Gokaldas Exports Limited (GOKEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Gokaldas Exports Q1 FY '21 Earnings Conference Call. On the call today, we have with us the senior management of Gokaldas Exports: Mr. Sivaramakrishnan Ganapathi, MD and CEO; and Mr. Sathyamurthy, CFO. [Operator Instructions] Please note that this conference is been recorded. I would now like to hand the conference over to Mr. Sivaramakrishnan. Thank you, and over to you, sir.

Thank you so much. Good morning, everybody. This is Siva from Gokaldas Exports. I have Sathyamurthy, our CFO, with me as well on this earnings call for Q1 FY '21. We meet again in a month. Just a month back, we had the earnings call for the year FY '20. I hope you all are healthy and are staying safe. I would like to start giving an overview of Q1 FY '21 right away. The quarter was, amidst the brunt of the pandemic that hit the Indian industry -- or the global industry, rather, and despite such severe headwinds and unexpected shocks, the company has, more or less, weathered all the storm and dropped a total income of about INR 237 crores, a substantial effort given that, for the quarter, we had almost 50% of our production capacity impacted due to lockdown. So right from last week of March until the first week of May, we had our factories shut, barring for some PPE health care production -- health care garment production that was a small percentage. So we did have severe production implication during the quarter. But despite that, we scrambled to overcome that deficiency in the subsequent period and could deliver this revenue. We got an EBITDA of INR 18.5 crores during this quarter. And our net loss for the year, we had a loss for the quarter, it was about INR 4.3 crores. Now if you look at the revenue, while the industry revenue fell by 62% -- or rather the Indian export revenue, exports declined by 62%. Gokaldas' revenue fell only by about 30%. And this is primarily because our exports fell by about 43%. So we did 20% better than the industry, Indian industry. And we gained additional revenue, thanks to our entry into health care garments. We manufactured PPEs for the government of India. We were one of the pioneers in that space and are one of the larger producers of PPEs in the country. We make both woven and nonwoven PPEs, very, very high-quality thin-seal PPEs. And the government and the users are very happy with the quality of garments that Gokaldas Exports is offering. We have taken that capability and we are also now engaged in discussions with international players for health care garments, but that's something in the future that we are working on. Our -- one of the other highlights for the quarter is that we managed to contain our costs considerably given the revenue shortfall induced by the pandemic. And we've nimbly brought down our operating costs pretty considerably during this period, and that also helped us manage the bottom line very well. In fact, we brought down our operating expenses by 32% over the previous quarter -- previous Q1. So a huge marked improvement and marked response to the challenges thrown by COVID. And overall, we had an EBITDA margin of 7.8% for the quarter. If you recall, I had mentioned earlier that we -- before the coronavirus pandemic, we had a fairly robust order book for Q1 and we were gunning for strong growth. But unfortunately, because of the virus hitting the global trade itself, we had to contain our revenue growth for the quarter. So this is how we have performed financially. Some of the key aspects which helped us in the business was our diversification of our customer base, that indeed helped us to absorb the volatility of individual customers falling much more than the markets, et cetera. So there were -- the U.S. and European markets, both of them were shut for a considerable period of time during that quarter, and retail sales came down to near 0. Online sales were happening in a fairly brisk manner. But the pandemic hit different retailers in different ways. So certain retailers could weather the storm somewhat, whereas some other retailers got impacted much more. But our diversified customer base helped us to make sure that we did not get as impacted as we started working more with retailers who are not as impacted. We worked with the retailers in other geographies, et cetera, to diversify and to capitalize on the given circumstances. The entry into the health care segment through PPEs also helped as 25% of the revenue for the quarter came from that segment as well. We also did -- responded with CapEx freeze. So we went on conserving cash for ourselves. So there was a complete freeze on any noncritical CapEx. We realigned our supplier payment also in tune with the business reality. And there was a very, very strong focus on cash conservation. So while we did borrow from the banks an extra COVID line of credit, we did not use it in the sense that we were keeping it as a back-up line to primarily ensure that we have the credit availability. We also made sure that we aligned supplier payments to our receivables, which were slightly delayed during this period because of the overall cash position in the industry itself. And we have managed the situation through this quarter exceedingly well, as in we have -- our cash in hand is robust and strong. And we feel that our liquidity position is very strong. We are confident of having a balance sheet which will support growth going forward in the future. The other thing we did during the quarter was OpEx management. We critically evaluated all expenses. We aligned -- realigned our headcount, did some compensation restructuring as well. Any value-added services which we were doing, which were not really required during that period, we contained our costs considerably there. We also scaled down some of our factory operations where operations were not as profitable, relatively speaking. We renegotiated input costs with our suppliers. So we did all of these initiatives to manage our operating expenses, which really helped us in delivering a better EBITDA margin given the situation. Our focus on providing employee safety remained very strong. We had fairly robust protocol for workplace safety. We were continuously sanitizing all our factories. We also spaced our workstations in our factories adequately to provide social distancing so that there is no fallout of the pandemic in the factory. If COVID even hits one employee, we did not want a spread within the factory. So we provided adequate shields between workstations and all of that to prevent airflow and isolate workers from one another. So whatever possible measures we could take to protect our people, we have taken. And we had doctors on standby, ambulance on standby, wherever required. Thankfully, we have not had any significant cases of COVID in our factories. We have managed the situation very well despite the pandemic raging all around us. Another important measure during all of this was to strengthen our engagement with our employees so as to maintain our productivity. Customer relationships are most critical during this period as customers themselves, our customers who are large retail brands, were themselves in a volatile situation. And we had to work closely with them, handhold them through this period to ensure that our relationship remains strong. We attend to their needs for realignment of order delivery. There were times when they asked for order deferment. There were times when we had to ask for order deferment because our factories were shut. And we had -- we wanted them to accommodate our request also as the lockdown was imposed in India as well. So all in all, we managed our relationship exceedingly well and managed to ensure that if ever the lockdown was opened up in May, we could at least start operating the factories at the level possible to serve our customers. So we had our customers supporting us exceedingly well during this period, and that's what we hope to carry forward in the quarters ahead. On the supply chain side, we strengthened our engagement with the long-standing partners. We ensured that our suppliers understand the position of the entire value chain, which -- in which we are operating, and make sure that they -- we gave them a revised payment schedule, but we made sure that they adhered to that payment schedule and made sure that they are comfortable with it. We supported them where required. For non-Chinese suppliers, we -- or we found alternate suppliers, either in India or abroad. We worked with several of them to ensure that, that part is taken care of. If you would recall, the government of India was kind of slowing down the supplies from China as a fallout of the relationship between the 2 countries. And we had to make sure that our supply chain is not impacted because of this, and we managed to work through this situation very well by realigning the supplier base. And of course, the most important one is focused -- relentlessly focused on our manufacturing. So we optimized manufacturing. We ensured that despite the fluctuations in workforce during this quarter, on account of containment zones being declared in and around the city and where the factories are and movement of people being restricted, there were a lot of fluctuations in worker availability. But despite that, we operated at fairly high efficiency levels. And our primary thought through the quarter was to recover of as much of lost production in April and May in the month of June, and we did that. That's why we could crack the INR 237 crore revenue during this period. So overall, I think if we look at all the approaches that we took, we managed our cash flow very efficiently. We leveraged the bank line of credit efficiently. We balanced our capacity with the orders that we had from our customers. We stopped a lot of nonvalue-adding activities and managed the supply chain well and all through this, managed our customer relationships exceedingly well. When I look at our customer base, the markets that is, especially the markets in North America and Europe, I find that the retail industry has slowly started opening up. The stimulus measures undertaken by those countries have started working somewhat, and people have started purchasing garments. So there is a reasonably good sign of demand traction coming up. The demand is skewed towards lower-value or lower-priced garments at the moment, which supports a lot of online sales as well. And be that as it may, as a manufacturer, we just realigned our production capacity to whatever is currently in demand. Brands are seeking customers -- I mean, suppliers who can supply volume and with the efficiency and lower cost, suppliers like us who have, a, complex capabilities; and b, volume capabilities, will be -- will automatically be preferred. And we will be able to consolidate some of our suppliers -- some of the suppliers in the industry and thereby reduce the impact of overall fallen end retail in the garment sales. So that impact could be mitigated if we are able to consolidate the supplier base. So we are seeing early trends of that. We are seeing customers report strong faith in Gokaldas Exports and working with us as we go through this -- go through the effects of the pandemic. So our consistent performance, our capabilities, our financial strength and our customer relationships, our investments in sustainability, all of this is giving us the confidence, and the customers -- our customers the confidence, that Gokaldas is a player of repute, is a player of immense strength. And that will help us come out of this COVID situation at the earliest. We're seeing reasonably strong traction already in Q2, and we hope that by end of this calendar year, more or less, we should be coming out of the impact of COVID. So with that in mind, I would like to assure you that Gokaldas is doing everything it can to work strongly in the industry, be a manufacturer of repute, be a manufacturer who focuses on the bottom line and ensure that we deliver consistent results to all our stakeholders, whether our customers, the government, the employees and most importantly, the shareholders. We are working towards that, and we are confident that we will continue this journey going forward. I will stop now and open ourselves up for any questions. Thank you.

[Operator Instructions] We take the first question from the line of [ Anil Kumar Sharma ] from [ Gokaldas Export ].

You have given a good performance in this situation. My question is, sir, at which -- at what capacity presently we are running and how you expect this year-end March '21?

So we are running at about 75%, 80% of capacity levels at the moment. That is because of social distancing, where we have phased out our machines in our factories as well as there are still some challenges as far as availability of people are concerned due to lockdown imposed in various parts of the city, particularly in Bangalore. Having said that, by end of the year, we are expecting ourselves to go to full capacity.

Right, sir. And how do you think the year-end March...

That's what I said. We will go almost to full capacity.

The capacity is okay, but on profitability -- and what about -- do you think about what's the most...

We don't provide financial guidance for the quarters ahead. We anticipate that our business will return to near normalcy by the fourth quarter. And I had said that in the last earnings conference, and I maintain that at this point in time as well, looking at how things have unfolded. In fact, it gives me a lot more confidence that things are looking even better than it was a month back. So my confidence that things will turn back to near normalcy by fourth quarter is stronger than it was even a month ago. And I hope that we will -- our performance will come back to normal high-growth performance at the earliest.

One last question, sir. When we can expect the dividend?

That is more of a -- we will look at that at the appropriate time. I think it's too early to comment on that. Let us navigate through this COVID impact and make sure that our performance comes back to a strong level, then we will consider it.

We'll take the next question from the line of [ Saval Shah ] from [ Geric Capital ].

Sir, my question is more on the -- on a macro tailwind front. The past 6, 7 months since the time COVID has struck the world, and there's the matter of apparel with China right there. So what sort of conversations then do we have with our clients? Do they intend to shift something more to us, or it might go to some other Asian countries, like the others, Philippines, Cambodia, Vietnam? And how do we want to attack this opportunity? Or do we see any change in business strategy which you are planning to implement and capture the opportunity?

Sure. Thanks, Saval, for this question. So I will answer this in 2 parts. One is there is a continuous decline of apparel growth from China for 2 reasons: one being cost in China is very high; and second, there's a negative sentiment which is around China, it's at. So supply -- the buyers or the brands across the globe are looking at derisking themselves and finding alternate supply locations. The first blush of that movement went largely to Vietnam and Bangladesh, and they were in a relatively stronger position to capitalize on the movement out of China. Why did that happen and particularly, why did Vietnam gain out of this is just simply because you -- the whole game is about the complete value chain. So apparel exporter or apparel manufacturer is but a portion of the value chain, and then there is a fabric supplier and build behind it. There is a spinner behind, with a spinning and weaving industry behind it. There are processing industries and all of that. So those industries could still continue to remain in China, supply the fabric to a manufacturer in Vietnam and supplied out of Vietnam. So that was the model that people encouraged because the cost of labor, which apparel manufacturing being the labor-intensive portion, got shifted out to Vietnam, so -- and to Bangladesh, for instance. The other reason why Vietnam and Bangladesh were preferred were because they also had FTA arrangements with certain countries, so they could go duty-free. So a large trade will look at cost of delivery and tariffs. These are the 2 arbitrages that trade seeks, and these countries could offer that. Now the second wave of this is that -- is due to further pressure being mounted on China by governments around the world. So now what is happening is that complex governments are being considered to be outsourced away from China to other countries. This is where capability comes into play and people like us in India have strong capabilities. The other part of this is that the recent move in U.S. Congress, where they went for the new reforms act or something like that, which really, financial companies which have done business in Xinjiang, Province of China, where there is persecution of some ethnic minorities there in China, so that province is a large cotton-producing province. And because of these moves, the Chinese cotton could get impacted. And if that happens, the beneficiary could be India because India is a large cotton producer. Keep in mind that Bangladesh and Vietnam does not have a large fabric base or the rest of the value chain, but India has got the full value chain. So the beneficiary of all of these would be the Indian supply chain. And if that happens, and hopefully, it should happen, then we will see some more traction coming this time towards India. Now the question is are Indian apparel manufacturers strongly positioned to take advantage of that. A few of us are in that position. We are seeing some traction. In fact, we have got several orders which were either to -- until last season being manufactured in China. So we have seen that traction, and we are continuing to work on it. So we see that what would first start as a trickle would probably ramp up as the years roll by. The full impact of this will probably happen sometime in the year 2021. But I'm sure early signs I can see are there in terms of buildup of tailwind. On top of all this, if the government of India manages to get some FTA with certain countries, which I'm sure they're working on, but these negotiations do take time to fructify. But if that happens, then that will be an enormous tailwind for the country.

Okay. So sir, if we just go back like a little bit in the history, say, year 2011, '12, when this entire Chinese cost of production started inching up, and that's where, say, for example, companies like KPR in India set up a huge garment facility. And then there was a lot of noise and a lot of -- there was a lot of interest. The government was very excited to give lot of incentives. But then, over time, we find some companies that started did not expand further in India. I mean they went to Africa because Africa had an FTA or some duty preference with the European and American countries. So now has anything changed? And there were a lot of volatility in the government incentive schemes. Also, EMEA has withdrawn, and then a lot of ups and downs that happened. And like in our P&L, also INR 10 crores is the grand total we have caught. Now so as for you, as an industry body, and -- how would you look at this because we lost -- we had a very golden chance of getting a lot of business, but it all went to Cambodia and Vietnam. And then -- so was that the time the low hanging fruit, it was there in -- Cambodia and Vietnam capitalized on that? And now India can really step in since the way the entire COVID thing has happened. And now is the government also willing to grant more incentives to your industry, make a concrete policy on which -- and spinners like you can take a long-term view and do an IRR calculation and make an investment plan? So what are you hearing? What are you representing to the government? And because I know India as a country has excess labor and a textile industry which can occupy a lot of labor. So in the whole, garment as an industry is a great employment generator, but I mean, we don't see the government being very excited for any added incentives. So what is your thought on that?

Okay. So that's a lot of questions rolled into one. And I will try to be as brief and concise as possible, given the paucity of time and the interest of other questioners. And if I haven't fully satisfied you, then we could handle this off-line, okay? So let me get started right away. So there's a complex history in India with respect to how well India is capitalized on the opportunities coming out of -- coming out in the past versus how other countries have. And I think, in the past, many other countries, especially 2 countries, right, Bangladesh and Vietnam, have really capitalized on it. That is not to mention that India did not. Indian apparel exports also continued to grow until about 2014, '15 or thereabouts, and then it started stagnating. But it did capitalize up to a point. The Indian incentives and government support for this industry has been patchy and fairly volatile. There were times when we got reasonable support from the government and good incentives. And there are times when most of the incentives have gone, like most recently when India has withdrawn retroactively in January 2020. Having said all of this, I think, currently, the situation is as such. The incentive levels, most of the extra incentives are gone. The industry has to learn to live without any incentives and compete on an even footing. So we need to be efficient. We need to be smart. We need to have developed the capabilities to compete with the best in the world. And those firms, which are able to do it, will always shine and will prosper. So that's the message from the government. Anything that -- the way Gokaldas is looking at it is we would allow the government to support this industry as it generates a lot of employment. We ourselves employ over 20,000 women. And if we continue to grow, who knows, one day, we may employ even 1 lakh women. So there is the ability and the potential to create a lot of employment that are in the right segment of the society. But at this point in time, I'm not banking on any support. If it comes, it's great, it will add to my momentum. But if it doesn't, we still are in a position to continue to prosper and progress. So we have to engineer ourselves in that fashion. Second, India has got an advantage of the full value chain being present, unlike the Bangladesh or Vietnam, where we have the cotton production, viscose manufacturing, we have our own fiber manufacturing, to all the spinning, weaving industry, processing industry. So we are a full value chain player. That definitely will come to help us. And if there are really smart manufacturing companies who are able to align to global requirements, be that in terms of design, be that in terms of capabilities and product variety and manufacturing efficiency, I think Indian firms will lead the way out for India. So rather than expect the entire industry to work in a particular fashion, I think some of the industry leaders will have to step up and deliver a consistently high performance, which will yield or which will attract some of the best brands to India and work. From a policy standpoint, if there is a consistency in policy, it will be a great boon for all the operators, that we don't have to keep tweaking ourselves in response to policy changes. So if there is a policy stability, that's what the industry seeks. The rest is in our hands. We will have to keep doing the best we can.

We'll take the next question from the line of Sunil Kothari from Unique investments.

Really, thanks for a very detailed answer to the previous question. Sir, my question is broadly on the inherent ability of the company or maybe this industry to survive with this type of EBITDA margin because now and then you face disruptions from government policies as incentives given and which are sometimes, we think -- what is that, this increase by the state government, the basic commodities of the employees, and then you sometimes tend to extend costs to the customer end. And this is very natural. It happens everywhere. So do you see, sir, that with the single-digit EBITDA margin, this is an industry which can really thrive in -- or it has some basic fault or some reason to at least reach 12%, 14%, 15% EBITDA and then use those cash flow to sustain and reserve some capital to face this type of situation, broadly because of what we have seen in the telecom industry also? If it is not profitable for us in the near term, then it has to die. So I'm combining also some macro things that one can use, so please share your thoughts.

Sure. So thank you for this question. I think one should recognize that there were a few incidents which happened last year, particularly the minimum wage went up by over 10% last year as well as MEIS drop. That was the 4% of revenue. So these 2, there was a confluence of both of these events last year, and that's why it's probably very high in our memory. But the good news is that there is nothing more to lose and nothing more that can happen. So the EBITDA margin technically can only go up from now rather than anything impacting us. The entire locus of performance shifts to us, and there's no more reliance on any external event because nothing more work can go on, right, barring a demand side impact, which also came about due to COVID. Even that, in my mind, is on the ebb and we will only see an upward trend coming out of COVID. So given all of this, I feel that the worst is behind us. COVID is on its way out. The incentive is at its lowest. The wage cost is at its highest. So everything is -- the worst is just behind us. And now the focus and the energy is to see: a, how we can grow; and b, how we can improve our margin. Now in this bad period also, we have delivered a 7.8% EBITDA margin. I'm reasonably confident that as we go forward, the margins will only improve for 2 reasons. One, as the capacity goes up, our margins improve because incremental revenue comes with incrementally higher capacity, right? So that will automatically give that operating leverage, and margins will improve. Can I -- in the future, and I'm not saying this for FY '21, given FY '21 is a year which is a troubled year for the entire global industry, but can I look at the year ahead and say that can we be a double-digit EBITDA margin? I am reasonably confident that we will be there for sure. So the confidence that our EBITDA margin will improve to double digits is very strong. And we will be attempting that going forward as well given the efforts that we are putting in. And I'm not foreseeing any negative situation coming from a demand side or coming from the policy side going forward. If there is any tailwind, that will only help us. So let's hope for the best.

Okay. So sir, basically, over time, what I'm trying to show then, what you have that is required, just briefly, not this year, but maybe next year, onwards, you have the ability to say more to your customer, that below this price in margin, we are not going to market, you have enough choices. In that scenario, what can I show?

So that happens when we have a larger number of customers with us, and that's an endeavor that we are working on. So that customer diversity is important. A year-round ability to perform is important. What do I mean by year-round ability? The business is seasonal. So we do have our strong seasons, which usually come in Q3 and Q4 of our financial year, and Q1 and Q2 are relatively weaker quarters for the industry. So a player whose ability to perform in all seasons because of the product capability will also have an added benefit of better margins because in the weaker quarters also, you perform well and you deliver higher margin, which, overall, boost the average. So we need a diversity of customers and a diversity of capabilities in order to do that, and that's exactly what we are working on and doing to ensure this.

And sir, my last point, my last hopefully. Inherently, this single-digit EBITDA margin or maybe 10%, 12% on the EBITDA margin is just to grow -- I think grow, grow in the industry, where you see at least an important EBITDA margin basically because you will find somewhere, some reason -- I mean, maybe something, maybe some internal reasons of external clients, some customers, some raw material. So is it that -- you -- what's in your opinion, which is like a basic margin, is what is doing this activity in business?

So I -- EBITDA margin is only one measure of performance, in my opinion. ROCE is another measure of performance, what is the return on capital employed, right? And if return on capital employed, it can be in the excess of 20%, 25%, then I think we are in a good business rather than just look at return on EBITDA margin. Can this industry and can we be there? The answer is yes. So our ROCE can be strong. Why will ROCE be strong because this industry has got very low investment requirement. That is number one. B, is it scalable as scalable for a performer? So if you have the ability to manage multiple factories, customers, et cetera, and if you have a scalable management team, then it is scalable. So we can grow and thereby increase our overall EBITDA. And three, this industry gets a reasonably subsidized debt in the country. So there is an additional financial leverage that you can get through that. So return on equity will be even better because capital cost of debt is lower because of interest subvention, which somewhat exists in the industry. So given all of this, one should also look at the other financial parameters, like ROCE also, to evaluate how this -- how the business is.

We take the next question from the line of Kush Gangar from CAPMS.

Congratulations on a decent set of numbers in current tough times. My first question is on the cost control. What we witnessed was quite good in total reduction. Can you elaborate, considering you don't expect to reach full capacity utilization in Q4, should we be able to rely on these cost measures to sort of stay away from losses?

So what our Q1 shows is our agility and our ability to align cost to revenue, right? So if business conditions demand, we have the flexibility to manage that. That's what we've demonstrated. Now will these -- the costs have come down -- operating costs have come down drastically primarily because, a, we eliminated a lot of wasteful, I don't mean -- our overhead expenses, et cetera, et cetera, like we have a washing unit, 2 washing units. We shut down one of them for the time being given that the volumes were low, so on and so forth. Two -- b, realigned our workforce also to the requirement of the business. And also, during that period, due to lockdown, many workforces also were not coming to work, et cetera. We -- also in the month of April with 0 production, we ended up paying our employees 50% of the wages. While for March, even though they did not work, we paid full wages. And from May, we paid full wages to our employees again, so May, June as well. So there were a lot of those moves that we took. We have also realigned our staff counts, et cetera, to the required business requirement. And that also, overall, contributed to some amount of savings. Some of these savings are here to stay. So these are not one-off. Some of the other savings, purely the worker salaries, et cetera, is a function of capacity utilization. So as we flex up the capacity and start moving up in our capacity, we would be -- the worker salary cost will go up, but so would the revenue in proportion and the profits in proportion. But overall, I would say that we have taken well over INR 20 crores out of the system in terms of costs annually.

Sure. So costs. And then in terms of our customer diversification...

Sir, I'm so sorry to interrupt, but your audio is not very clear, sir.

Hello. Is this better?

Yes, please.

Yes. In terms of customer diversification, if you can just give us in terms of about 5x contribution earlier, what it is now. And I think, earlier, we had 7, 8 or 10 big customers, what that count is currently after the addition over the last 2 years. Just some color on how that has looked?

Sure. So if I -- I wouldn't want to take Q1 as an example because Q1 is an aberration in many ways, correct? So the top 5 customers' contribution in Q1 will be very low. And I don't want to gloat about it, saying that we have brought down our customer concentration considerably. But Q1 is not a normal quarter, right? So if I look back 2 years ago, we were -- the top 5 customers were, in my -- I'm recalling from memory, so please don't hold the exact number on me, but it was almost 85% to 87%. Today, we are closer to 70% or under. So we -- these kind of things don't move overnight, right? We don't want to shrink our last top customers just to reduce the customer diversification. We want to grow our other customers, so that the diversification objective is achieved. And that is what we are doing consistently in order to reduce the customer concentration. Our top customer about 2 years back was 35%. Today, our top customer is only 26% or 27% of our revenue. So there is a reasonable diversification of revenue, and that is a path which is being sustained. And all these new customers that we have brought in are all on a reasonable growth path. So we are doing okay from that perspective as well.

So sir, and if you can just give us exports from the U.S. and Europe?

Well, U.S. exports, out of our exports, U.S. is almost 70%, 72%, and Europe is about 15%.

Sure. Sure. That is helpful. And just on any CapEx plans for not this year, but over the next 6, 8 months or...

So we are watching the recovery trend. If we get some more confidence by Q3 on market recovery, and we feel that, that is permanent, I mean that's here to stay and things have come back to full normalcy or near full normalcy, then we will go aggressively on CapEx for building out the factories. For now, we have put CapEx on hold to get the clarity on how the markets are shaping up. I'm quite encouraged by how the demand curve is picking up. When I say demand curve, I'm saying end-user demand, so that's internal result in our retailers placing orders on us. And you know that through the value chain, it has to work its way up. But if we see the trend continuing and if we feel that this is here to stay, then we will go ahead with CapEx for the next financial year.

And what can be the top line which can be achieved at full utilization?

For the company, so last year, we did INR 1,400 crores for the year. I think that given the improved efficiencies, et cetera, with the capacities that we have, we may be able to go to about INR 1,500 crores. But keep in mind that we're also looking at reduction of one factory, which is work in progress as we speak. But despite that, I think we will be able to slightly improve the revenue on full capacity to above last year levels. Beyond that, we will anyway need additional capacities to expand.

We take the next question from the line of from Mulesh Savla from M M Savla Consultancy.

First of all, a heartiest congratulations on the excellent management of our operating cost in the challenging time. Most of my questions are answered and addressed. I would just like to have one more guidance from you. You said PPE business was about 25% of the total turnover this year.

This quarter.

This quarter, this quarter, sorry. So how do you see that business growing going forward? Will that share remain at 25%? It will go up, it will come down. And profitability-wise or margin-wise, how do you compare this business with your other businesses?

Okay. So going forward, the PPE business' share will come down because in the first quarter, we were on -- especially in the first 50% of the quarter, when our factories were in lockdown, we were only allowed to manufacture PPEs, not anything else. So our normal business got completely shut down because of the lockdown being imposed on the -- all of us, on the entire Indian industry. So PPE as a proportion of revenue went high because the other revenues shrunk, we could not produce. But that is not going to be the case going forward because now we are full-fledged producing for exports. And that's point number one. Point number two, by and large, the PPE requirements for the country is more or less being met by various suppliers. Government of India is -- unless they can come back to us with fresh orders for continued supplies, we don't intend to produce PPEs for domestic consumption. The domestic PPE industry has been reasonably vitiated with many, many small players getting into PPE manufacturing of fairly suspect quality as well and supplying locally in the market. So we don't want to compete with that. This is a -- it's not a game we want to play. So we are clear that we will do business, provided there is a margin in the business. And we'll do business where there is a need for the country. So when we stepped in with PPE manufacturing in Q1, primarily it was to meet a national need, and it also ensured that our capacities were utilized. And that helped us considerably in Q1. And more than that, it helped the country and the medical fatality. Now going forward, our focus would be, let's look at health care garments for the global markets rather than India. Unfortunately, PPE business for exports were opened up only from July. By then, most of the global orders got placed over on Vietnam, Bangladesh, China, Sri Lanka, Indonesia, et cetera. So all the orders got placed and we were waiting, but we could not get those orders because it -- exports were banked. Now from July onwards, we have started engaging with the customers. Hopefully, something will come. But we are also on the second half of COVID battle, or the requirement has more or less has been addressed by other players. So we will see how much more business we can get, but our focus largely on health care garments is now export-oriented.

Okay. Okay. And margin-wise, is there...

Margin-wise, PPE is on track. We will do better margins if the pricing are good. Otherwise, we have other businesses to focus on.

We take the next question from the line of Jayant Mamania from Care Portfolio.

Congratulations for the great set of numbers during this COVID period and industry outperformance. Sir, I wanted to know whether this work-from-home concept will reduce the size of the ready-made garment industry.

So I can see that the key garment requirement may not come down, but the nature of garments may change. So there may be a focus towards casual and athleisure kind of garments if work from home continues globally. And people may prefer those kind of garments as opposed to formal suits or formal dresses and stuff like that. So the product side can go through some alterations. I'm not foreseeing a massive shrinkage of ready-made garment. Also, human beings are social people, social beings. So people would want to go out, meet people, et cetera. Currently, they are being held back by COVID. But as and when a vaccine comes or people can learn to live with this pandemic, which is probably a bigger learning curve for all of us to overcome, once that happens, I think the RMG demand will come back. What I'm currently seeing is Indian RMG demand is very, very low. While we are reasonably insulated from it, as we are export-focused, it will be -- I'm foreseeing that it may take a little longer for Indian RMG demand to come up. But international RMG demand, I can see, is bouncing back very well. So when I talk of -- when in my earlier talk, I said garments under $25, for instance, are doing reasonably well, we are seeing demand go up to almost 80% of the levels which we are seeing -- which we were seeing a year back. So same month last year versus this year, low-priced garments have more or less picked up. It's the high-priced garments which are now yet to pick up. So there is a degree of casualization of the product in demand. Hopefully, that also will change going forward. We will have to observe it.

Yes. My second question is, sir, we have worked in April, 15%; and in May, 50%; and in June, 75%. So average utilization level was around 45%. And in spite of that, we have achieved 70% of the turnover of Q1 2019. So how was that all possible?

So it is -- turnover is also a function of the value of the goods, and the value of PPE per garment is higher than a normal garment. If I make a shirt versus a PPE, the pricing is different. So there is multiple components which go into all of this. And the other part is, of course, efficiency levels as well. So one is what percentage of capacity which is about stations used or people used, and we operated at fairly higher efficiency levels in Q1 with the remaining -- with the existing staff. So that also yielded some incremental revenues.

We take the next question from the line of Prerna Jhunjhunwala from B&K Securities.

Congratulations, sir, on great EBITDA margin that you've delivered this quarter in times of COVID. It's highly commendable. Just wanted to understand, are there any major learnings that we had gone through in this -- in the last 4 months? Because we've been trying to improve our efficiency and reduce cost to get this kind of profit operating over the last 1, 1.5 years, and we've managed it in this quarter. So any sticky costs that you would like to highlight which have given us the fragility in this quarter or some light on the lessons and cost reduction which have been possible due to COVID, which were not done earlier, which could not be done earlier? Something on that lines would be helpful.

Okay. So see, a bit of context is also required, right? So earlier, we were planning to grow. And pre-COVID, I was intending to grow in FY '21 by almost 22% to 25%. That was the aim or the goal that we had. And then COVID came, hit us and completely derailed the entire industry, particularly us because we were planning for high growth. And when we plan for a high growth, you've got to build your capability and capacity a bit ahead in advance. So we had to build the cost structures also for that kind of a growth, and all this has happened prior to COVID. Now when we saw COVID hit us and when we saw that the hit is not going to be very short-term, for a month or 2, but it's going to last out in some form or fashion for the year, we said that we will now have to make sure that we contain ourselves, but we keep the core of what we are, the core capability of what we are, intact. So some of the early cost structures that we built, whether it is in development side, whether it is on the design side, whether it was on the merchandising side where we built additional costs, et cetera, in the hope of bringing on a few more customers, et cetera, we contained those. We also can cut some extras in the factories from a cost perspective. One of the underperforming factories, we have started the process. We laid them -- laid the workers off there for -- that factory was not profitable for over 5 years. So we did that. We have realigned our customer base also. There were certain customers who were not as profitable. When we see that there is a capacity constraint because of COVID, et cetera, we realigned our focus on those customers where we can make better profits than otherwise. So some of those realignment also happened. Multiple places, optimization happened, including base restructuring to manpower management. Working capital cycle, we tightened much more. So a combination of all of these efforts is what resulted in our cost management coming out very successful. So it's not like one single bullet which we fire and then get operating costs reduced by 30%. There were multiple efforts taken. But through all of this, it is important to keep in mind that the core capability of efficient manufacturing we have not lost sight of. We have not done that. We have, in fact, further worked harder on it to ensure that our efficiencies only go up, and the efforts on that side was never stopped. In fact, it was further advanced. So where required, we have spent money to further make ourselves competitive. And anywhere else, we have gone ahead very, very aggressively, chopping costs in line with the requirement. So it gives us the confidence that when the growth comes back, we can grow back. It also gives us the confidence that we can -- with a much tighter manpower and tighter operations, we will be able to gun for higher revenue. So that's how it was done.

Sir, some of these costs means -- will not come back also, I mean, because you have now learned -- I mean, that these things are doable at all.

Correct.

Okay. So that INR 20 crores that you talked about are a mixture of all these activities.

Correct. Correct.

Okay. And sir, what would be your current employee trend and vis-à-vis last year same quarter? That is one.

We are at 22,000 versus last year, we were at 26,000 by March end.

Okay. Okay. And sir, last question is on taxation. When do you see yourself getting into tax [ benefit ] again?

FY '22 or FY '23, Prerna.

Next question is from the line of Ashwin Reddy from Samatva Investments.

Firstly, financial performance given the environment should be -- we congratulate the entire team in Gokaldas. I have 3 queries. One is on the China part, you mentioned you've been trying to look at the alternate sourcing for raw materials and along the supply chain. So as on date, what proportion of the raw materials comes from China for Gokaldas?

Our import value is around INR 200 crores annually of what we do, of which China is contributing to close to INR 120 crores.

Okay. Okay. And in terms of the pricing pressure side, you mentioned that you're seeing more of online sales and customers also downgrading in the end markets in their purchases. So how should we see this impact on your margins? Would you -- are your customers trying to renegotiate the contracts and which -- would we see more margin pressures?

So if the garment type changes in the -- amongst the end consumers, it doesn't impact us much. We will realign our products and capability to produce whatever is in demand, whatever is required. We have the ability to do that. The margin is a function of how much of capacity is chasing what demand, right? So if a lot of capacities change -- chase smaller demand, even there will be margin pressure. And in some ways, one could say that, that prevails even now. We have been reasonably efficient and capable of handling some of that and holding on to our margins. Customers also want quality producers and, more importantly, consistent producers. So the worry which many customers have during this period is that a lot of smaller players who, in turn, tend to keep the pricing low are financially very weak. Their ability to borrow or their ability to pay their workers through all this period is questionable. And that capacity, when it comes into active play, is when the margins get impacted. When that capacity is at bay, we will not have as much margin pressure. So if there is a same capacity, so to speak, then we will be in a better position. So for now, while the macroeconomic tendency will indicate that there has to be a higher capacity than demand, the reality is that a lot of capacities are suspect at this point in time. Their ability to deliver is questionable, which is not putting as much pressure on margins than I would have thought. Having said that, as things unfold over the quarters ahead, we will have to keep a close watch on it. The best penalty for that is to ensure that our manufacturing efficiency continues to be strong.

Okay. Understood. Understood. Quite helpful. And finally, how do we see the debt play out over the next 1 year? Because in this quarter, we didn't see a big rise in debt, which is good. But given your -- given that you're more optimistic now versus a month ago, how do you see the debt situation at the end of the year for you guys?

Our debt requirement, I mean, overall debt will go up by around INR 25 crores is what is our estimation for the year-end with the current operations. If you're really looking at any further expansions and things like that, it will go up by another INR 25 crores. Totally, about INR 50 crores is what is the maximum, what we expect to go by the year-end.

Okay. So once you do these expansions over the next 2, 3 years, would you again need more debt? Or do you think this is closer to the peak debt? Or how do we think about the debt? And with a growth kind of perspective, how do we think about the debt that you guys have right now?

So debt, I would classify in 2 categories. One is the working capital debt, which will rise in proportion to revenue. And our aim is to contain our working capital to our current cycle of about 90 days or thereabouts. So to that extent, the working capital debt will go up. And in my opinion, that is a good debt. Why is it a good debt? Because currently, at least till end of next year, there is interest subvention going on. Hopefully, that will get continued. That comes in at around 6%. So any debt which comes at that level, in my mind, cost of capital being low, is always healthy for the business as opposed to otherwise. So that's as far as the working capital is concerned. It will be in proportion to revenue. The second type of debt that I see is the long-term debt, which we would require in case we want to expand our factory capacities and add new factories. Any expansion within our existing factories, et cetera, we have our own cash flows, which will sustain it. But new factories, et cetera, we may look for additional capital requirement, which is what Sathyamurthy was mentioning that additional capacities, et cetera, we'll look at another INR 25 crores, maybe even INR 30 crores, INR 35 crores of capital we may require as we go forward to put up new factories. But then those new factories will be also contributing to incremental EBITDA, and we have to look at it from a project financing perspective. So additional debt will only come from that perspective. I don't foresee also that growing too much because internal approvals will also start contributing to it, and we will deploy that.

The next question from the line of [ Anil Shah ], individual investor.

My question is -- can you hear me?

Yes.