Gokaldas Exports Ltd (NSE: GOKEX) Q4 2025 Earnings Call dated May. 22, 2025
Corporate Participants:
Siva Ganapathi — Vice Chairman and Managing Director
Sathyamurthy — Chief Financial Officer
Analysts:
Diwakar Pingle — Analyst
Aashish — Analyst
Vishal Mehta — Analyst
Palash Kawale — Analyst
Kaustubh Pawaskar — Analyst
Bhavin Chheda — Analyst
Prerna Jhunjhunwala — Analyst
Dhavan Shah — Analyst
Roshan — Analyst
Varun Gajaria — Analyst
Jenish Karia — Analyst
Niraj Mansingka — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Q4FY25 earnings conference call for Gokaldas Exports Limited. As a reminder, all participant lines will be in the listen only mode 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 and zero on your touchstone phone.
Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakarpengle from EY Capital.
Thank you. And over to you sir.
Diwakar Pingle — Analyst
Thank you.
Good afternoon to all the participants on this call. Before we proceed on the call, let me remind you that the discussion may contain forward looking statements that may involve known and unknown risks, uncertainties and other factors. It must be viewed in conjunction with the business risk that could cause future results performance achievement to differ significantly from what is expressed or implied by such forward looking statements.
Please note that we made the results in the presentation the same also available on the company’s website. In case you have not received the same, you can write to us at the EY Team or Sharonokuldas 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 Goku Das Exports Ltd.
Represented by Mr. Shiva Ganapathy, Vice Chairman and Managing Director and Mr. Satyamurthy, the Chief Financial Officer.
We’ll start the call with a brief overview of the quarter gone past and the full year and then conduct the Q and A session. With that said, I’ll now hand over the call to Shiva. Over to you, Shiva.
Siva Ganapathi — Vice Chairman and Managing Director
Thank you, Dewankar. Good afternoon everyone. Happy to have you at our earnings call for the financial year of FY25.
FY25 marks the first full year of consolidation following the acquisition of AT Trackware and Matrix Designs. The consolidated total income stood at 3915 crores reflecting a year on year growth of 63% primarily driven by contributions from both the acquired entities. Excluding these, the company’s total income registered a healthy year on year growth of 19% while Indian exports during the same period grew at 10%, indicating a gain in export market share.
EBITDA for the year stood at 424 crores, a growth of 49%. In Q4FY25, the company delivered a total income of 1035 crores and an EBITDA margin of 13.7%. The company has improved its performance across all business units including acquired entities and continues to focus on delivering exceptional value for its customers and all stakeholders.
The year marked the beginning of recovery in global imports, particularly in the second half as brands focused on reducing their inventory to sales ratio during the first half, a trend evident across us, EU and UK at the start of the year. At the start of FY26, the US announced steep reciprocal tariffs on April 2 which were later paused for 90 days from April 9. A 10% tariff still applies despite the pause while China faces a revised 30% tariff.
This presents near term challenge as higher tariffs may raise retail prices and dampen demand. Although many customers plan to absorb or share the cost if the tariff is reinstated to earlier levels, this could significantly impact the cost of goods in the United States and may impact consumer demand in H2CY 2025. But this is yet to be played out and we will have to see how all of this pans out.
The immediate impact of such incremental tariff is the expectation for the suppliers to absorb additional costs imposed by the tariff and thus compromising profit margin. The other near term impact of tariff uncertainty is business uncertainty. US brands may stay cautious during this period with no clarity on the tariff.
After the end of 90 day pause, customers are reluctant to build inventory at unknown costs. Short term order placement is the first casualty in such a scenario as any order placed now will land after the 90 day pause window. India remains a key player in sourcing strategies for all customers, so higher tariff on China and political uncertainties in Bangladesh contribute to overall attractiveness of the country as a sourcing destination.
The recently announced India UK FTA offers a 12% duty advantage over China and puts India on par with Bangladesh India creating a strong export potential. This FTA has the potential to increase India’s exports to UK by an additional $1 billion. With China still accounting for 22% of US apparel imports and the reciprocal tariffs being high, India has a strategic opportunity there.
Ongoing us, India and EU trade talks may be a harbinger of better opportunities in the future. Backed by a strong textiles ecosystem, low labor cost, supportive policies and geopolitical stability, I think India is uniquely positioned to gain global apparel market share and within India Gokuldas is strongly positioned to gain a disproportionate share. Strategically the company is expanding its European business.
In the fourth quarter of this year the exports to EU reached about 12%. We are stepping up our engagement with UK based customers in preparation for FTA. Now all of these are right move to diversify our business so that we are less exposed to any tariff related uncertainty and we have a much wider exposure to different markets.
The integration of Atraco and Matrix designs has progressed well. Most legacy headwinds associated with the acquisitions are now behind us. Our strategic investment in btpl, a fabric processing unit which strengthens vertical integration into critical raw materials, enabling faster, higher quality and cost efficient delivery, is also progressing very well.
The company is expecting completion of the second unit in Madhya Pradesh as well as one additional factory each in Karnataka and Jharkhand. The company is proceeding cautiously with additional capex and will commit to incremental capex as more clarity emerges on tariff and its business impact. The already committed CAPEX itself will add substantial capacities to us in the middle of this financial year and we are well geared to effectively utilize those additional capacities that are coming our way.
The company is focused on growth and views the macroeconomic factors aligning in favor of India, which makes the prospects for apparel manufacturing industry looking very good. Coming on the heels of the UK fta. If India manages to enter into an FTA with EU and sign a bilateral agreement with us, there’s a strong possibility of business growing many fold in India.
The short term challenges of related uncertainty While it could impact margins in the near term, it should only be a hiccup along the way, but it is in the longer run the business prospects remain strong. Notwithstanding such challenges, the business opportunities for Gokulda remains robust and we are confident that with some of the capacities coming up also we should be able to deliver growth in the coming year and the years ahead. I thank you for listening and I would be happy to address any questions that you have.
Questions and Answers:
Operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press char and one on the touchtone telephone.
If you wish to remove yourself from the question queue, you may press char and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ashish from Invest qpms. Please go ahead.
Aashish
Yes, thank you so much for this sir. Firstly, I wanted to understand on the it’s been a long standing stance that because of the differential kind of taxes in EU mostly we’ve not chased that business business at all.
We’ve been US focused. So now how do we plan to address the opportunity that the UK market presents for now, have we already started building teams and making efforts on that and maybe one year kind of what we plan to do in this geography.
Siva Ganapathi
So the UK FTA for it to take effect perhaps will take a whole year that’s the kind of current timeline indicated.
It’s up to the respective governments to speed up. But in the meanwhile we do have a reasonable mix of strong UK based customers and what we are doing is stepping up the volumes of business that we do with them. It was always in our hands to direct our capacities to the customers that we want to.
And at the moment, strategically we have taken a call to expand our business with UK and not just UK but even with European customers, just so that there is a little bit of a diversification. Historically we have been very focused on United States for the one simple reason that we did not want to compete with Bangladesh which goes duty free into Europe and compromise our margins. US also being a large homogenous market gives longer runs, which is much better from a profitability standpoint.
But given current tariff situations and uncertainties, it’s always prudent to have a little diversification of the market. And we have started that. In fact, we’ve started the endeavour very well and have moved significantly already.
Our European business is now moving into the double digit realm and we’ll continue to increase our European business. Remember, we are growing. So it’s not like coming at the cost of American business or reduction in American business. On the contrary, that also is growing. It’s just that the European business is growing at a much faster clip for now because we are acting it. So.
Aashish
Okay, okay. So secondly, on this initial comment that you made reading on to what the customers are kind of feeling there, that because of the tariff situation, so would you say that first half of the year will be really very challenging, that the routine pickup on the orders that is also going to be hampered to a certain extent for maybe at least six months till the time this gets done.
Siva Ganapathi
So you know, it’s yet to play out because you know, first quarter order book is there, it’s intact, it’s strong, etc. You know, second quarter order book, which is the winter session, you know, winter season orders, they are a little slow to come by because people are just. Customers are just unclear on what the tariff is. If you place an order today, by the time the goods land in the US and is custom cleared, it’s outside the 90 day tariff window which expires July 9th.
So what’s the tariff at which you will clear those goods and how much quantum should I place the order will depend on what is the cost of goods that I would incur when I place the order. So there is a bit of uncertainty which most brands are facing, which is a global reality. So we can’t fight that.
But at the end of the day, I believe this is all short term. And eventually no retailer would want their inventories to be depleted in their stores because that’s even more detrimental. So they will build it up cautiously and hence, while there may be a little slowness in demand, I think Gokuldas should not have as much of a problem.
We will be able to fill up our capacity. My worry is that there will be a twin issue of a general softness of demand across the globe. B, American demand may be slow, so that also contributes to it and B the tariff itself means that at least in the early days, the supply chain may have to bear even a portion of it, a small portion of the 10% to really give some offset or some relief to the retailers.
So all of that means that there may be some degree of margin pressure in the early days, but we look at the business over a longer period of time and we can’t take decisions based on what happens in Q1, Q2, et cetera. And when we look at the business on a longer term, I feel that it’s fairly bullish. There is a fair amount of order traction for us even despite all these headwinds, we are seeing customers come to us and place orders.
So margins notwithstanding, I think all of these can be recovered as we move forward. In the short term, there will be a pain in H1.
Aashish
Okay, okay, got it. Just one last thing. Your, I mean ese announcement. I could see that reasonable part of the promoter holding is kind of pledged.
So is there any comment that you would like to make on their behalf? Because it’s reasonably significant to our understanding. Clear with.
Siva Ganapathi
I don’t, I don’t have any, I don’t have any comments to make on the behalf of any shareholders.
Aashish
That’s true, but it’s kind of an overhang in the minds of shareholders. Why would the promoters get so much? Actually,
Siva Ganapathi
I think it may be in response to some short term need. Again, I’m only speculating. I have no understanding of this and this is really a question to be posed to the shareholders. But as far as the company is concerned, the company has got a, you know, is board managed, professionally run and it has, it will have no impact whatsoever on the way it is run or the business it will pursue or the aggressive growth that we target will not be impacted by any of any moves. And I also know that the promoters are strongly behind the company and have solidly stood with the company even, you know, even now.
So, you know, whether the you know how to read the pledge is something which I don’t wish to get into or I don’t know but I don’t think that’s going to impact the company or their commitment to the business.
Aashish
Okay sir, thank you so much. Thank you.
Operator
Thank you. Before we take the next question we would like to remind participants that you may press Sharon1 to ask a question. The next question is from the line of Vishal Mehta from IIFL Securities. Please go ahead.
Vishal Mehta
Yeah, hi. Thanks for taking my question and congratulations on decent set of numbers sir. So my question firstly is on the your tax rate. The ETR for you know 4Q is around 33% and portfolio is around 27%. And you know we’ve earlier said that actually we are in a tax free rate for a track O acquisition and also you know we also get benefit on atj.
So I just wanted your thoughts and how should we you know probably look at the tax rate going forward?
Sathyamurthy
No, as we had discussed last time also Gokul Das parent company is already into the effective tax rate of 25.17%. You know it’s the combination of your tax rate and the deferred tax rate and deferred tax is the reflection of you know, whatever the carry forward balances of assets and liabilities and then you create an asset and then net asset to that extent the income tax credit is taken. So when you look at it at the FY25 level we are still there at the 25% level.
As far as Google does is concerned the issue is with reference to Atraco Atraco the tax free profitability contribution did not happen effectively this year and that’s why you are not seeing that any impact impact on the tax rate. The other issue which we faced with reference to Gokulda which was the benefit which was available last year was on the ATJJ benefit. ADJ benefit is there for any incremental number of people for a period of three years.
So that benefit whatever we could get a substantial increase in the head count. To that extent the income remained more or less with a thousand or 1500 people only but not at the significant level growth. And that’s the reason you see that the effective tax rate remains at this level.
The other two units which is at the 15 and the other unit which is at 15%. That benefit also is yet to accrue and that’s why it is you see the effective rate impact continues at these levels but as the new units start contributing at Rocco business start contributing the Profitability, we should be able to really see the impact on the overall tax efficiency.
Vishal Mehta
Okay. The other question was, you know, Mr. Shiva spoke about, you know, the capacities which are probably coming by middle of FY26. If you could give, you know, kind of some more, you know, exact timelines on, on these capacities.
And also there was probably, you know, in previous call we were speaking about Track of Africa expansion. So how about that?
Siva Ganapathi
Okay, so the Indian capacities which are this unit in Madhya Pradesh as well as the units in Karnataka and Jharkhand, they’re all timed to come on steam in the third quarter of this financial year. That is FY26.
And they will start their ramp up during that period of time. At this moment, two of those units in Karnataka and in Jharkhand, we have also started training in preparation for it. And in Madhya Pradesh, we will probably start that in a couple of months.
But all of them will start early contributions in Q3 and then we’ll start ramping up. So that’s the kind of timeline and we are also aligning customers to these capacities. As far as Atraco is concerned, the expansion of 500 machines has done.
And you know, that expansion will start playing out in this financial year, in the coming financial year that is FY26.
Vishal Mehta
Okay. And the last one, you know, volume breakup between, you know, Gokala standalone and acquired entities for 4Q and full year.
That would be last question. Thank you.
Sathyamurthy
For the full year, Gokuldas is 33.22 million 693 rupees is a rate. Atraco is 27 point. I mean Atrock is 27.68 at 306 rupees. Okay. MDIP is 7.44 million at 573 rupees. That’s matrix. That’s. Sorry, that matrix. And in total 68.34 million at 524 rupees average. Oh, that is for Pulia.
Operator
Thank you. The next question is from the line of Palashka Vale from Nuvama Wealth. Please go ahead.
Palash Kawale
Thank you for the opportunity. Sir.
Sir, my question is related to the C classification of lease liabilities. So is there any change in rental agreements or. Yeah, just if you could shed some light on this and this depreciation level will be like, we can take this forward.
The current depreciation. Yes, these are the things.
Siva Ganapathi
So, so what happened was in the current financial year, you know, the assets in Africa, they are leased assets by the way, and African, you know, the regulations don’t need to, you know, do not have this India’s requirement of capitalizing leased assets and then depreciating it.
So we had not done that, but in the fourth quarter when we were consolidating all the results, we had to capitalize all the lease assets and then start depreciating. So all the depreciation for the year was taken in the fourth quarter of this year. That’s why you see an extraordinarily high depreciation number for fourth quarter.
So that’s an aberration. You would have seen it move from say 30 crores to 42 crores. I think the go forward impact of the India’s African units would be about two and a half crores a quarter.
So the realistic depreciation levels would be about 32 and a half crores or thereabouts. Does that help you?
Palash Kawale
Yeah, that’s really helpful, sir. And sir, my next question is on margins.
Even if I take this 9.9 crore effect out of the numbers and still margins, and I’m talking excluding other income, are in double digits. So do you foresee these margins maintaining for the next year as well? And again you have spoken about some softness in H1 and then ramp up of capacities in H2 as well.
So how do you see margins playing out for the full FY26?
Siva Ganapathi
If we didn’t have all these tariff related uncertainties and you know, these kind of the impact which was unleashed in April, our margins would have grown in FY26 versus FY25 because we are driving higher efficiency in our factories, we are managing costs well, we are booking orders of the right kind and so on and so forth. But with the tariff related issues and customers now seeking some relief from the supply chain because they are unable to pass on all the cost increase back to their customers, there could be some short term impact on the margins. So instead of growing margins, we may have a few percentage points impact on the margins in the short run for a few quarters before this settles down our endeavor.
Eventually all the tariff will get passed on to the end consumer. That’s how it operates happens. In the interim, the customer and the supplier will have to share some burden.
And you know, that’s a short term thing which we may have to absorb. We will also have to see how the bilateral trade agreement happens between India and the US So far it looks encouraging. India is fairly ahead in terms of its negotiations and if we do get some overall tariff relief then I think all of this will be behind us.
On the contrary, we will have a fairly strong business traction but we’ll have to wait and see when that happens and when that takes effect. In the short term, we may have, as I said, a margin overhang or a margin setback, but it’s purely due to tariff. Nothing to do with Gokul Das’s performance or underlying fundamentals or anything of that sort.
Of. And that will go away as and when the tariff gets pushed through back into pricing of the goods and back into the customers. So it’s a short term phenomenon, I believe.
Operator
Okay, so that’s really helpful. Thank you. Thank you for your answers. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of bhavan cheddar from In Arm Holdings. Please go ahead. Mr. Bhavan, your line has been unmuted.
Please go ahead with your question, Mr. Bhavan. As there is no response from the current participant, we will move on to the next question.
The next question is from the line of Kausto Pavaskar from ICICI Securities. Please go ahead.
Kaustubh Pawaskar
Yeah, good afternoon sir.
Thanks for giving me the opportunity. So my question is again on the capacity expansion. You have given an outlook like the UK FTA will have around, you know, additional textile exports of, you know, US$1billion plus.
We are, you know, hoping to have a trade agreement with EU soon and also bilateral talks with us also would create an opportunity. So in that context, are we, you know, kind of on a backboard in terms of adding the capacity? Does it not use US and region or visibility or indication that maybe by FY27, FY28 we will start seeing, you know, some kind of uptick in terms of order and we should have adequate capacity to fulfill those orders
Siva Ganapathi
100% I think, you know, we are thinking exactly like that and that’s why we are adding the capacity that we are adding here. So these three new factories which will come in in the second half of this year will realistically ramp up substantially next year and will contribute to a significant growth in the next year.
There will also be capacity unlock that we will do in our existing factories. So wherever we can, we will extract 3, 4, 5% incremental capacity from each factories which we do every year. So that kind of a capacity growth we will constantly focus on to meet with customer, to meet with growth volumes.
We are also planning some incremental factories that we can take on lease and some of those have been planned and is in the works in the short term, whichever Factories that we are building out, we are continuing with that as many of them will, as all of them will come on stream in the third quarter or almost in the beginning of the third quarter. But as far as new capacity planning is concerned, we just want to wait till we have a little better clarity on the tariff since it’s such a volatile subject and it is not a subject which any one of us have clear understanding or clarity on where we will land up eventually. We would rather wait for a month or two or three as required to get absolute clarity before we continue our journey of further capacity expansion.
Having said all of this, we are building a data bank of where all capacities can be created and even trying to set the grounds for building up incremental capacities while not really actioning on it until we have a little better clarity on tariff before we action those.
Kaustubh Pawaskar
So my second question is again on the margin front. So I was assuming that your large part of capacity expansion is happening in the second half of the year.
So prior to that you start building up with your employees and workers training and everything which results into the incremental cost which we have seen last year as well. So I, I was assuming that Q2 and Q3 we might see some, you know, decline in the markets and once the capacity starts, you know, operating at optimum level, the margins will improve by quarter four. So now with this tariff issue, I believe that the first nine months we might see, you know, decline in the margins and Q4 might give us a, you know, better margin kind of a picture.
So is it a fair assumption?
Siva Ganapathi
I think we may have some margin trouble in the in H1 given that, you know, see at the moment, you know, the tariff, 10% tariff applies from, you know, three months starting April. So it’s Q1, but you know, it will spill over to Q2 as well. It’s a very, very reasonable assumption to make.
Beyond that, if the, you know, the bilateral tariff, bilateral agreement fructifies, then we may have a different story. So it’s uncertain as to the impact on the third quarter. I think we can be somewhat reasonably sure that there will be some impact in Q1 and Q2.
We should wait and watch before coming to any conclusion on Q3. At the moment we are fairly confident that Q3 we should get out of this margin related issues. By and large, the cost will get absorbed either by the customers or the end consumer.
So should not have, but only time will tell because that depends on the quantum of the tariff that will finally get imposed. We are in a bit Uncharted territory at the moment. We don’t know the tariff.
Kaustubh Pawaskar
Right. And do you expect any delay in shipment?
Operator
Sorry to interrupt. Sorry to interrupt. Mr. Costo, may we request that you return to the question queue for a follow up? Thank you. The next question is from the line of Pawan Cheda from Enam Holdings. Please go ahead.
Bhavin Chheda
Yeah. Good afternoon sir. Good set of numbers. Just a couple of Questions from your US imports slide. You have shown that there was almost 11% growth in US apparel imports in quarter one to $20 billion.
So does this number in your interpretation looks like this was inventory rebuilding before the tariff got kicked in in April and hence the volumes in quarter one and quarter two of this year for a company as a whole or India as a whole could be impacted.
Siva Ganapathi
So quarter one there was a surge in US Imports primarily because they wanted to bring in a lot of imports prior to the tariff taking in. So there was a huge amount of goods movement, particularly in market end March, even in the early April kind of time frame.
So it partly reflects what you just said. Quarter two, there may be a little slowdown in imports, US Imports because it’s coming at a higher tariff. And quarter three, I’m talking of calendar quarter by the way here.
So Financial Quarter 1 and Calendar Quarter 2 and Calendar Quarter 3 there may be a little bit of a slowdown in US Imports because of the tariffs.
Bhavin Chheda
So when they are slowing down because they are having obviously a inventory rollover from the March and April strong imposed, do you think India exports to them? And for particularly for Gokulas, since North America is 77% of overall consolidated sales, your volumes are also going to be impacted over first up.
Siva Ganapathi
So you know, it’s difficult to predict because Q1 volumes were already secured even before all these tariffs came into play.
And you know at the end of the day the buyers will also, the customers will also need inventory to sell, so they will need to buy. And many of those orders will come probably closer to date as opposed to, you know, early advanced buying. So for instance in Q2, you know, the order book is filling at a slightly slower pace than we would have normally anticipated simply because of the tariff related uncertainty.
Eventually it will all get done.
Bhavin Chheda
Volumes are not getting impacted only in terms of pricing. There would be some
Siva Ganapathi
Pricing, definitely. It is getting impacted because they are all demanding, Correct? Correct. At a global level.
Bhavin Chheda
Volumes are getting impacted.
Siva Ganapathi
Let me put it that way. For Gokul Das, we may still fill up the volumes, but everything comes at a price then sure.
Bhavin Chheda
Again my second question is on we are at 10% versus China at 30%. So big 20% difference at least for next 90 days.
And China is a very large number in terms of U.S. market share, almost 22%. So for a client obviously is shifting lot of China volumes to whatever possible, possibly to the alternative countries.
So are you not or have you not seen this shift in the month April and May because you are already on May 22. So you already seen and I believe the China tariff was implemented from March 10 and not April 1. So we are already two months into a very high China tariff regime in US so what is your interpretation of the US market and your clients in these two month period when the China tariff was already implemented at high rate?
Siva Ganapathi
So what happens is when there’s such a high tariff in China, the immediate port of call for them would be Vietnam because that’s just from a proximity standpoint.
And Chinese fabrics can enter Vietnam by road or it’s a very short sea ride away and then get converted in Vietnam and go with a 10% tariff which is at par with India. It’s important for tariff to be seen in clusters. So China’s loss is moving to Vietnam.
Having said all of that, we are seeing a good amount of business which has come in the last two months from China. So some of those customers with products being manufactured there and even in Vietnam are looking at sourcing from us. But for these to materialize, for example, even if an order is placed now, by the time the fabric is obtained, most of the orders which are placed on China based suppliers are all synthetics.
So the fabric ecosystem is there, not in India. So we let us still buy the fabric from there, bring it here and convert it. So all of this will show up in the months ahead.
But we are seeing that traction for sure.
Bhavin Chheda
And the last one sir, when you talk about the margin pressure at least for one or two quarters of the first half, that is 100, 200 basis point or it is much more, it’s a larger number.
Siva Ganapathi
So it will be a few percentage points, you know I would say about 2% or maybe a little higher than that.
Bhavin Chheda
But not, not much more than that. And from the quarter four levels, right. And not as compared to last year quarter one level.
Siva Ganapathi
So again product mix change, etc, etc may have an impact. So we’ll have to factor in all of those. So it will be somewhere in between Q4 and Q1.
Bhavin Chheda
Thanks a lot. Thanks a lot.
Operator
Thank you. The next question is from the line of Prerna Junjunwala from Elara Capital. Please go ahead.
Prerna Jhunjhunwala
Hello Hi. So congratulations on good set of numbers. So just wanted to understand. Thank you.
Just wanted to understand. Take forward Bhavind’s question. By previous participants, have we in any form seen any increase of orders from the customers in light of uncertainty in tariff? But we know that there is 10% tariff today.
It is pretty much bearable. So in any rush of orders wherein they are preponing their purchases for Q2 into Q1 now.
Siva Ganapathi
No, no, we are not seeing that. No, we’re not seeing. Not seeing that, no.
Prerna Jhunjhunwala
Okay.
Siva Ganapathi
And most of the buyers will be making an assumption saying that, you know, the same 10% or whatever will cut, continue beyond the 90 day window. So they’re not in a rush to take advantage thinking that, you know, 10% will be lower than what is going to come. So at the moment we’re not seeing that.
Prerna Jhunjhunwala
Okay. Okay. And in continuation with this, how, how much impact can we see in profitability in Q1? Because this is in Pandora’s box where we don’t know what is happening at the business end.
So just wanted to have a gauge on what should we expect from Q1.
Siva Ganapathi
So you know, unfortunately at the end of the day I think this is a problem which will be limited to Q1 and Q2, not just Q1. So let me reiterate and restate that, number one.
Number two, what is the extent of a problem? It is, you know, it’s a subject matter of negotiation. So see, all these orders are placed and we are working with the customers, the orders are being produced, orders are being shipped, etc. Etc.
All these orders were placed well before this new tariff was known. So Q1 orders were placed end of Q3 last year. So at that point in time we had no understanding of this tariff as well.
So now there is negotiation saying, okay, since we have a 10% tariff, you know, can the supply chain bear a portion of it? And when we say supply chain, it is not just the garment maker, it’s also the fabric maker, etc. Etc. So it goes down the value chain all the way to yarn.
So there is a negotiation across the value chain and all these negotiations started from almost third week of April. It is not concluded as yet and it will take effect from April when the tariff came in. But the percentage of who bears how much is all being negotiated as we speak.
So we don’t know where we will land. Obviously our hope and endeavor will be to minimize the impact on us and put as much burden back on the customer so that they can in turn put it on the end Consumer when they sell it. But at the moment that end consumer nobody is willing to change the price tag, price tickets etc, so it’s not getting passed on to the end customer.
So it has to be absorbed by the retailer and the supply chain. The relative allocation of the burden or the tariff burden is as yet to play out. So it’s unclear at the moment.
So I don’t have a number because it’s still under negotiations.
Prerna Jhunjhunwala
Okay, understood. And so the margins that you reported for the year beyond FY26 is should we expect that it should continue forward except FY26? So you know 12, 13%.
Siva Ganapathi
I am super confident of that. So you know, I mean if we keep the tariff related chaos aside, you know, the margins will be on an upper trajectory. There is no, you know, no challenges on that front and it will keep improving.
So if you look at a period beyond FY26 I don’t see any problem whatsoever from a margin step.
Operator
Sorry to interrupt Mr. Can we request you to return to the question queue for a follow up?
Siva Ganapathi
I presume you asked me what is the quantum? I think you know we should. It will be a percentage.
Prerna Jhunjhunwala
No, I just wanted to ask but what could be the leverage we could get on subsidiary financials, improvement on the current profitability?
Siva Ganapathi
I think we may have a good amount of leverage from the Africa side where we may see 2 to 3 percentage improvement in EBITDA margins there.
Prerna Jhunjhunwala
And Matrix.
Siva Ganapathi
Matrix may be 1%.
Prerna Jhunjhunwala
Sure sir. Thank you so much sir. Thank you.
Operator
Thank you. The next question is from the line of Thawansha from Alpha Accurate Advisors. Please go ahead.
Dhavan Shah
Yes, so my question is on the subsidiaries front, you know if I look at this quarter EBITDA of subsidiaries console minus standalone. So there is you know some reduction in the other cost from 44 last quarter to 20 crore in Q4 25.
So what was that related to? The lower other cost which led to improvement in the subsidiary operating margin.
Sathyamurthy
Sorry, can you repeat the question again? I’m sorry, we could follow you fully.
Dhavan Shah
Yeah, yeah. So for this fourth quarter FY25 we are seeing you know the reduction in the other cost in the subsidiaries accounts. So what is that related to?
Sathyamurthy
It is a, it is a reclassification of the leased assets, rental from other expenses, getting regrouped into depreciation and interest.
Dhavan Shah
Understood. So entire 20 crore on quarter. On quarter basis there is some, you know, improvement of 20 odd crore.
Siva Ganapathi
So no it is far for the quarter per quarter it should be 2.5 crores per quarter.
Dhavan Shah
Okay, okay. But still, still you Know if I look at you know the on quarter, on quarter basis also if I adjust this tank crore then the other cost for this quarter is 31 odd crore which was roughly 44 crore in third quarter FY25.
So still there is a reduction of 39 crore. Despite you know the revenue in subsidiaries is more or less the same on quarter on quarter basis.
Siva Ganapathi
Okay. It was partially the air freight cost and also partially the cost which are associated with, you know, material conversion charges in metrics is, you know we buy the fabric and then we convert it. That is being classified as other manufacturing expenses. Those expenses in the current year, current quarter, most of them have got reflected in the material cost itself.
That’s also the one of the reason. So may I request you to really look at it as a total level the cost will reflect which will make sense except the reclassification of the depreciation.
Dhavan Shah
Understood? Understood. And sir, on standalone basis plus you know the ultra cool metrics, if you can share in the. What would be the volume growth guidance for 26 and the, you know, the margin. Also if you can share standalone + ultracore + metrics
Siva Ganapathi
It is very difficult for me to give a guidance in 26 both on margins and on revenue growth.
There will definitely be revenue growth, our revenue growth broadly at a console basis we are still targeting 15% or in that ballpark, difficult to put a margin number on it primarily because there is so much of uncertainties. We don’t even know after this 10% will the tariff blow back to 26% or will it just stay put at 10, will it go to 15? These are wild numbers and we need some clarity before we have clarity on how our margins will pan out. But from a growth perspective we are still at a consolid level targeting at about 50 and we will continue on that trajectory.
We will endeavor to do so. The acquired entities also in my opinion will approximately track this kind of growth anywhere between 12 to 15%.
Dhavan Shah
Yeah, that’s all from my chat. Thank you.
Siva Ganapathi
Thank you.
Operator
Thank you. The next question is from the line of Roshan from BNK securities. Please go ahead.
Roshan
Yeah, thanks for the opportunity. Sorry, actually I joined a bit late so pardon me if the question is repetitive. I just wanted to understand that the in relation to the subsidiary, the African subsidiary, the AJ AG OA is set to kind of expire in 2025. So what is your view and that is building up? Will it be renewed or what is the view that you are having?
Siva Ganapathi
Very good question. So agoa, which is African Growth Opportunities act allows Kenya to export duty free into United States. So hitherto it was going duty free. It continues to go duty free.
This is the underlying tariff which ranges anywhere between 14% to 1332% which we all pay when we enter United States. And on top of it there is a reciprocal tariff which is 10% for all countries except China which includes for Kenya as well. So Kenya currently goes at 10% tariff but no underlying tariff.
That is thanks to AGOA. Now AGOA expires in September 25, so post September 25 any goods entering United States will go with normal tariff that is 10% reciprocal tariff plus the underlying tariff which is the ad valorem duty based on the HS code that United States will charge. Now as far as the business flow is concerned, we are already booking orders beyond September in Africa knowing fully well that AGOA may not be extended.
So there is still a hope that AGOA will get extended. It was all set to get extended but then Trump administration has put a pause on any move pertaining to tariff. So AGOA also suffered a pause which was supposed to get extended by another 10 years automatically.
So in the interim Kenya is negotiating a free trade agreement direct with us. There is a talk that AGOA, till the negotiations are concluded, AGOA may get extended by one year so that it gives a window. Africa traditionally enjoys a trade deficit with us, so US exports more to Africa than Africa exports to us.
So the tariff regime to Africa should be looked at more favorably by the administration is the belief. But having said all of this, even let’s assume that Agoa benefit goes away and we currently basing new business transactions on that assumption. We are not seeing any let up in the order flow or business flow which means brands are still comfortable sourcing from that region and are not toning down their business volumes there.
Roshan
Okay, and just as an extension of that question, supposedly if it doesn’t get extended, what would be the potential impact that you could have on margins?
Siva Ganapathi
At this point we are not seeing that also because we are selling fob, so the duty impact is on the brand. Some of the brands did come and seek some negotiations sought some negotiations on potential sharing of duty, etc. As and when we have a clarity on it and we have said flat no and we still seem to be able to book orders.
So I don’t see this particular AGOA impacting our margins or ability to book business at the moment.
Roshan
Okay, thanks a lot. And final question from my side…
Operator
Mr. Oshan, may we request you to return to the question give for a follow up question.
Roshan
Yeah, sure. Thank you.
Operator
Thank you. The next question is from the line of Varun Gajaria from Omkara Capital. Please go ahead.
Varun Gajaria
Hi sir. And thank you for the opportunity. So sir, just one. I’m not too sure if we’ve already addressed this but on standalone levels I can see that our margins have sort of dipped by around 300, 350bps.
Any particular reason for that?
Siva Ganapathi
Can you ask the question again? Your voice was muffled. You say standalone basis are. What did you say? I can see that the margins have dipped by around 300 dips.
Varun Gajaria
Can you cite a reason for that? I’m not too sure if you already.
Siva Ganapathi
Our margins have not dipped unless you are looking at pat margins and that could have dipped because of deferred tax impact in Q4. So if you’re looking at pat margin, you know that you’re right there was deferred tax impact of almost what, 10, 11 crores or something? Yeah, on a standalone I think it was 10 crores.
Correct. So. So you know it could probably be that you’re looking at.
But otherwise I think our margins have only improved.
Varun Gajaria
Okay. Okay. And. And so what is your views? Because. Because I can see that.
But Target and likes of Target and Walmart, they have revised their. They have revised their guidance for FY26, probably accounting a little bit for recession also for the. In.
In the US at the same time. So if you can just give us some color on that because I can see that our contribution from. Our contribution from the.
From in terms of ASP has sort of increased from. From low. Sorry, from less than.
I have sort of increased from. Of. From less than 450 bucks.
You know, in terms of sales contribution.
Siva Ganapathi
Okay. So the less than 450 contribution has increased primarily because acquired entities have, you know, are selling more of those kind of garments, Gokuldas per se.
We have not seen that change coming back specifically on you know, US recession or US market slowdown. That’s a reality that you know, we called out at the start itself and I addressed that in the opening remarks. So we have to see how the market performs at the moment.
We haven’t seen retail demand slow down. So if I look at first quarter CY25, retail sales has only gone up over first quarter CY24. So we are seeing a positive growth.
But we have to see how retail sales pans out in the quarters ahead Q2, Q3, Q4 of the calendar year. At the moment, Q1 25 CY25 versus Q1 CY24. There’s a 5% growth.
So let us, you know, it’s early to call out as to what will happen. Will there be a recession? Will there be a slowdown in buying? Will the tariff in turn induce recession? It’s very difficult to predict at one level. We are not in the business of macroeconomics, but it’s prudent as business people to be prepared for it.
And in the eventuality of a little bit of a slowdown in sales, how do we pivot our business? And that’s the reason why we are also looking at other markets, diversifying ourselves into different customer bases and product segments so that we continue our growth regardless of anything. As far as Walmart in particular is concerned, Walmart is a customer of ours. I have not seen a slowdown so far in Walmart’s order placement with us.
On the contrary, they are coming in and honoring all their commitments and are placing orders as we spend peak. So they’re not showing any signs of slowdown. Probably.
They may be, you know, emphasizing more sourcing from India and they may be slowing down elsewhere, but at least India sourcing doesn’t seem to have impacted for now.
Varun Gajaria
And your view on the recent embargo of imports from Bangladesh that the government of India has put. Yeah. How does that pan out for the Indian market, for the domestic market? Unless there’s an opportunity?
Siva Ganapathi
We don’t cater to domestic market, you know, so those who are in the domestic market may benefit because domestic market also has a lot of made in Bangladesh goods coming in, which was coming in duty free earlier. So there may be an uptick for those who are catering to the domestic market. Since we don’t play that, it’s irrelevant for us.
Varun Gajaria
Okay. Okay. Thank you. Thank you. All the best for the coming quarters. Thank you.
Operator
Thank you. The next question is from the line of Janesh Garia from Union amc. Please go ahead.
Jenish Karia
Yes, thank you for the opportunity. So just one question. How, if you could just explain why the fourth quarter gross margins of around 50% are lower than the 54, 55% in last year and last quarter.
Siva Ganapathi
So the graph, I mean, always we explained it, is the products mix, which makes the difference, you know, especially, you know, in terms of material cost. But that’s why we recommend to look at both material cost and the employee cost together. If you look at it, that constitutes almost 79 to 80%.
So that is intact. So the current quarter, there was a shift in from, you know, compared to the last quarter last year. Outerwear business is relatively less and more of, you know, our casual ware is Contributing there the metal component is relatively high and that is the reason you see that, you know, the mix of metal component being higher.
That’s why we recommend that when we look at the EBITDA level all this will get evened out and you will see that the margin coming correct being reflected correctly. Look at the both metal content and the manpower content and it differs from product category to category and depending upon the product mix that gets reflected.
Jenish Karia
Sure. So that helps. And just one last thing, if you could just explain why the standalone other income of 33 crore is higher than the consolidated other income of 20 crore. So subsidiaries have a negative other income how come that.
Siva Ganapathi
That is the other income largely constitute, I mean includes the interest income charged on the loans extended to the subsidiaries in the consolidated financials. All those gets, you know, knocked off and you will see the correct number and that’s why you see the difference.
Jenish Karia
Perfect. That’s really helpful sir. Thank you. All the best.
Operator
Thank you. The next question is from the line of Neeraj Mani Sinkha from White Pine Investment Management Private Limited. Please go ahead.
Niraj Mansingka
Thank you. I have two questions. One, what is the revenue capacity that will come up after the three locations open operational by Q3.
Siva Ganapathi
You’re saying what would be the revenue potential of the three new units? Is that the question?
Niraj Mansingka
The total revenue potential of the company after the three new units come up.
Siva Ganapathi
So the three new units incrementally will contribute to about about 325 to 350 crores incrementally to the. So if you look at the current fourth quarter we were at about 10:35. Right. That was the revenue. So that’s the revenue potential of the company. These three new entities will contribute incrementally by this level, this amount. This is annual.
Niraj Mansingka
Yeah, got it. Sorry. Other related question is in the scale up of non cotton side, do we have in India enough designs and availability of fabric for us to scale up their non cotton exports? Because what I thought was that that was one of the bottlenecks of scale up of non cotton from India. Obviously the price and the costing as well for those non cotton fabrics.
So any comments on that? And also if you can address the Bombay rayon, how it will help you in reducing cost and what is the potential for that company for slightly longer period of time.
Siva Ganapathi
So you know we do a lot of non cotton garments, particularly outerwear with fabric from the far east, so from Vietnam, Taiwan, Korea, even China and so on and so forth. So do we have the capability? Well absolutely we do.
The handicap that India has is that fabric is not locally available and so are several trims which are not locally available. So basing the business on shipping raw material from other regions increases the lead time and increases the cost for us. So while we are still competitive, if such raw materials were available locally, our competitive, competitive ability or competitive advantage would be much, much higher.
If you look at the fiber content in global apparel trade, polyester, it’s itself contributes to 60%. And if you add other MMF man made fibers to it, it goes almost to 67 to 70%. So at that staggering high level, India is virtually absent in global man made fiber based garment trade.
And that’s an opportunity for us. But you know, so far it’s an opportunity which has remained with China and the countries around China like Vietnam, Cambodia, Indonesia, etc. So while we do will take a while before it can expand, there are moves in India to expand the synthetic fabric ecosystem.
But it’s happening very slowly and it will take a while before India, India can become competitive in the synthetics space. Coming to the next question on brfl, I think the asset is progressing well. We have made investment in the asset with a view to taking a call on acquiring it down the line.
And so far the progress made in mending the operations and taking up its capacity has been fairly strong. When we invested in it in the month of July, June, July, the capacity utilization was of the order of 15 20%. Today we are well crossing 50%.
So that team has done a fantastic job of managing that asset and expanding it. So we are supporting that investment, supporting the management team there and helping it, helping that unit to turn around, which should happen soon in my opinion.
Niraj Mansingka
So last question, small question. Will your then cotton exports scale up first followed by the non cotton is what you’re saying? Or you would continue input fabrics from Middle east and sorry the Far east and then scale up your.
Siva Ganapathi
So our cotton based exports are the highest. So 75% of what we do are cotton based and that will continue to grow. And the Far east based supply chain, since we are competitive with respect to some of those countries, because we are competitive more on the labor cost here, we will continue to explore growth avenues there as well. And that’s an area where we do have lot of technical capability. We’ll continue to, you know, work in that space too.
Niraj Mansingka
If the government has banned a lot of imports of fabric, would it impact your imports or is it only for domestic uses?
Siva Ganapathi
We import for exports so you know, we clear our fabric on advanced licensing so we don’t have any of Those related issues, we don’t use those fabrics in the domestic market. We just convert it and send it abroad.
Niraj Mansingka
Got it. Thank you.
Siva Ganapathi
Welcome.
Operator
Thank you ladies and gentlemen. Due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.
Siva Ganapathi
Thank you everyone for listening to us. You know, the business has been growing and there has been a tailwind accruing to India. The UK FTA was the first one in that direction, which in my opinion will bring incremental business of a billion dollars. As and when the UK FTA takes effect.
I believe it will take at least a year, if not a little longer before it can take effect. But directionally it will bring in significant business. There is a negotiation going on with EU as well as a bilateral agreement with United States as and when that happens.
And Appel is high on the agenda because it’s labor oriented, manufacturing oriented and government of India treats that with high priority. So we feel confident that there will be a lot of manufacturing movement to Indian region from other areas and this would also benefit Africa where we do have manufacturing setups. So we are very confident of the long term business opportunity for us.
We have a fairly good reputation with our customers and we have a large number of customers with whom we will continue to grow. In the short term we will see some challenges, particularly with respect to tariffs and need to absorb some of the costs pertaining to the tariff because that’s something which will impact the industry at large. And we may have to stay solidly with the supply chain there, supporting our customers too to make sure that we navigate the tariff.
Uncharted waters with tariff. But my suspicion is that we will have more and more clarity as we go to the second half of this financial year. By then there would be a better understanding of specific agreements with respective countries like India and US and so on and so forth.
So these tariff related challenges then soon will be behind us. And also brands are trying their best to explore ways to offset or pass on these costs back to the customers and all that will happen too. So I feel that short term hiccups aside, the long term growth prognosis is strong, strong for the company.
In the short term there will be certainly there will be challenges and those challenges will materialize in the form of margin impact which is as yet unknown. But I guess in a few quarters we will overcome that as well and move forward. Overall, the business is trending in the right direction and look forward to continued growth of the company. Thank you.
Operator
Thank you on behalf of Gokaldas Exports Limited. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.