Trimming non-core assets helps Gokaldas Exports' turnaround

Gokaldas Exports has surged 47 percent this month, 91 percent this year and 148 percent over the last one year.An apparel manufacturing company, with a Rs 445 crore market capitalization, 80 percent of its revenue comes from exports.Earlier, it was owned by the Hinduja Group and in 2007, Blackstone Group invested in the company. The latter now holds 57.4 percent stake in the company. When Blackstone invested in the company the share price was Rs 275, so it is still sitting on a bit of a loss because the company has been making losses and from FY11 to FY14. In FY14, the losses came off a bit and narrowed to Rs 7 crore and the company turned around in FY15 and FY16, made a profit of about Rs 35 crore in FY15. This fiscal, it made a profit of Rs 61.3 crore.Why that could have happened is because the company is selling off its non-core factories and non-core assets. When Blackstone invested in the company, it had around 46 factories and the factory numbers have come down to 26 as of end of FY15. In FY16, the company sold one factory to Raymond for Rs 28 crore and the board also approved sale of three other factories in Bengaluru, Hyderabad as well as Mysore. This has improved its cash and fundamental operational flows, besides giving the company some profit on sale of land and buildings, amounting to Rs 44 crore in FY15 and Rs 46 crore in FY16.So for a company which has a marketcap of Rs 445 crore, the cash has risen from Rs 15 crore in FY13 to Rs 211 crore in FY16. The cash sitting on the books is half of its current marketcap. This is despite the stock running up as much as 150 percent in the last one year.The tipping point for the stock to move higher was the Q4 results. Not only did it get profit from land building, it also started to turna round operationally. While total income was up just 23.5 percent, the EBITDA grew by 850 percent as well as the margin which came in at 13.7 percent versus 1.8 percent earlier. After the move, the FY16 earnings per share (EPS) is at Rs 17.4 and the stock is at trailing PE of 7.3 times and if we take into account the last quarter's performance. It could be trading at anywhere between four-five times FY17 earnings, which is lower as compared to the other textile IPOs which trade between 8 and 12 times.