta — Analyst
Kaustubh Pawaskar — Analyst
Bhavya Gandhi — Analyst
Prerna Jhunjhunwala — Analyst
V.P. Rajesh — Analyst
Pulkit Singhal — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Q1 FY26 earnings conference call of Gokal Das Exports Ltd. As a reminder, all participant lines will be in the listen only mode and and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Start 100 on your Touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Devakar Pingle from EY. Thank you. And over to you sir.
Diwakar Pingle — Investor Relations
Thank you. Monav. Good morning to all the participants in this call. Before we proceed to the call, let me remind you that the discussion may contain forward looking statements that may know known or unknown risks, uncertainties and other factors. It must be viewed in conjunction with a business that could cause future results, performance or achievement to differ significantly from what is expressed or implied by such forward looking statements. Please note that we have made the results in the presentation and the same are also available on the company’s website. In case you have not received the same, you can write to us and we’ll be happy to send the same over to you to take us through the results and answer your questions.
Today we have the top management of Gokulath Exports Ltd. Represented by Mr. Shiva Ganpati, Vice Chairman and Managing Director and Mr. Satyamurthy, the Chief Financial Officer. We’ll start the call with a brief overview recorder gone past and then conduct the Q and A session. With that said, I’ll now hand over the call to Shiva. Over to you Shubh.
Sivaramakrishnan Ganapathi — Vice-Chairman and Managing Director
Thank you Devakar. Good morning everyone. Happy to have you at our earnings call for the first quarter of FY26, the company registered a strong path growth of 53% delivering 41 crores for the quarter and improved its operating margin by 3.3% on a YoY basis supported by productivity gains, cost management efforts, et cetera. The EBITDA margin stood at about 12.1% compared to 8.8% for the previous quarter. Same quarter last year, the profit was bolstered by receipt of some investment incentives but was also hit sizeably on account of customer discounts related to tariffs. In this quarter, the company reported a moderate income growth, total income growth of 4% as the period was impacted by tariff led uncertainty.
Total income excluding both the acquired entities reported a 20% YoY growth while Indian apparel exports during the same period grew by about 9%. The US retail market remained resilient. In the first half of 2025 calendar year. During this period, retail sales in US grew by about 5% while in the UK it grew by 6%. Most of the growth has been volume led while price has been flat. Retailers have already optimized their inventory holding levels and need goods for the seasons ahead. Apparel imports in the first five months of the calendar year across the US EU UK increased between 7 and 12%.
The recently revised reciprocal tariffs imposed by the US on India is expected to pose a challenge in the second half of this financial year as most of our order bookings for the second quarter are already closed. Brands are cautious and want to know the tariff impact on various geographies for committing their orders. India has a large export business of $16 million per annum. It’s impossible for any brand to find alternative solutions for this volume elsewhere. In the short run. A clarity on the tariff imposed on India over the next few months will allow this churn to settle.
In the meanwhile, a higher tariff from August across all regions would impact business volumes in the short run. As you are aware, most of the countries which export apparel, barring China and India are tariffed at about 20%, so that would have a potential inflationary impact in the market and could impact business volumes going forward. Brand strategies to address this remains to be seen. That said, any positive outcome on the U S India trade deal might provide a respite amidst these challenges. Our Africa business might be at an advantageous position with 10% US reciprocal tariff on both Kenya and Ethiopia and we are working towards an active engagement with our clients there.
We are combating these issues by focusing on cost optimization and better productivity gains across the group. Further, we are in dialogue with all customers to explore ways to manage the cost of goods for them. Our strategic investments in BTPL fabric processing units strengthens vertical integration into fabric requirements enabling faster, higher quality and cost efficient deliveries. This may also have the ability or bringing the ability to improve our margins going forward. In the longer term, Sourcing diversification is a key theme for all customers and India remains one of the top contenders amongst its Asian peers. The recently announced India UK FTA offers a 12% duty advantage over China and puts India on par with Bangladesh, creating a strong export potential.
India is also negotiating with EU for an FTA which has a strong ability to expand the industry in India. In anticipation we are stepping up our European business. Our share in Q1FY26 has increased to over 13% from a 9% average in FY25. We are actively engaging with customers in EU and UK to diversify. We are closely working with all watching all the macro developments and are ensuring that we have the ability to respond to situations decisively and effectively. I thank you for listening and would be happy to address questions that you may have.
Questions and Answers:
operator
Thank you very much sir. We will now begin the question and answer session. Anyone who wishes to ask a question you may press star and one on your touch. Don’t telephone. If you wish to remove yourself from the question queue you may press star and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. Foreign. We have a first question from line of Rehan Sayed from Triantra Asset managers. Please go ahead.
Unidentified Participant
Yeah, good morning to everyone and thank you for giving me the opportunity I have. I want some more clarification regarding. First. On the utilization side, what is the current utilization level across facilities including the new Chapura unit? Are we planning any fresh capacity additions in ASAC holties for this plant, sir?
Sivaramakrishnan Ganapathi
Okay, so if I look at the utilization levels for the first quarter, utilizations in India are well in the 90s and and in Africa we would be closer to about 80%. And we are adding capacity in India where we are bringing up three factories. They will all come up in third quarter. One in Bhopal where we are adding the second factory. The first factory is fully utilized and we are seeking incremental capacity by adding one more unit in the same campus. There is. We are adding one more factory in Karnataka in a place called Kolar Gold Skills.
And there’s yet another nick factory, a small one which will be starting in Ranchi. So these are capacities that we have talked about previously as well and they have been work in progress and would come on stream somewhere during the third quarter of this financial year. We are also expanding in Africa by adding another 500 machines in one of our existing facilities where there is a spot for further expansion. We are seeing the business traction for that starting Q3 in Africa. So we’ve commenced that expansion process which will get concluded by Q2. It’s a brownfield expansion within the same factory premises and I think for now we would stop CAPEX expenses visa expansion.
These are expansions which were started much earlier. We will wait and watch and see how all of this tariff and geopolitical situations play out before taking further capital investment decisions.
Unidentified Participant
Okay sir, thank you for so much clarification regarding this. And second question is on the pnl your employee cost has been a substantial increase in these quarters. Is it due to ramp up in new facilities For a wage inflation, should we expect this trend to sustain funding or there should be more data on this.
Sivaramakrishnan Ganapathi
So every April there is a reset of minimum wage and we had a minimum wage growth of 5% in the month of April based on EPI. So the wage inflation bakes in that component. We’ve also increased our headcount by over 1200 people which has also resulted in the wage increase in anticipation of volume growth. So all of this has contributed to incremental. I think this, this would be the, the norm for the rest of the financial year. I don’t think you, you need to make in further increases. This will be the level at which we will operate by and large.
Unidentified Participant
Okay sir. Okay. I can like one more question regarding the outlook for quarter two. Like what is the output of quarter two in terms of seasonality and execution timelines for current orders as per seeing the like, is there any delay you’re facing in the coming quarters for executing the order?
Jignesh Kamani
So quarter two for Indian apparel industries usually a lean season. But given that we have, you know, all the orders booked for quarter two, as I had indicated in my previous quarter’s earnings call as well, we have had to do some burden share on tariff for quarter two as well. So you know, from an order booking perspective, while we are in a good position there are some, there would be some challenges just like quarter one on margins on account of customer discounts that we had agreed for absorbing some of the tariff increases. So we would see some dip in our Africa operations as well as matrix operations which we had acquired earlier because for them also it’s a seasonal dip in Q2 but it should not be much, it should be marginal.
I would say we would say most likely the volumes and the top line would come in line with the current levels by and large. So Q2 is not a source of worry for us. We have to still see how all the tariff will impact the quarters ahead because those are work in progress as we speak.
operator
Thank you sir. Ladies and gentlemen, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. We have our next question from the line of Jignesh Kamani from Nippon Mutual Fund. Please go ahead.
Jignesh Kamani
Yeah hi Siva and team just want to know on the BTPL side how is your experience on the ramping up tripping issue or say on that part and thing and second thing on the funding part. So if you take about we acquire almost 16 stake which if I do a value of close to 343 crore the company, while we wanted to, we earlier had. The total cost will be close to around 580 crore. So how much is the now revised estimate on the estimated and how is the planning to fund it? Because earlier SO two was we did a pip in passion.
We might need take additional debt considering current situation where the margin revenue might get some impacted. So any fresh look on the funding part whether we are comfortable taking additional debt or not.
Sivaramakrishnan Ganapathi
Okay, thank you Djanesh. As far as BTPL performance is concerned, it has been steadily improving performance over the quarters since our acquisition. We have seen a substantial progress as far as BTPL’s quality of goods produced, its internal processes as well as its profitability. So we’ve seen the business team there deliver a fairly strong performance which actually encouraged us to consider going forward with starting an acquisition or initiating an amalgamation process. So that’s where we stand at the moment. We will be taking that decision really very soon. Now if we go ahead with this transaction, our intention is to acquire the balance of the company, our equity.
We may have to pay cash to the extent of about 70 crores to buy and I think we have paid that already. And the rest we intend paying about 490 crores. It’s coming well within the 588 crores that we had announced earlier. Our intention is not to fund it through further net raising. We have the finances available to manage it and largely it will be acquired by offering equity to the current shareholders rather than pay them in cash. So that’s the intention. We want to not raise our debt level from where we are and would like to conserve cash for the business.
Jignesh Kamani
Sure. And second question on the margin front we have a 9 crore kind of export capital incentive from the ACME unit. So it was for the particular quarter only or because of the past two or three years. And what kind of run rate will be sustainable in future.
Sivaramakrishnan Ganapathi
So it was for the previous year, it was for the last one and a half years or two years incentive which came with a phase lag. From there going forward we should see, we should secure this for another 4, 4 years or another 5 years at the rate of about 4 crores a year.
Jignesh Kamani
Okay, thanks a lot and all the best.
operator
Thank you. We have our next question from the lineup. Mohnish Khorke from HDFC Mutual Fund. Please go ahead.
Monish Ghodke
Hello. Thank you for the opportunity. Sir, I have a question on BTPL acquisition. So given the capacity which BTPL has in terms of fabric, it’s, you know, it’s very outsized as far as Our fabric requirements are concerned and the return ratios of fabric business are also not that attractive. And it also, you know, captures, you know, it also restricts our capital to. Further invest in garmenting. So is there any relook on this or what is the strategy here currently?
Sivaramakrishnan Ganapathi
See, once we grow to a certain size, having fabric allows us to further enhance the growth of our apparel business. A vertical integration allows us faster turnaround, allows us access to business which otherwise or hitherto we would not be able to take. It improve our downstream margins as well as we have a vertical play. So there are certain advantages on the business side to having a fabric unit. We can also align the fabric unit output to our garment production thereby maximizing the potential of the fabric unit. The way I see the fabric unit at its peak of operations, we should be far in excess of 12% EBITDA margin when we operate.
And I think we should be probably 13, 14% there. We have acquired it for a reasonable cost. So we see that the return metrics are also good for a unit of that size, which we will get. There are several other strategic benefits that we could, you know, we could see with this unit going forward. So it’s a strategic call. It also makes sense financially, which is why we intend going forward.
Monish Ghodke
Okay. Okay. Thank you sir.
Sivaramakrishnan Ganapathi
You’re welcome.
operator
Thank you. We have our next question from the line of Raman from Sequence Investments. Please go ahead.
Raman KV
Thank you sir for allowing me to ask the question. So my question is with respect to BTPL as well. So I just want to understand what is the current utilization of the BTPL facility and how much increment once if, if the acquisition is completed by the end of this financial year, how much incremental EBITDA and PAD will it add to our existing EBITDA and numbers from the following year?
Sivaramakrishnan Ganapathi
So currently we are operating between 40 and 50% of its capacity utilization. Its capacity is 400,000 meters a day. And currently we are operating at about 1.8 lakhs to 2 lakh meters a day. Capacity utilization. This is somewhat of a lean season for the fabric mills. I anticipate it going to about 60 to 65% utilization by October of this year. And then eventually I think by early next financial year we would be closer to 90% capacity utilization. That’s the trajectory that we are working towards at full capacity. We anticipate the revenue to be of the order of 1800 crores with an EBITDA in excess of 200 crores coming from that unit.
Keep in mind that to the extent that the fabric is consumed internally, which our intention is to consume at least 35% of it. There will be a revenue which will get knocked off internally because it will be an internal consumption. And proportionately EBITDA will also. The EBITDA will anyway flow to the business down the line.
Raman KV
Thank you, sir.
operator
Thank you. We have our next question from the line of Vishal Mehta from IIFL Capital. Please go ahead.
Vishal Mehta
Yeah, hi. Thank you for the opportunity. So my first question is that you mentioned in your presentation and release that the company revenues xof acquisitions have grown 20% y OI which implies that your acquisitions have actually declined, you know, 20 more than 20% yoy. So why would there be such a decline in acquisitions? And also if you can provide, you know, EBITDA and volume numbers, you know, including an ex of acquisitions.
Sivaramakrishnan Ganapathi
So, you know, quite entities have not declined by more than 20%. It has declined because the overall growth has been 4% while the Earthwild active grown up of 20%. One of the reasons is that when we acquired Atraco last year, you know, we had a strike in the fourth quarter of FY23. I’m sorry, FY24. And lot of those goods got held up and bunched up and then dispatched in first quarter of FY25. So there was an artificial inflation of revenue in that unit for the first quarter of FY25. So that is the reason why you will see a dip in the revenue.
What has happened this year is somewhat of a steady state revenue. So that has distorted the acquired entities revenue growth. On the contrary, the acquired entities have. Have actually improved their EBITDA margin and their EBITDA margins have also. Their EBITDA margins are growing y o wide by the extent of about 2.2.5%. So there has been a considerable progress that we have made in the operating performance of these acquired entities and we are confident that that trajectory will continue in the quarters ahead.
Vishal Mehta
Okay, so can you provide EBITDA and volumes including X of equations?
Sivaramakrishnan Ganapathi
I’ll just get back to you. Give me, give me a few moments. I’ll just pull that out and let you know.
Vishal Mehta
Sure. My second question till then was if you can elaborate on, you know, what has been the tariff impact in the current quarter and whether, you know, that has actually resulted in declining ASP or it has come as a separate customer claims in expense line item. And how do you see this going forward?
Sivaramakrishnan Ganapathi
So just to answer your previous question, our EBITDA is our revenue from acquired entities was 282 crore and EBITDA was 11%. Coming back to the question that you raised of the customer claims. Satya, you want to answer that question? The customer claims during the quarter we had almost close to about 15 crores. Is the total climb what we have got? And we have taken the hit. But how did you account for it? That is adjusted against the revenue because it’s a drop in the real estate. They were raised as a debit note and it has been adjusted against.
Vishal Mehta
Okay. Okay, fair enough. Thanks. Thanks for that.
Sivaramakrishnan Ganapathi
One of the reason why the revenue has come down by almost 50 crores.
Vishal Mehta
Okay, got it. Thanks.
operator
Thank you. We have our next question from the line of Anand S from Avendus Park. Please go ahead.
Unidentified Participant
Hello, sir. Thank you. This is Sundar from Avende. So a couple of questions. Just continuing as to where Vishal left. The first point is that we’d indicated last quarter that direct impact would be felt more in terms of margins. But as for the explanation, I understand it is having an impact in terms of revenues. Is the understanding right, sir?
Sivaramakrishnan Ganapathi
No, it is not. It has also hit the margin.
Unidentified Participant
Okay, absolute might be down but margins will look optically higher given that the numerator denominator effect will play out here.
Sivaramakrishnan Ganapathi
No, sir. So when numerator and denominator get hit by the same amount, the margin two gets hit. Right. So. Right.
Unidentified Participant
We take that in. So the second question here is in terms of what should we look at the new levels of margin? Because see, if I were to do the average tariff that has been imposed by us on about the top seven, eight countries that they import from, it’s been to the tune of somewhere between 22 to 25%. Right now with this being as a regard and with most of the retailers also indicating that they might have to take a price increase which on a 3.3.5x markup might work out to be. About. What is the sort of meaning that you’re taking from the market is that even if India gets to a lower number one, how long will the demand impact from the US Market overall? Second one is that should we take in that the margin recent that has happened this quarter has a permanent effect that nobody’s going to be below 10%.
Sivaramakrishnan Ganapathi
Okay. So I don’t see this as a permanent impact or margin impact. So let’s understand this. Right? So the average tariff for most of these large exporting countries and I’m keeping aside China for Now is about 20%. India may come at 25%. China is at 30%. Let’s see where all of these finally land up. So that’s the kind of tariff that has been imposed on apparel products. Since apparel is also marked up by 3x, the impact that the end consumer will face will be to the extent of a third of it. So if it’s 20% then we are talking of about 7%, 8% plus some additional carrying cost and inventory costs etc.
So we can add a little bit on account of that as well. But that’s enough incremental tariff impact related inflationary impact that the market will face. You should also see how the budget of US government, the biggest beautiful budget, which is also put in, you know, which has also been fairly advantageous for many U.S. citizens. So you know, there could be some extra tax breaks that many will get, etc. Which may put some more disposable incomes in the hands of US consumers too. So we need to see how all of this will play out in terms of, you know, buying buying patterns over the quarters ahead.
Now in the third quarter we will be producing for spring 26 and the fourth quarter we will be producing for summer 26. If you look at summer 26, it’s almost a year away from now. My sense is that the tariff narrative will move on to something else in the US I mean world is only talking about tariffs today and I guess more and more people will adjust themselves to to tariff and tariff related inflation by then most baked it in in the form of pricing or reduced the value of the product by de specking the garment.
So there are many ways in which you can still hold on to the price or pass on the price increase to the consumer by shrinkflation or price increases or a combination of both. And all of that is happening in the market as we speak. So there are active considerations by all brands in all these areas. If you look at the luxury brands or the affordable luxury brands also they have already passed on the price increases or have started doing so. All of those big box retailers, typical fast fashion brands, have held back yet and I think post the holiday season, which is this Christmas, they will also start either deep pecking or shrinkflation or increase the pricing and eventually my assessment is that it could get passed on back to the customer.
So long story short, the tariff impact on margins may go away from sometimes, you know, next year. So you know, while I’m still saying that, you know, Q3 and Q4, we may have to absorb some amount of tariff since the tariff component is strong, you know, I mean an end user price increase of 8% will be very high so my sense is if we get passed on eventually and then, you know, from next financial year onwards, we should see less and less impact of this on the supply chain.
Unidentified Participant
Just a follow up to that is that even when there was a 10% base rate announced, we had few brands coming back in terms of RPG manufacturers, some part of the tariff now that the number has been much higher. Have brands come back? What is their inventory policy correct now and how are they absorbing the tariffs in the meanwhile, at least for the next six to nine months.
Sivaramakrishnan Ganapathi
So the new tariff thing, when there was a 10% tariff in growth in April, there was no appetite to pass on the cost back to the consumers. You are well aware that there was a lot of movement in the US not to pass on the price increases to the consumer to ensure that tariff is not inflationary for their customer and the supply chain has to bear it. So largely the 10% impact got borne by the supply chain, including the retailers. And there was also an uncertainty as to what will be the eventual tariff. So initially the supply chain absorbed, which is how usually it happens.
And now that this whole number has ratcheted up to 20%, that’s a very high number for the supply chain to absorb. So there is a good chance that the brands will have to re strategise as to how they want to deal with it. At the moment, since this is early news, most of the brands have not come back with a clear idea of how do they want to absorb it, how much do they want to pass back, how much do they want to combat through shrinkflation and so on and so forth. So we will have to see how this unfolds over this forthcoming season.
Most of the brands had held back spring order placements in anticipation of understanding the tariff. Clearly, now that most of the tariff elements have come through, the order placements have started flowing in. For now, we are still in discussion with them as to how they propose to absorb. There is a limited appetite in the supply chain to absorb any further margins to defray the tariff cost. So clearly brands will have to find their own strategies to adopt and there are several. So I think those will we will come to know going forward, I guess.
operator
Thank you sir. Sundar, we will request you to rejoin the queue. As a reminder, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. We have a next question from the line of Costa Pavaskar from ICICI Securities. Please go ahead.
Kaustubh Pawaskar
Yeah, thanks for giving me the opportunity. So my question is on the Africa, you know, business or ataco there. Currently we are under Africa Growth Opportunity act where we are having a free trade agreement with us. This is likely to end this year and then under the new tariff region we have to pay 10% tank both in Kenya and Ethiopia.
Sivaramakrishnan Ganapathi
Okay, but this 10% tariff is lesser.
Kaustubh Pawaskar
Than what the other Asian countries, you know, have in the range of 20 to 30%. So just wanted to understand, considering this as an opportunity for us, it is fair to assume that most of our. US exports will happen from the Africa regions. Considering, you know, the tariff rate is 10% over there and there we will scaling up the capacity largely to cater to the US market and whatever opportunity we are, you know, expecting in UK Europe will cater through the Indian, you know, capacities, whatever we have. So I was just thinking from that perspective.
Sivaramakrishnan Ganapathi
Okay, so one of the reasons why we acquired this entity in Africa is actually to provide a diversity of production base to insulate ourselves from vagaries in geopolitics, increase in cost in different regions, et cetera, et cetera. So even within India we are highly diversified and we have operations across six states. So that state level minimum wage increases, etc. We are reasonably insulated and I think our geographical diversification as a strategy will continue. If you look at Africa, the AGOA act expires in September 2025. Usually they extend it by 10 years, but this year so far the administration has put a hold on AGOA increase which was internally approved by almost all the departments within the United States because they want to cultivate Africa for strategic reasons.
So there is still a jury which is out as far as the extension of AGOA is concerned. There are efforts being made to extend AGOA at least for a couple of years, which will allow United States to enter into free trade agreements with respect to countries. There’s also a dialogue going on with Kenya for a free trade agreement. And Kenya and Africa have a special. Kenya and America have a special relationship, especially among the non NATO nations. It’s a favored kind of relationship that Kenya has with America. That said, we are working on an assumption that AGOA will go away.
If it comes in, it will be a bonus and we will only get to know sometime in the month of September as to what will happen to agoa. Notwithstanding that Kenya and Ethiopia have a lower tariff visa the other countries. So that continues to bestow those countries an advantageous position as far as tariff is concerned. Given that we’ve already talked to several customers of ours and have encouraged them to go and seek applications, production Simultaneously, we are strengthening our Africa production through further efficiency improvements as well as capacity additions. We see the traction for our Africa business increasing from the third and the fourth quarter because we are seeing a huge amount of inquiries for that region, proper production from that region, from American customers.
So it’s clearly in anticipation of a lower tariff and a tax tariff arbitrage that is available there. So I feel confident that if we take a 3, 4, 5 year viewpoint, the contribution of Africa may be more substantial and it will grow at a faster rate than our region. Perhaps. But as of now, despite agoa, I can see that Africa will enjoy its added benefits. If AGOA comes in, there will be an added attractiveness.
Kaustubh Pawaskar
Thanks for understanding. So my second question is on the opportunity in uk, because you alluded to the point in your earlier comments that now your EU contribution is increasing and it has gone up to 13%. So considering UK FTA trade deal, you know, what kind of opportunity you foresee going ahead and you know, whether that again provide you an opportunity of diversification in terms of your revenue mix. Because currently US is, you know, higher contributing region for you. So over the next, I’m not saying. Immediately, but over the next four to five years, can we expect this geographical. Mix to improve with us, sorry, uk, Europe and some other geographies contributing, you know, higher to your revenue mix?
Sivaramakrishnan Ganapathi
100%. So just to clarify, when I said average FY25 European revenue for US was 9% and Q1 FY26 was 13, actually 13.4%. The reason is that I included Europe as in the EU 27/ UK. When I said Europe I included all of the continents. So UK is very much part of it. And UK based customers are growing very fast for us as well. So if I look at some of the customers that we work with out of uk, we are seeing a strong growth, almost like of course of a smaller base, but growth of the order of 80%.
One of the European customers is growing almost at 90%. So we are actually stepping up growth of some of those customers because strategically we are diversifying back into Europe. Historically it was a conscious choice for us to go more and more US heavy because it was a large homogenous market. We were not competing with Bangladesh which was going beauty free to Europe. So it made sense for us to be more US centric. Now we are re making ourselves going forward and stepping up our business with European customers. It’s a work in progress. It will take time, but we are trying to speed up as much as possible just to de Risk ourselves from any of these tariff related uncertainties.
Diversify the market to the best extent we could.
operator
Thank you sir. Kaustov, we would request you to rejoin the queue. We have a next question from the line of Bhavya Gandhi from Dalal and Broker Stockbroking. Please go ahead.
Bhavya Gandhi
Yeah, thanks for the opportunity. Sir, Is it possible to say the current ROC for the acquired entities and two, three years hence what should be the ROCE that one should look at? And even for the SOF acquired entities what is the current ROCE and what. Be the expected ROC? And similarly for BT Bombay on as well.
Sivaramakrishnan Ganapathi
So current ROC together is about 12% and if you ask me this is FY26. So if you ask me if. I’m sorry acquired entities ROC is 12% sorry acquired entities ROC is 12%. But if you look at the combined group ROCE for. For ourselves say in two years, say FY28 we should be closer to 16, 17% by that period. We would like to do it even higher than that but that’s the trajectory that we are looking at by that period.
Bhavya Gandhi
And for Bombay Rayon, what is the expectation current as well as when I.
Sivaramakrishnan Ganapathi
Say 1617, I’m including Bombay Rayon coming in by FY27. So when I say FY28 I have already included that in my. In my assumption. Yeah.
Bhavya Gandhi
And just wanted to understand on the gross margin front, we’ve seen 500 basis point improvement. This is substantial. What has led to this improvement barring the acquired entities? Is there any other reason or if you can throw some light on that as well?
Sivaramakrishnan Ganapathi
No, it is primarily on account of the product mix what we explained. It is a material component and the employees labor cost component. You should look at it together. The last quarter in Q1, last year it was in Atraco the material component was pretty high based on the product mix. What they were doing that has come down with our intervention and with the margin improvements we have brought it down. That’s why you see the average coming down. So when you look both employee cost as well as the material component we are at around 78 to 79% and that’s how we should look at it.
But at a gross margin level it is primarily on account of the product mix what you see.
Bhavya Gandhi
Fair enough sir. Is it possible to guide on a full year what is the revenue that we are targeting? And EBITDA I know there are new.
Sivaramakrishnan Ganapathi
CAPEX coming from Q3 plus some tariffs. Sharing that we are looking at least if you can quantify the tax tariff. Sharing number at least. So if that 7, 8% is the incremental cost to the end consumer, what sort of burden can we expect on our books? Because we will be squeezing our raw material suppliers as well.
Bhavya Gandhi
So net what should be the impact?
Sivaramakrishnan Ganapathi
So we don’t provide guidance. You know, we are in volatile waters but we are, you know, very, very smartly navigating some of those. As far as burden tariff, burden management, the worst case, you know, earlier we had clearly restricted it to H1 only with no impact on H2. But now that a fairly steep tariff increase is being proposed and it all.
Sivaramakrishnan Ganapathi
Depends on, at the moment it looks like 25%. We don’t even know whether it’s going. To go up, go down, etc. So it’s a bit hard for us to place a number. But my sense is that the burden that was placed on us in H1 could probably extend itself to H2 as well, which is about 2% to 2.5% of our revenue. But that’s where most likely we will end up with. I don’t think large bulk of this tariff can be absorbed by the supply chain, whether it is by us or our fabric supplier or yarn suppliers. So it’s going to be difficult. Yeah, you know that all this will play out over the next several days.
Bhavya Gandhi
Thank you so much. Thank you so much. That’s it for.
operator
Thank you. Very minded to all participants, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. We have our next question from liner Prerna Jhunjanwala from Elara Capital. Please go ahead.
Prerna Jhunjhunwala
Thank you for the opportunity. The first question is on capacity. Given that you have restricted any further announcements of incapacity addition, would like to know post this expansion what will be our capacity, what will be revenue generation capacity of the total company and what kind of volume impact are we forcing that we are halting and further announcements.
Sivaramakrishnan Ganapathi
So the revenue generation capacity of the Indian expansion will be to the tune of 400 crores per annum. And the African expansion would be to the tune of about 100 crores per annum. So that’s about 500 crores. So this is the expense. The expansion which is already underway, that’s the reference that can come by. We also have usually a 3 to 4% productivity increase yoy on all our existing factories thanks to automation, improved process etc. So that benefit will also kick in in terms of incremental capacity which we will unlock from our existing facilities. Right.
So that’s an easy math. You can do on a base of about 3,500 or 3,000 4,000 crore crores. 3% is also another about 100 crores, 120 crores that we will get. So that’s the kind of growth, capacity growth that we’ve already baked into the system and rest we will wait and see how to plan based on tariff and other as well as the FTAs with UK once it kicks in early next year and EU FDA which is work in progress. So we look at all of these and then take further calls on further CAPEX expansion.
We do have a strategic plan on CAPEX expansion. We just put it on hold. We have several opportunities in our hand and we will take a call on some of those options as we go forward. Looking at the, at the you know, market conditions.
Prerna Jhunjhunwala
Sir, in my second question is on BTE BRFL acquisition, just wanted to understand what is the incremental cash outflow that will have to be done for full acquisition of the facility.
Sivaramakrishnan Ganapathi
We have already paid around 73 crores for the equity purchase including the one which we have communicated Yesterday and another 400 approximate another 490 crores is the total requirement which we may have to pay to complete the transaction. But how much is the cash? The cash component we expect around not more than 70, 70, 75 crores approximately. But these are subject to the scheme and whatever we work it out. So it’s work in progress but you know we, we intend to keep it to as low as possible and the rest in equity.
Prerna Jhunjhunwala
Understood sir. So just total acquisition cost will be around 500 or 600 odd crores.
Sivaramakrishnan Ganapathi
That is 550 crores or something. 560 crores.
Prerna Jhunjhunwala
Okay, thank you.
Sivaramakrishnan Ganapathi
Earlier we had projected a 588. It’s come coming down to about 560.
Prerna Jhunjhunwala
Okay, understood. Thank you and all the best.
operator
Thank you. We have our next question from the line of VP Rajesh from Banyan Capital Advisors. Please go ahead.
V.P. Rajesh
Hello. Am I audible?
Sivaramakrishnan Ganapathi
Yes you are Rajesh.
V.P. Rajesh
Hi. Hi Shiva. So my two questions are one, you know you were talking about that Most of the 10% hype was absorbed by the supply chain. So if you can just break it down further as to what went into the fabric versus the spinning guys versus you that would be helpful.
Sivaramakrishnan Ganapathi
So at a broad level, so it all varied from customer to customer. So if I have to average across all customers because that’s the best way to look at it at the moment it will be 5, 2 and a half. 2 and a half 5% at the retail level 2 and half at the apparel. Level 2 and half at the downstream supply chain. Downstream to apparel. So the fabric and this spinner, everything.
V.P. Rajesh
Yeah, right. And my second question is, and maybe this is too early, but as you see, assuming the rates are where they are for the tariffs, is that particular geography that starts becoming more interesting for you to look at to acquire a manufacturing facility or sort of start thinking about greenfield operations.
Sivaramakrishnan Ganapathi
For us, you know, if you look at greenfield or ground, I mean incremental expansion, etc. You know, prior to this round of 25% tariffs, India was looking extremely attractive. You know, and why I’m saying this is, you know, all of this currently are. There are strong positions being taken on both sides, but we still have to wait where the tariff ends because even a month ago we were hoping that our tariff would land at about 15% as opposed to the rest of the world which would be at around 20%. So we were to have been in an advantageous position.
This was a week ago or 10 days ago position. So I still feel India is still an attractive geography, but let’s wait and watch to see where we land. So from a future perspective, I wouldn’t rule out Bangladesh. I would certainly keep Africa and several other countries, including Egypt in the equation for future growth. Central America is not a bad deal, but there are a lot of constraints and lot of countries which are not doing well or have high cost of operations. So we are covering the world for future possibilities and operations. We have even done some amount of groundwork on some of these things.
But let’s see how tariffs will upend everything as it has got a distortionary impact on relative country advantages. So we’ll wait to see how that settles down. In the meanwhile, as far as Europe is concerned, Europe and UK is concerned, India is becoming very attractive. So India will continue to be a focus area for us.
V.P. Rajesh
Right. And one quick question. What was the contribution from UK and EU in Q4?
Sivaramakrishnan Ganapathi
I, I let, let me just, just give me a, give me a moment. No, no problem. Q4 is about 11.6.
V.P. Rajesh
I’m sorry, say that number again please.
Sivaramakrishnan Ganapathi
11.6 in Q4 which has gone to 13.4 in Q1.
V.P. Rajesh
Got it, got it. Thank you. And all the best. Thank you.
operator
Thank you. We have our next question from the lineup. Soman Mehta from Kotak amc. Please go ahead.
Unidentified Participant
Yeah, thanks for the opportunity. So, two questions on my side. First in terms of you guided for 500 crore of additional revenues, 400 of which will come from India and 100 from Africa. When do you start a higher utilization? I mean will that be entirely FY27 or part of that will come from second half FY26 onwards?
Sivaramakrishnan Ganapathi
So most of these capacities come on stream in the third quarter of this financial year. Forget most of it, all of it are coming in the third quarter of this financial year. The ramp up will start and I think it will take a year before it yields that revenue. So if I have to reach the 500 crore run rate, I would be probably hitting that in the third quarter of next financial year. That is third quarter FY27, I will be at the run rate of 500 crores. And between this third quarter and next third quarter we will be on a ramp there.
Sivaramakrishnan Ganapathi
Okay. And since the further capex at this point in time you are kind of reevaluating, would it be a fair assumption that FY28 revenues at this point in time will be fairly muted? Obviously things will change, but based on the announcement today, what you have, FY28 can be kind of a weak revenue year for us.
Sivaramakrishnan Ganapathi
I wouldn’t characterize it that way because we have a strong plan for capacity addition. All the plans are with us. It’s just that we are not acting on it. So to be waiting for a month or so to understand how that settles down so that we have absolute clarity. We don’t want to make mistakes in making our capex choices. So we are waiting for clarity on some of these matters. Having said that, there are several ways in which we can address some of the capacity challenges. So apart from setting up greenfield units, which most of these new units are, we with the exception of the African one which is the brownfield.
So in Africa we can continue to do more and more brownfield expansion since we have the capacity growth opportunity there in our existing factories in India we also could look at leasing factories, buying factories, not acquiring, but you know, like just buy a factory and start the facility. So there are several ways in which we can short circuit the process of, of setting up capacities and we are open minded about everything. So we will take a call as we go along. We don’t want to jeopardize FY28 growth. That’s absolutely not the intent and we will be waiting for a few months before we get some clarity.
I feel that three months from now we should be in a much more clearer position as to where the tariffs are, how is it going to impact the business and hence, you know, what’s the growth strategy that we want this year?
Unidentified Participant
Fair point. And my second and Last question to Satya sir, he mentioned about a 15 crore impact which was netted from revenues. So fair to assume adjusted for that the revenues would have been 992 and the adjusted EBITDA would have been about 134.
A Sathyamurthy
Right. Okay. So that gives the mark the normative margins will be 13.5%. Right?
Sivaramakrishnan Ganapathi
Yeah. But then you should also take out that one time 9 crores we got as a capital incentive. Right? For.
Unidentified Participant
Sure, sure, sure. Thank you so much and all the best for subsequent quarters. Thank you.
operator
Thank you. We have our next question from the line of ashish from Invest QPMs. Please go ahead.
Unidentified Participant
Yes, so quite informative call till now. Lot of strategic questions get answered. So sir, just to understand this correctly, if the settlement on the tariff front. Whatever noise has to come and whatever increase will have to happen if it settles down in the next three months, maybe. So should we assume that six months beyond that the whatever absorption on the retailer end and the customer end and. Your and your suppliers and that should.
Sivaramakrishnan Ganapathi
Be a good timeline to understand that. Things get settled down and probably business. Starts coming back to normalcy in terms. Of a real, real year on year. Kind of strategic priority and profitability gets. Reinstated to the current profitability which was there in. So is that a good assumption to make? I feel you know, starting next financial year, you know, all this noise will be behind us. We would, you know, settle down into a new equilibrium and you know, start working forward. These kind of disruptions can’t last that long. So already we are six months into it and maybe this will maybe four, five months into it. It started in April and you know, tariff has been dominating the narrative from April all the way through to mid August now. So I think by the end of this year most of this will settle down at a certain level and starting exponential year we will be clear on how things are where the relative tariff across regions and what, what are the plans to absorb it, how much to pass on to the customer.
See at the end of the day all of this will have to be borne by the system, by the customers. There is only so much the supply chain can absorb either through efficiency or through one time margin hits. So this is all an adjustment process in the interim. But the tariff will get settled by next financial year. But we as gokulnath we are clear that geographical realignment is needed to bring in the ROIs of which are justifiable.
Unidentified Participant
By the business which is turnover, asset terms and the profitability. Based on that the ROIS will be geographically prioritized I mean how you, how. You do business beyond that. Right.
Sivaramakrishnan Ganapathi
I mean I’m just trying to understand. Whether the business comes back to the similar ROIs as we were delivering in. The normalcy before all this started. So the endemic will clearly be that. Right. So we also hope that we will be able to do that. Everything depends on what is the US tariff. Final tariff. Correct. And our ability to ramp up in other non Indian regions which we at least have the potential to Today almost like 20 to 23% revenue comes from Africa where we do have. I do see a good potential going forward. I also see a good potential for EU and UK and I somehow feel that at the end of the day it’s shown up all this big noise.
Eventually the tariff with us will also settle down. So we will get down into that normal rhythm of delivering ROIs etc. From Next Financial year.
Unidentified Participant
One last thing, since we are maybe. 25% tariff now versus maybe Vietnam and Bangladesh. 20%. So if this goes to maybe 30% so how does the meter in terms of India’s unattractiveness increase with this increase in tariffs? If it settles at 25, how are we supposed to compete? Are we competitive enough or if it. Goes to 30% we have very less chance of competing. How does one read into that?
Sivaramakrishnan Ganapathi
So if I look at 25, I would have preferred 20 to 25, 15 to 25, obviously that goes without saying. But 25 is also not that bad because it’s all relative. It’s only 5% higher. It is something that we can deal with. 30% will certainly have certain disadvantage vis a vis some of these countries. So we will have to deal with it. We’ll have to see how do we combat that. How can we further reduce our costs to make our margins more sustainable? Because otherwise there is a possibility that business may look for other businesses destinations.
Even though I would say nobody is looking at increasing further output from Bangladesh simply because of the geopolitical situation there. The cost of labor in Vietnam and all are increasing only so it’s not like you can add further capacity in that region. So I’m not seeing too many options for brands coming out of all of this. So Sino, what will happen if 25 goes to 30? Yeah, I mean the volumes may come down for India, so we may have to realign. How do we see growth at least to the US market. But at 25 I don’t see that disruptive.
At 30 I see it disruptive. We will have to see where it and again depends on how long it sustains there. So we’ll have to see that.
Unidentified Participant
Sure. Thank you so much. Thank you.
Sivaramakrishnan Ganapathi
There’s another factor, I’m sorry, you know, before the next question happens is that how does this impact in consumer demand? Because the 20% which I did allude to, right. Even though it gets somewhat passed on to the customers, there could be some initial phase reaction from consumers slowing down purchases, etc. Some of the retailers may have to contend with. So we will see that retailers like Walmart, etc. May thrive in such a market because they do have sharper pricing, because their product profile is fast. Fashion may also thrive. Little premium product customers may have some challenges, especially with higher price points.
So some amount of those pivoting also, you know, those, those realignments will also have to be done. We’re all working on that.
operator
Thank you, sir. We have our next question from Lionel Sukrit Patan from Eyesight. Can Trade. Please go ahead.
Unidentified Participant
First of all, I would like to congratulate you on doing super business in this harsh conditions also. And my question is, with Q1 revenue growth, with Q1 revenue growth moderating and global demand cycle remaining uneven, how is Goku Das exports positioning itself for structural growth over the next three to five years? And are there specific plans around capacity expansion, client diversification or entry into new product that can, that could drive scale and margin growth? Thank you.
Sivaramakrishnan Ganapathi
Thank you. Thank you. So I’ve answered many of your questions so far. So in the interest of everybody, I don’t want to repeat all of that, but broadly what I’m saying is that look, there are many countries to which we can export to and we will continue to focus on that. There are countries like UK and maybe regions like EU where we may have a future fta. We’ll wait and watch for that. But if that happens, that opens up fairly attractive markets for us to also cater to. Over the next three to five years, our journey of capacity addition in low cost regions will continue.
We also have the ability to produce out of low tariff regions thanks to our diversity outside of India and we will continue to work on that. So we do have the management bandwidth and the ability to expand elsewhere as well. So those are all under active considerations. So we have to look at this as a global business, not just as an India business, India sourced business. We have to look at opportunities all over and we will continue to find opportunities which will allow us to grow and deliver the EBITDA margins for ourselves over the next five years.
So all the strategic investments are aligned with that.
Unidentified Participant
Great, thank you very Much and best of luck for all your future business ventures. Thank you.
operator
Thank you. We have a next question from the line of Shiva Karan Gupta from Equity Capital. Please go ahead.
Unidentified Participant
Hi sir. Actually my question, my question was just around customer discounts. So can you explain like what is the range of customer discounts you’ve taken for the next quarter and for the current quarter and then just probably, you know, with an example if you can help us understand, that’ll be good.
Sivaramakrishnan Ganapathi
So our average. So discounts vary from customer to customer and these discounts are only applicable to US shipments. So our discounts to US shipments are of the order of about 2.5%. So that’s how we have architected it for the second quarter as well. For third and fourth quarter we don’t know yet. My anticipation is earlier anticipation was that we will not pass on any further discounts from the third quarter onwards with the hope and expectation that globally the tariffs will settle down and the end consumers will have to start absorbing from spring 26 onwards because that’s what we will produce from Q3.
But given that the tariff is going up further, there is a possibility that this percentage may well continue into the second half of the year as well. But then we don’t know how it’s going to pan out. Those discussions are yet to happen as these tariff announcements are very new, the 20%, 25% tariffs. So it has to settle down before we have absolute clarity on what are the discounts, if any in Q3. I feel that earlier I was reasonably confident there won’t be any discounts but now I am reasonably confident that there will be discounts given that the, you know, tariffs are coming in higher.
But I guess from the next year onwards they will go away. But in the second half there could be at the moment, if you ask me to hazard, I guess it will be two and a half percent. But it’s as you know, it’s my guess with very limited data points things are, you know, changing every minute. So we will have to see.
Unidentified Participant
Got it sir, thank you for this answer. I have another question. So you said that margins have increased by roughly 300bps, right? 3% and then a customer discount of around 2.5% which is actually 550bps. I just wanted to understand what has led to this roughly five and a half percent of margin expansion.
Sivaramakrishnan Ganapathi
I reiterated there was a 9 crore of capex incentive that we got so you would adjust that. Some of this is coming from our acquired entities better performance. We have been working on improving Their operating performance and that’s on an upward trajectory as we speak. So some of that is flowing through and I think starting second quarter is generally traditionally weak for our industry. But starting third quarter we will start seeing even more of this coming in. All right.
Unidentified Participant
All right, thanks a lot. So I just wanted to mention one more thing. The way you answer questions is really, really good sir. So thank you Lord. Thank you so much for that. Thank you.
operator
Thank you. We have our next question from line of Pulkit Singhal from Dallas Capital Management. Please go ahead.
Pulkit Singhal
Yeah, hi. Thank you for the opportunity. So first question is on BTPL by when do you expect the 1800 crores of turnover and for any incremental, let’s say thousand crores in that entity, how much capex is required?
Sivaramakrishnan Ganapathi
I think BTPL we would expect it in FY28. I would say 1600-1800 FY29 and we’ll probably exceed that but you know, probably expecting it in FY28. What was your second part to that question? How much is the apex required for any let’s say incremental 500 crores in BTP?
A Sathyamurthy
No, to hit 1800 I don’t think we will need more capex than probably, you know, 100 crores. That’s the max we would need answer beyond that. Beyond, beyond 1800? Yes, beyond 1800. You know again depends on for every 500 crore, you know, since it will be all lot of debottle next, brownfield expansion etc etc. My sense is we should be at about 150 odd crores or 200 crores, not more than that.
Pulkit Singhal
Understood. Second question is purely on the capital structure. So far we have funded all these acquisitions through equity and we are keeping net debt at zero. We have close to 2000 crores now of equity on the books. Why are we hesitant on taking any kind of debt? We can easily take 500 crores of debt and still be in well very low leverage ratios and we think can help improve return on equity once we achieve double digit rot.
Sivaramakrishnan Ganapathi
I’d like to differ with you on this Pulkit. We are in geopolitically volatile times and we need to conserve cash during such period. If it were a steady state environment that we are in where we have absolute clarity on the economic environment over the next five years, what do you say makes absolute sense. But in an environment where there is policy announcements which are all over the map, global situations which are way beyond our control, we would rather conserve. We are on a high growth trajectory and we we can always use the excess cash that we have for capital growth because we want to put in capital for growth.
For the moment, we are prioritizing this simply given the volatility that we see in the marketplace.
Pulkit Singhal
Right. So my question was not about the current situation. I think our decision has been like this for the last four years and even for the next three years, whatever clarity emerges, some amount of that can only help improve it.
Sivaramakrishnan Ganapathi
On equity for the last three, four years, I don’t know how you saw it, but I saw volatility written all over the last three years. So we’ve seen the Ukraine war, we have seen post Covid a surge in volume, drop in volume because of excess inventory with our retailers. We have seen supply chain getting frozen because of shipping challenges, we’ve seen under cutting by certain countries and so on and so forth. So there’s been lots of disturbances over the last three years and that’s been one of the reasons why we have been extremely conservative about some of our financing.
So we were very aggressive when it came to growth and when it came to pursuing new opportunities or setting up CapEx, but we were excited, extremely conservative when it came to financing it simply because we saw an extremely volatile world even three years back. And I think that’s playing out even now.
Pulkit Singhal
Sure. I just want the return on capital and equity measures. I mean they’re almost halved.
Sivaramakrishnan Ganapathi
I think there is a. Obviously we would also like to see a return on capital of 20% because that’s an internal goal that we are working with. And I think that the place we will reach probably by end of this decade for sure. Having said that, in a growth phase we have to determine what is the priority. Is ROCE the only priority or should we prioritize growth and let go some of the roce? So even today we have a lot of investments which are not yet contributing to revenue. So now some of the investments in BTPL which you have not even come factored into our top line or because we are not amalgamating that entity.
And as and when we take that final call and go through the process that will come in, we also have a lot of capital work in progresses which are going on. Our nit investments is yet to fully play out, but it will play out over the year. So there are several of those investments which are not yielding returns which are all depressing our roce. But again, it’s a question of prioritizing growth versus roce. The philosophy. I think we’ve taken a stance that look, we will prioritize growth. For now, we see opportunity for growth and when we see an opportunity for growth, we will go for it all out.
It may come at the cost of ROCE in the interim, but we will build back the roce. So it’s not like we’re taking a rise of the ball. It’s a conscious plan to let it slide a bit before we pick it up. While we prioritize other KPIs, all these KPIs don’t move in tandem. Some of them will go up, some of them will move down depending on the positions and strategies we choose. So this is what we have chosen for ourselves and we are hoping that if the tariff thing settles down and we get back into a growth rhythm, we will be building up, building back on roc.
Some of those investments will start playing out and will yield disproportionate profits as well.
operator
Thank you Mr. Pulkit. We’ll request you to rejoin the queue for any follow up questions. We have a next question from the line of Palash Kawali from Noama Wealth. Please go ahead.
Unidentified Participant
Yes, thank you for the opportunity and thank you so much for the detailed answer. Call has been really helpful. So my question is where do you see this contribution from Europe and UK settling down in, let’s say by FY27?
Sivaramakrishnan Ganapathi
Oh, FY27. I would like it to be in the 20s if we can, you know, we can’t dial up that path. So you know, it has to be a progressive effort. We are at about 13%. We should see that growing. I would say in the 20s. Mid 20s will be a great position. In FY27 again, everything depends on how the US tariff comes in. If there is some adversity there, then we will probably do even more. Yes. Is it possible to share the volume breakup of standalone and acquired entities?
A Sathyamurthy
It’s 6.96 million in standalone and 3.7 million in NATRACO matrix is about 2 million total. About 12.6 million is the volume.
Unidentified Participant
Okay, so thank you. Thank you so much. That’s it from myself.
operator
Thank you. We have our next question from the lineup. Yashtana from I thought bms, please go ahead.
Unidentified Participant
Hi sir. Thank you for the opportunity. While a lot has been discussed on the US tariffs, the question is again related to the earlier participants who mentioned that currently we are, let’s say at a 5% higher than the other competing nations. Right. So FY26, you saw that impact and. You will see that impact. But going ahead, does the risk of India being not attractive become A big risk for you as a company and let’s say. Yeah, so that was the first question.
Sivaramakrishnan Ganapathi
Okay, so you know, 20 days back India was the most attractive country and today it looks like an unattractive company. So it’s. If I look at a 2024 calendar year there was a survey done with all the US retailers as to which are the countries where you will expand your sourcing from. This was last year’s survey done by a very credible source and overwhelmingly everybody said they want to step up India sourcing. And Bangladesh came number two. China was negative. They said we will reduce our sourcing. Vietnam was somewhere in the middle and India was the most favored nation from a sourcing standpoint.
So why I’m saying all of this is that things can change on a dime and at the moment tariff looks unattractive. So we have to also see how all these things play out over a period of time. We will have to remain agile over how the situation unfolds and where we will start expanding. I don’t see India’s attractiveness going down. If you ask me, short term there could be various scenarios is playing out. Long term our attractiveness is not changing. We have the labor, we have the capacity, we have the fabric, we have the infrastructure, the ports, etc.
To continue to serve. And $16 billion worth of exports cannot be yanked off and taken elsewhere. You know, that’s too high a number to go to some other country. So I don’t see much changing for India. So it will remain an attractive place. There could be some loss of sheen, so hitting a speed bump and reducing our speed in the interim, but we will have to again catch up the speed going forward. So that is how I see it. However, a prudent strategy demands that we look at more geographies for growth. Which means where else can I look at long term growth? There could be opportunities in Bangladesh we were flirting with it.
We put a stop to it when we saw geopolitical situation going against us. We will wait till some of those elections are played out there. We can look at options in Africa which are all under active consideration. We can look at options in Central America. There are several other options which will come to play. And again we will be open minded about taking some of those options as we go along.
operator
Right sir. But those will be for the incremental capital allocation, right? The current capital allocation that we have already done in India and we have used capacity. How do we plan to utilize that in case the tariffs go above, let’s say the 25% rate.
Sivaramakrishnan Ganapathi
Again, it’s very difficult to say because we are still discussing the hypotheticals. Right. So if the tariff goes to 35%, 40%, 50%, that’s a different story. Right? I mean that makes it pretty much, you know, some of our capacities could be unviable especially in high cost regions like Bangalore. But you know, our capacities in Bhopal for instance, in Ranchi for instance, they are are able to deliver Bangladesh like costs or near Bangladesh like costs. They will remain very competitive even in those scenarios. So it all depends on where India is. We will have to realign some capacities even within India to some of those newer geographies which will yield a better margin to offset higher tariff.
So depends on where the tariff lands. My suspicion is tariff will land at around 20% for everyone which is the average for many of the supplier countries. But again, it’s all a guess at the moment. We will see. We don’t want to do anything in haste. Obviously depending on how the tariffs are, how the cost structures are, we will do some sort of realignment of capacity which then brings its own set of challenges because we met to, you know, bringing on new capacity while realigning some capacity from a high cost region can have certain short term impact.
We’ll go through that as and when we have the need to go through that. We don’t believe that the time has come for that at the moment. Sure. So. Got it. So fair to assume that as a tariff ranging from 20 to 25% for all company or all the nation then fair to assume that we won’t be at a disadvantage. It’s just a speed bump. And as you know, that settles in, we’ll be looking for growth and there’ll be no further problem.
Unidentified Participant
Yes, with a caveat that 20 would be better than 25. You know, it gives, you know, 25 is not as great. But having said that 20 to 25 would. Would be. Would be okay. We can weather it. It’s a speed bump and we will move along.
operator
Thank you sir. Yes. We’ll request you to rejoin the queue for any follow up questions we have. Our next question from line of Vijay from RDL Investments. Please go ahead.
operator
Yeah, Thanks a lot. And thanks a lot for the opportunity and congratulations. Commendable performance in Q1. It is much better than what it could have been in such an environment. My first question is on btpl. So just try to understand that. What is the total capital employed at BTPL when you acquire and then you reach the full capacity? Are you taking over any Debt and what kind of working capital investment eventually it needs when you ramp up the capacity to 90%. That’s question number one. Should we answer that or wait for the next question as well? Yeah, yeah. Okay, so next question is on. I mean one of the largest exporter is China and till now you had a duty disadvantage visa in China. Not disadvantage, but duties were same in US so right now it is at 13. So he has some advantage over China. Does it really help? Because China is the largest exporter and as you mentioned that people want to move out of China. So that itself could be a very humongous volume. And even with 5% GDP differential, can you really amp up your capacity significantly? Maybe in two years time.
Sivaramakrishnan Ganapathi
So China exports about 150 billion. So they are not, they are not a, that’s not a small change. They are pretty large in this business. But a 30% duty in China which is on top of a 20% duty which was imposed on them earlier, which they absorbed. So it’s a high duty structure on China. Having said that, China is an opaque country. There are mechanisms which Chinese companies have to defray some of their costs. They get a lot of support from the, the local governments there to sustain operations. They also prioritize scale quite a bit for their growth and hence their ability or wherewithal to absorb such tariff in the medium run is much higher than Indian companies.
So would China remain a formidable competitor at 30% vis a vis India’s 25% answering right. Chinese companies have a very different economic outlook when it comes to, comes comes to doing business. So, so they, you know, I, I don’t see we are having a large advantage. A 5% advantage can be offset in my, in my opinion with China. If it were, if we were at 20% definitely I would have said that, you know, we have a good advantage over China. So check China will shed. China’s shedding will go to Africa. I’m already seeing lot of Chinese entities setting up shop in Africa and they will start growing in that region just like we would.
I’m also seeing China looking at other Asian countries for growth opportunities even though many of the Asian countries are becoming very expensive. So we will have to see how China pivots at 25. There are still, as you said, you know, with China we will have some advantage in some areas. China’s labor cost is going up now. It’s almost to the extent of $525 versus India is $200. So forget that if we have a labor cost advantage. But there are Some levers which we have too, which we will play to our advantage. And one of the disadvantages we have is that in China is lack of synthetic ecosystem which is one single biggest weakness in India has.
So China today dominates that space. China and Vietnam because they have a synthetic fabric ecosystem. So there are certain advantages. They have certain advantages we have. But the market is large. It’s 500 billion. It’s still growing at about 2 and a half percent CAGR. So every year there’s a good chunk of 1015 billion being added to the market. So there are opportunities coming our way which we should target and grow.
Sivaramakrishnan Ganapathi
Got it. And on BTPL. BTPL, the capital employed is about. Yeah, the BTPL, the total capital employer will be about 1000 to 1050 crores in a steady state with all the investments, what we have planned and including the loans, loan books, what they are carrying at this point of time. Okay. And that includes the working capital. Yes. And just last small. So when you are paying around 575 crores, that is the equity, is there. Any debt being taken over around. Is there a debt we will be taking along? Yes, they have a debt of 180 crores in working capital debt and any other debt. 200 to 220 crores total. 220 crores.
operator
Okay, thank you. Thank you very much and all the best. Thank you.
operator
Thank you. We have our next question from the line of Vishal Mehta from I AML Capital. Please go ahead.
Vishal Mehta
Yeah, thanks for the opportunity again. So you know, with the volume numbers that you just gave, the volume seems to be down almost like 25%. Y o y they are considerably down even if you probably consider 4Q FY 24 levels. So obviously your realizations probably would have inched that much high given the flat revenue growth. So is that such a drastic change in your product mix this quarter that has.
Sivaramakrishnan Ganapathi
Yes. What happens is in Q1 and Q2 with the typically produce for fall and holiday season or fall and winter season. So these are the times when we produce outerwear and outerwear products have much higher minutes required to produce one garment. So if you look at an outerwear jacket, which is a very complex garment as opposed to let’s say a lady’s top, which will make for spring or summer, we can produce four or five garments in the spring which will take the same effort to produce one jacket. So the number of garments that we produce in Q1 and Q2 usually tends to fall and fob per garment tends to go up in.
In Q1 and Q2 which reverses in Q3, Q4 when we get to spring and summer Production is at 692 rupees. That’s against 510 rupees last last quarter. Sure. So when I’m comparing it with the yoy because you had this AIRF rating of ATRACO volumes in 1Q of last year where you would have probably sent your summer production or spring production. So that is the reason, you know, your realizations were low in last quarter. Realization is not the reflected. It is basically the realization based on the product mix. Air freight is reflected under the expenses. Okay. No, no, but there could be delay. So that would have. Exactly. Right.
Vishal Mehta
Yeah. Okay. Okay, fair. And next is one last question on you know, your knits fabric external revenue this quarter. What would it be and how’s the utilization currently trending in that unit and what’s our internal consumption that’s happening there?
Sivaramakrishnan Ganapathi
I think the utilization is close to 20% to 25% only. It’s on a ramp up. It’s largely internal consumption that we’re using it for. We’re not doing any substantive external revenue. So the contribution from that at the moment is negative. I think it will continue to remain negative till third quarter of this financial year. It is on a ramp as we speak. And during this period its contribution to the bottom line is actually negative and its external contribution from a revenue perspective is not significant at all.
Vishal Mehta
Okay. And last question if I may ask. Yes. Yeah. So just on btpl, you know you probably said that the utilizations have been rising year on year. But if I see your filing on BTPL that you have done, the revenues have actually fallen from 635 crores in FY23 to 371 crores in FY25. So that’s solely to do with the commodity price or if.
Sivaramakrishnan Ganapathi
We acquired this when we have invested this in June, June effectively started really yielding the results from October onwards. 24th. Right. So last year the company actually before we invested the underperformance had started pretty significantly. So in the H1 of FY25 they their revenues had fallen dramatically. And then we started building up and all that buildup came in the fourth quarter of FY25. So yeah, when you look at FY25 full year you will see the numbers to be actually pretty bad. Come FY26 you will start seeing an update there.
Vishal Mehta
Okay. Okay, great. Thank you. Thank you so much for this clarity.
operator
Thank you. We have a follow up question from the line of Raman from Sequence Investments Please go ahead.
Raman KV
Hello sir. Thank you for allowing me to ask a question again. I just wanted to understand what’s your current US market share from the revenue? US market share is about 72%. 72%. And what was this in the last quarter? Last. You mean Q4? Yes sir. Q4US was also in the similar range. 72:30. Answer. By the end of this year, how much are you expecting this share to come down?
Sivaramakrishnan Ganapathi
It all depends. As long as we are getting orders, we have no problem with US if we do get margins. In fact, we like US market more than any other market simply because it’s a homogenous market. We get good run, we work with top customers there. We have a fairly good order book from US customers at the moment. So we don’t have a problem with us. It all depends on tariff and margins. So we go purely from a financial standpoint and if we find that tariff is high margins and consequently we have to absorb some margin on account of that, then we may reduce our US business in favor of European business.
So while our strategy is to increase European business, we are not consciously trying to knock off us. It will be a financial decision as we go forward depending on how all these things unfold. Where do I see at the end of the this year? Maybe maybe 70%, maybe 65%. We don’t know. It’s very hard to speculate at the moment that 100 million which gets sent out of a tracker or the African unit there, there will be no relative disadvantage. So that to the U.S.
Raman KV
Yeah, that was my follow up question. Like 72% of the consolidated revenue is from USA. How much out of the. That is the split between, you know, Africa revenue from Africa and entity and. The revenue from Indian entity. So Africa 100 is to United States. So, so then we can do the balance for. For India. Okay, 90. Sir.
operator
Thank you. A reminder to all participants, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. We have a follow up question from the line of Bhavya Gandhi from Delilah and Broker. Please go ahead.
Bhavya Gandhi
Yeah, hi. Thanks for the follow up. Shiva. Just wanted to understand on the Bombay rayon, what would be the consolidated number that will get added for FY26 and.
Sivaramakrishnan Ganapathi
27 for FY26 we anticipate nothing. If we go with the plan of acquisition, then it will materialize only in FY27 and most likely, you know, somewhere in Q2. FY27 if things happen. So we may have a revenue of about 8,900crores in FY27. Everything depends on how the NCLT process go if we decide to do the acquisition and all of that. And FY28, as I said, we will be anywhere between 1500 to 1800 tops.
Bhavya Gandhi
Perfect. Just on the EBITDA also if you.
Sivaramakrishnan Ganapathi
Can just help for bomberion. EBITDA should be of the order of 12% or north of 12%. For the purpose of this discussion, we could assume 12% for 27 as well.
Bhavya Gandhi
Perfect. Sounds good. Thank you so much. That’s it for mine.
operator
Thank you. We have a follow up question from the line of Prerna Junjunwala from Elara Capital. Please go ahead.
Prerna Jhunjhunwala
Thank you for the opportunity. Just wanted to check with you on the tax day that the US government is asking if the value chain is not indigenous. So do we still, you know, benefit in by sourcing from India vendors only? Why avoiding Bangladesh? Because Bangladesh supply chain dependent on China.
Sivaramakrishnan Ganapathi
So should the country of origin rules are a bit unclear at the moment because this tariff, they’re also talking of transhipment and they’re saying that look, countries where they do transhipment like Vietnam does a lot of transshipment from China. So they’re going to impose a heavy tariff like 40% tariff on transshipment. So you know, we don’t know what the COO rules are. So depending on, you know, if it’s only 40% value addition rule, then many apparel manufacturing destinations can even get away with fabric being imported. But otherwise imported fabric may attract some incremental duty, 40% duty.
And if that negatively impacts Vietnam, there is an added advantage which may come towards India because we still have a lot more fabric indigenously produced. So almost like 67% of the fabric that we consume are all domestically produced and we have the ability to pivot more and more to domestic fabric if required. So a little bit of lack of clarity on some of these rules of origin at the moment.
Prerna Jhunjhunwala
And so just one more clarity I wanted on margin impact. You are talking about 200 to 250 bit impact for annual. For the annual impact or is it for next 3/4 on a yy?
Sivaramakrishnan Ganapathi
So earlier I was thinking of that impact only on H1, but now I feel. But it’s too early to comment because we don’t know how the current tariff will play out in the H2 of this year. Right. So I feel that if I have to hazard again, Maybe take a 2 1/2% impact for this financial year FY26, but everything is subject to how the tariff UN tariff is implemented in the second half, what number we come up with.
Prerna Jhunjhunwala
Finally understood, sir. But is there any possibility of sharing any further cost with the US because at 10% also we have as as supplier, the cost is too high. So further sharing of tariffs, is it possible or how will it be?
Sivaramakrishnan Ganapathi
Difficult to say. But you know, like look at most of the countries, they have come at 20%, right? So when I’m saying this, 2.5%, this is across the world. So even Vietnamese players, everybody has born this. So now if somebody comes and asks for another 10% and how do you share that additional 10% between 10 and 20, chances are that the supply chain may not have the wherewithal or the ability to handle this. So that needs to be passed back to the consumer in some form or fashion. Either spec down the government, so bring the government price by 10, down by 10% by de speccing it so that you are combating tariffs, you give the same product at post tariff same price by reducing the value of the government or pass on a price increase to the consumer or do a combination of both, which is what most retailers will end up doing.
So chances are that the supply chain can absorb and will absorb only this level. And the rest will happen by modifying the product itself and changing the price tickets. Remember when the tariff was put in April, most of the brands did not not have the ability to change the price tickets. Now that you know it’s all part of norm, you know, there is an ability to plan and do it, do it, you know, do the pricing changes accordingly. So some of this will play out as we speak.
operator
Thank you sir. Prena, we will request you to please rejoin the queue. We have our next question from the line of Gunjan Kabra from Nivesha Investments. Please go ahead.
Unidentified Participant
Hello. Hi Siva. Thank you so much for the opportunity and always an insightful con call. So one thing which I wanted to understand is that for example we don’t know what the tariff structure will be. So if it goes beyond the 25 or something 30 or whatever number, then do you think that when the Bangladesh and Vietnam have a very competitive tariff rate that respect to us, then do you think the part of the value chain of yarn and the fabric players will stand to benefit and export more to Bangladesh and Vietnam from India or that should not be the case?
Sivaramakrishnan Ganapathi
I think. I think there is a export of, you know, raw materials from India to Bangladesh that’s much higher. I don’t think there’s that much. Vietnam and Vietnam has got abundant supplies coming in From China. So I don’t think they’re going to look at India as a source of fabric. Wait time also does a lot more synthetics, which is not the strength of Indian fabric providers. So yeah. To Bangladesh. Will it increase exports? I think it will. Bangladesh is at 20, we are at 25. It doesn’t move the needle much. So yeah, it may result in some movement.
Not a whole lot. It’ll, it’s not, you know, I, I wouldn’t, I wouldn’t call it a substantive change in, in that sense.
Unidentified Participant
Okay, and what would be the proportion of the goods that come in the transhipment category in Vietnam? For example, how much is, you know that can garner 40 and a follow up to what Prena also asked. So how much is that getting done through transhipment, exports of garments done through transshipment and. Or the proportion that is being manufactured in Vietnam itself that can have beneficial.
Sivaramakrishnan Ganapathi
So. So you know, these are all opaque stuff which we don’t have visibility towards at the moment. Everything is denominated as, you know, country of origin, Vietnam. You know, as these rules are quickly implemented, we will know how much of China product is actually flying through, I mean flowing through Vietnam. Difficult to hazard against Gunjan, so can’t say. But what US is saying is that they’re going to be very strict about some of these checks. We don’t know what mechanisms they have put in place to check this. So it’s all difficult to.
Unidentified Participant
Okay, okay, got it. And like, just generally what’s the like average cost differential between the product that is being exported by Bangladesh and US? For example, if initially there was a 35 tariff and now with 20, so exactly between India and Bangladesh, what’s the cost differential apart from the whatever tariff is there for government.
Sivaramakrishnan Ganapathi
So let me, you know, say that you know, from pure cost per se. Pricing is market determined and pricing people look at landed duty paid, what is the price based on tariff based on a retailer couldn’t care where, whether you are sourcing it from Bangladesh or India, as long as the quality is the same, where am I getting air at a better price all day they look at. So from a cost standpoint, Bangladeshi retailers do enjoy a cost of labor advantage against our $200. They are at $150. So that would bestow upon them say 6% EBITDA margin.
But they do have a challenge in terms of infrastructure bottlenecks, additional cost of fabrics coming from India, etc. Which will offset about one hundred and half 2% out of that. So they do enjoy a 4% cost advantage over India or a 4% incremental EBITDA, which a Bangladeshi retailer can get over India. Does that help? Yes. Yes. And with respect to Vietnam. With respect to Vietnam, it’s a little more complicated because Vietnam cost of labor is much higher. It’s close to 300, $320. And again, depending on where they are and the fabric prices of most Vietnamese companies, they get fabric from China, and many of the Vietnamese companies are actually of China origin. So we don’t even know what the transfer prices are there. So nominally, Vietnam should be more expensive. It’s not like their productivity is 50% higher than India to offset their wage, which is 50% or even more than India. So effectively, it looks like there’s some sort of a fabric subsidy baked into Vietnamese.
So if we look at some orders, for instance, that we have taken recently, we have taken a lot of Vietnamese orders and executed out of India. So obviously, which means that we are competitive vis a vis Vietnam. The challenge is that Vietnam does a large amount of synthetics for which the fabric ecosystem exists there. So it limits the number of products that we can do out of India, given the sheer fabric economics which is stacked against us. So we have to imagine import fabric from Vietnam, Korea, Taiwan, etc. Or China for onward conversion. So even with that, we seem to be competitive in many cases and we’ve taken orders which were ex Vietnam earlier.
So are we competitive with Vietnam? Answer is yes. Vietnam’s margins are coming down because of the higher and higher labor costs and the fact that Vietnam is switching to higher value added industries as opposed to garments. You know, they have a limited population and they are switching to, you know, electronics and, you know, various other manufacturing, which is all moving away from China. Again, you know, to meet them with.
Unidentified Participant
20% tariff also will be competitive that way. This one, one question, sorry.
Sivaramakrishnan Ganapathi
20% is for everybody, right? So then there is. So there’s 20% tariff on everybody. So Indonesia, Vietnam, Bangladesh, Cambodia. So 20% is the new normal. So it’s the new zero. So when you look at our 25, you should say see it as 5, not 25, because 20 is the new zero, right? So, so 20% tariff is what, you know, is on Everybody. So that 20% tariff initially, maybe the supply chain has, but that’s what every country has to pay. So that’s the new cost of doing business in us or that’s the price Americans will have to pay in some ways.
So it will be a combination of both. So we have to see how much above 20. And if somebody is below 20, they have an advantage. Somebody is about 20, they have a disadvantage to that extent. And Sri Lanka and Africa, what would be the competitive in terms of Bangladesh production. In terms of efficiencies etc. Disadvantage is because Africa, the fabric moves from India, Pakistan, China, etc. So that makes a tad uncompetitive or under competitive, I would say under competitive vis a vis Bangladesh. But now they have a 10% duty advantage over Bangladesh. See they are at 10 versus rest of the world at 20. So Africa is 10% lower and if Algoa continues, that benefit goes even higher. But let’s assume Algoa doesn’t stay, which is a fair assumption or a reasonable assumption to make, then they still have the 10% advantage which will offset some of the more than offset some of the additional cost of moving goods into Africa.
So Africa will continue to be at an advantageous position even over Bangladesh, I think.
operator
Thank you sir. We have a last question from the line of Sriram, an individual investor. Please go ahead.
Unidentified Participant
Thank you for the opportunity. So you just mentioned that China and Vietnam have a robust synthetic ecosystem. So what policy measures or initiatives are needed to bring build a strong eco textile synthetic ecosystem in India comparable to those in China and Vietnam? Do you see that happening in the next decade?
Sivaramakrishnan Ganapathi
It can happen in the next decade. You know, there has to be a lot of investments happening in synthetic processing, a good quality synthetic fiber being available, yarn being available, you know, at a globally attractive price, the quality standards to be at par globally. So there is that downstream industry has to develop. India’s historically focused on cotton and have a fairly evolved cotton based industry. If you ask me. From a technical standpoint, dyeing cotton, which has got its own being a natural fiber, it has got a lot of variability in the raw material itself, which is cotton.
Synthetic should be easier to process. Having said that, we have not developed that industry which is a handicap for that industry to develop. It may take about another 10 years perhaps. China has got humongous capacity on the synthetic, so they have a scale to their advantage. So they have synthetic yarn production, synthetic dyeing, fabric processing, etc. Those scales and those qualities are missing. And that innovation is also missing in India. It will take in my opinion 5 to 10 years.
Unidentified Participant
Okay, thank you so much.
operator
Yeah, thank you. This was the last question for today and I now hand the conference over to the management for closing comments.
Sivaramakrishnan Ganapathi
So thank you so much for patiently going through, you know, what we’re seeing. You know, we are in a scenario where there is a lot of moving parts and as a company we are dealing with them as they come along. We are hopeful that we will be able to combat some of those challenges that come our way. We do have the ability to look at geographic diversification, having done it already and we will continue to explore some of that. We will also continue to explore new markets for ourselves as we deal with tariffs other than tariffs.
I don’t see too many headwinds for us. So we will continue to stay focused and continue to do what is in our best interest for the shareholders and make sure that we continue to deliver returns. As I mentioned earlier, Q2 will continue to be as challenged as Q1 and and we were hoping that from Q3, Q4 onwards we will see a stronger set of performance from a margin perspective but with tariff we’ll have to see how that plays out. I am reasonably confident that FY27 onwards we should see some strong performance because by then most of the tariff related impacts will be behind us and we will be able to deal with the market conditions on extreme, you know, as it exists.
So thank you so much and you know, look forward to the next, you know, meeting.
operator
Thank you on behalf of Gokul Exposed Ltd. That concludes this conference. Thank you for joining us and you may now disconnect your lines.