GOKALDAS EXPORTS - ONLY FOR HIGH RISK INVESTORS

In 2007 ,world’s largest Private Equity firm  Blackstone bought  close to 70 % stake in India’s largest garment exporter Gokaldas Exports by paying Rs.660 Cr .Mandatory open offer for  20% stake came @ Rs.275 per share.Due to bad timing this turned as one of the biggest blunder of Blackstone ( So far ) in India and the total market capitalisation of Gokaldas now  is only below Rs.100 Cr.Stock is now trading around  its lifetime low of Rs.25.Company turned to huge loss just after the completion of acquisition and the pain is still continuing.Many of the factors which added fuel to fire was beyond the  control of management .The most important factors were - sharp appreciation of Rupee during that period against US dollar , poor off take by customers due to pathetic situation of US Economy ,Sharp increase in cotton prices..etc. Gokaldas is India’s largest garment exporter with more than 1000 Cr sales and 30 factories across India with an employee strength of 30000 people. Company manufacturing  about 2.5 million garments in a month .Company supplying its products to many well known brands like Adidas,Levi’s ,Nike,Reebok..etc and  earning more than 90 % of its income from export .Close to 65 % is coming from US market alone.This higher dependency of US market negatively impacted the company when there was a weak economic situation in US .Even after acquisition of the company by Blackstone in 2007 ,till 2011 its operations were controlled by the old management .But in 2011 Blackstone appointed their own nominees  to run the company in a professional way. But even this didn’t bring any fruits due to the impact of above mentioned negative factors.Only in last quarter ( March ) Gokaldas reported some improved performance .Its loss reduced from Rs.51 Cr to Rs.10 Cr in March quarter.From a debt of Rs.350 Cr in 2010 now it reduced to Rs.250 Cr.

                                                                                   I believe ,many of the recent developments including the revival of US economy ,sharp depreciation of Rupee against Dollar,stability in cotton prices ..etc will help the company to perform better going forward.Chances for a turn around is higher in this FY .As I mentioned above, this  company is fully owned by world’s largest private equity firm ,and normally the ultimate object of such firms are encashing these type investments when good opportunities arises.Hence , I think they will try their level best to get a better valuation for the company .Since it is a high risk high profit kind opportunity ,those with high risk appetite and willing to loose even the capital may take limited  position @ CMP of Rs.29.Stock listed both in NSE and BSE.

Link to Company website HERE

Disc: I have vested interest in Gok.Exp.