Gokaldas Exports Limited (GOKEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Gokaldas Exports Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from Ernst And Young. Thank you and over to you, sir.

Thank you, Niraj. Good morning to all the participants on this call, before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known or unknown risks, uncertainties and other factors. It must be viewed in connection with our business risk that could cause future result performance or achievement to differ significantly from what is expressed or implied by such forward-looking statements. To talk about the recent acquisitions and answer your questions today, we have the top management of Gokaldas Exports Limited represented by Mr. Sivaramakrishnan Ganapathi, Vice Chairman and Managing Director; and Mr. Sathyamurthy, Chief Financial Officer. We'll start the call with a brief overview of the acquisition and then conduct Q&A session. With that said, I'll now hand over the call to Mr. Siva. Over to you, sir.

Thank you, Binay. Good morning, everybody. Thank you for joining us at this extraordinary earnings -- investor presentation. Last evening, we concluded a definitive agreement with Atraco Group, which has got manufacturing facilities in Africa and have operations in UAE, Kenya and Ethiopia. So they are headquartered in Dubai, in United Arab Emirates. Where all the marketing production coordination, the senior leadership team, their sourcing and finance functions are all located. Where -- while the manufacturing happens out of 4 different units in Kenya and 1 unit in Ethiopia. So that's the spread of the network of this particular asset. This company was set up in 1986. So it's a very well-regarded long established apparel manufacturing company with a solid reputation in the industry. They employ about 13,000 workers and have got fairly long-standing customer relations. Bulk of the production of this company goes to United States. 95% of output is exported to the U.S. And the reason fundamentally is that the access to American market is facilitated by AGOA, which is a special treaty, which allows African countries to export duty-free to the United States. So Kenya qualifies for AGOA, Ethiopia used to qualify with the off late since the civil war 2 years ago. They have the -- AGOA benefit has been suspended. Ethiopia continues to access Europe through our duty free arrangement. And it is expected sometime in the future that the AGOA for Ethiopia [indiscernible] will also be restored. But bulk of the output of this company goes duty-free into United States. There's also a duty-free access to the U.S. The product range includes products for men and women and children, products across bottoms, tops, blouses, dresses, et cetera, and both woven and mitts. So the company has been eager to privately held. And for this transaction, we intend acquiring 100% of the equity of the entire company. The key advantage that I see for Gokaldas from this asset is, one, we get access to low-cost locations, namely Kenya, Ethiopia and maybe any other geographies like that in the future. Duty-free access to principal markets which is going to be a very big advantage. Duty-free locations always get priority in terms of sorting allocation from large brands. And that's why, regardless of market volatility and fluctuations, these countries don't see much drop in volumes. The production facilities that the company has are all exceptional. They are very well run and very efficiently managed. The company has got a very good track record over the years. The relationship with the customers are solid. So all of this gives us the confidence that we have identified a great opportunity for partnering and growing. And we will close this acquisition, we will have one more region to leverage upon for our future growth. The company has in 2022 calendar year, delivered a revenue of USD 107 million and a PAT of about $7.2 million. It had about [indiscernible] over $1 million of onetime costs that got baked into its calendar '22 P&L on account of start-up of a new unit that they set up, this will not be there going forward. So to that extent, their PAT has been understated. So the company has got reasonably good potential for growth as well with the new capacity that they recently put up there is an opportunity to ramp that up going forward in calendar 2024 and the years ahead. So we see a fairly good opportunity with Gokaldas and Atraco coming together. The customer base that we have is largely mutually exclusive. With only 1 common customer that we have between us. But otherwise, we get access to new bunch of customers. And hopefully, we can even cross-sell. So overall, I'm enthused by the fact that we get access to these geographies. I'm enthused by the fact that we have the ability to grow in multiple geographies and service our customers better. I'm enthused that we've got a fairly strong management team in Atraco, which can continue to progress this company forward. I'm glad that we have done everything in our possibility to make sure that the acquisition was well thought out. We have a lot of cultural similarities between the 2 companies as well, as both of us are very conservative in our approach. And I feel confident that once the acquisition closes, which will happen sometime in October after receiving all regulatory approvals, we should be able to bring more cross-functional capabilities to one another and drive up the synergies. And hopefully, if the demand in the market picks up, then we will have a fairly strong growth possibility going forward. So I will stop here and pause for any questions that you all may have. Thank you.

[Operator Instructions] The first question is from the line of [ Kapil ] [indiscernible] from [indiscernible] [ Wells ].

So my first question is on the timing of this acquisition. Now we already witnessed a slow Q1 and probably as per your commentary, it would be a slow Q2 as well, and we are already on our massive CapEx plan. So though this acquisition is at a very good value and the synergies are there for sure. But wouldn't the timing would have been a little later and most of your CapEx plans would have been commissioned towards Q3 or Q4? And probably there would have been some uptick in the exports because the exports on [indiscernible] has been in decline. So just want to hear your comments on it.

Sure. Going forward, starting third quarter, I'm seeing an upward trend in exports. So I'm not as particularly concerned about the timing at all. On contrary since this asset is based out of duty-free regions, there is a strong support from the customers as they get access to lower-cost garments from these regions. So the order book for this company is also relatively strong from the later half of this year onwards. So I don't see any challenges in acquiring this and being able to utilize their capacity. We do have strong traction from our respective customers. As I said, the customers are also fairly mutually exclusive. And their customers are also giving them fairly good traction from a business standpoint. So our capacities, which will come on board in -- towards the later half of this year and early FY '24. All the efforts that we have been doing to fill that continues. And those are for businesses that are denominated out of this region, which is India and South Asia. Whereas the businesses that Atraco will do will be those which are denominated for the -- for Middle East Africa region. And that's an incremental business that we will tap into. And there also, we see strong traction from the customers. So I don't see a problem from a capacity utilization perspective going forward.

Sure. And that has -- my next question is, like, could you help us with the [state] between government and [indiscernible] because if I see 40 million pieces for this company. So probably, it would be a split of around, say, 50-40 for [indiscernible]. I just wanted the realization part on the...

So the [indiscernible] capacity denominated in certain end values, et cetera. The actual number of pieces may vary depending on what are the specific times for the governments that we make. So even with that caveat. I mean, there -- [indiscernible] is to mix ratio is 74-26. So almost 3/4 of their output is [woven] and the quarter is mixed.

Sure, sure. And sir, what would be the capacity utilization Atraco would be at currently?

Almost like a share under 90%.

Next question is from the line of Bhavin Chheda from Enam Holdings.

Yes. Congratulations on this acquisition and it is attractive on the first length. So few questions. First on -- so this AGOA treaty is due for renewal in December 25. And apparently, I think the acquisition looks -- obviously, there is a big duty advantage to U.S. with 95% of the sales that is [indiscernible]. And treaty is due for renewal next year. So what would be your thought process on the [indiscernible]?

So we are reasonably confident that the AGOA benefit will get extended. Usually, AGOA is given for a 10-year time frame, and that expires in 2025. In the previous year also AGOA was extended. Kenya believes very strongly that AGOA will be extended. Kenya is also working on an FDA with the U.S. The relationship between America and India is very, very strong. They have a very good [indiscernible]. America is investing a lot in Kenya and strengthening the relationship because there is also a geopolitical move between China and America to come closer in Africa. So from all of those aspects and knowing that Kenya is one of the strongest allies in the African region for United States, we have a strong belief that Kenya will continue to have preferential access to U.S. markets. That apart, there is also a preferential access to European market. So we take comfort from that. Not only all of this, but fundamentally also the assets are very efficiently run and cost effective. So even, let's assume that the entire retail loses AGOA, which I don't see as a possibility at all. Then the financial sustainability will be good enough to keep this business going.

Sure, sir. Second, on the product segments, are there any products or segments which are common between you and them or this is completely new segments which you are not [indiscernible] to. You also said that the customers are not common. So if you can give some idea are there any overlapping products? Or this is completely new segments which were not there earlier?

So we do largely woven. They are 75% woven. So this is a product which is not overlapping between us and them. They also do about 40%, 50% of children's garment which is not a product category that we are present in, we do only men and women. So from that perspective, our overlap is restricted to woven, which is 75% of their revenue. But only on men and women, which is again, half of the revenue [indiscernible] being children, it's a new segment for us. This is also a new segment for us. That's the 25% of their revenue.

Next question is from the line of [ Sohoni ] from SBI Funds.

Hello?

Hi, you are audible.

Yes. So I wanted to get some perspective on the previous owners from whom we've acquired this business. And why were they looking to sell this. And in terms of retaining the key people in that geography, what are our plans?

Okay. So the previous owner, he has aged and he wanted to pass on the legacy to somebody who can take this asset and hopefully grow upon it, protect the legacy and probably further the legacy. So that was the intention. Which is more of passing on the asset to someone who can take care of it. That -- they came from that perspective. So there is going to be handholding that I will seek from the existing owners for a period of 1 year or so. And then he's graciously consented to do that. I -- the company itself is run by a management team. There is a CEO, there is a COO who's operating the operations of the company. And they're all very, very pleasing professionals, very well respected in the industry as well. So from a continuance of operational stability from a management perspective, is we are keeping all of them. So we're keeping the top management, the middle management, the factory management and all of that, they're all solid professionals. And there will be continuity in operations from that perspective.

Sure. That is great to hear. And also wanted to check that since you mentioned that the operations are run almost at about 90% capacity utilization. So when do you think would you be investing further into that geographies? And what will be the quantum? How soon would we need to do that?

This will have to be worked out going forward. But I anticipate that starting calendar '24, we will probably start looking at planning the capacity expansion. So we should start clearly investing in calendar 2025 in capacity expansion. The new unit that they have set up, there is scope for additional lines to be set up in that unit as there is a space and [indiscernible] mark for further capacity expansion in the [indiscernible] Kenya. So we will be investing going forward once the market conditions are also assessed and we get control over the asset sometime towards the end of October this year. So my expectation is towards -- in the '24, we will be working on it and 2025, we should have the capacity enhancements in place.

Next question is from the line of [ Rehan ] from [ Equitree ] Capital.

Congrats on the acquisition. My first question is, when do you see the numbers kicking on your P&L for the new acquisition?

So we have entered into agreement and now these are subject to regulatory approvals from respective countries. We anticipate that all of that will get concluded by end of October. Now the usual caveat remains because we are expecting [indiscernible] the approvals from government and that could be delayed. But our anticipation is end of October. So from November onwards, we will start consolidating the numbers into our P&L.

Okay. And second question would be, what's the amount of debt-to-equity you plan to use for funding this acquisition?

So the total cost of acquisition is $55 million for 100% of the equity. We intend using $15 million from our own cash on hand. And $40 million, we plan to take debt. We have already secured line of credit from banks. And that $40 million, we will deploy for the balance [indiscernible] of acquisition cost.

Next question is from the line of [indiscernible] from MaxiLife Insurance.

First of all, congrats on this good acquisition. Just -- if you can share some of the initial basic numbers -- you did mention that they do about $7.2 million of profit last year. I missed that 1 number which you mentioned, onetime cost, I don't know that -- what's the EBITDA percentage did they make, what sort of [indiscernible] that those entity have? What sort of debt it's balance sheet has? Again, total numbers to us would be helpful.

See, the number that I mentioned was a little over $1 million, which was a one-time cost that they had in setting up the new unit, so that they took a P&L hit in calendar 2022, which we don't expect that to occur. So the $7.2 million of tax is after taking that into over $1 million of it in that one-time cost. As far as EBITDA margin is concerned, if I adjust for all of the one-time hit in calendar '22, this asset should have an EBITDA margin of a little over 10.5%. And I expect that as we invest in upgrade of plant and machinery, et cetera, we will -- and also, we expand the capacity there. We should have operation -- operating leverage kick in. We should also have some efficiencies coming through further investments coming in. All of that, there is upside potential, as usual, of about 1.5% to 2% there. And we will work towards that over the next 2 to 3 years to realize that. So it will require some amount of investment, some amount of expansion. It's a very well run company, so we will have to work on improving the efficiencies and the margins there going forward.

And any debt which is on the balance sheet, what's the gross [indiscernible] that they have today? .

They currently had a $15 million working capital debt. There is no other term debt on the books for the company.

Okay. And is it a similar model of how where they have ForEx asset terms on the balance sheet?

They have more or less similar model, Yes.

Next question is from the line of Nishid Shah from Ambika Fincap.

Congratulations [Indiscernible] acquisition. A few questions, Siva. Additional capacity through the [ brownfield ] expansion and other things that the new acquisition side in Kenya and Ethiopia.

Nishid, but can I request you to speak a little louder, please?

Is it better now?

Yes.

Okay. So, Siva, so the additional capacity through the brownfield expansions and also the scope for cost reduction in terms of manufacturing, marketing because you have a marketing network here, you have a marketing network in these companies. So obviously, there will be some synergies coming in. So basically, are we saying that 1.5% to 2% efficiency coming in, in EBITDA over the next 1 to 2 years would bring the EBITDA for the acquired unit also in line with what we are currently having right now in terms of...

Yes, I think so. I think so. Over the 2- to 3-year period, we should be able to bring it more or less in line with the EBITDA margins that we have here.

Super. That's very good. And on the customers, the -- you said that it is complementing. So we also get a lot of new customers coming in through these acquisitions. So could you give some more color on that?

So these are all American customers that they have, and new customers they have had multidecadal relationships with those customers, there is a potential that we can take our customers. We have a much bigger customer base than they have in terms of shear number of customers, and we can take our customers there over a period of time, some of their customers also, we can work with. So that potential exists, is what I alluded to when I said that it's a complementary customer base where there is a possibility of cost utilization of customers going forward.

So on the working capital, how much working capital do they have? Are we paying also for the working capital? What I'm trying to say is we are paying $55 million for the acquisition. But how much is the working capital there? Or is it in line with the working capital loan that they have or in the [indiscernible]?

[indiscernible] mission is working capital debt, what they have as of date. Their working capital cycle is a little longer than what we have, about 110 days is what is their working capital cycle because of the long lead time, they have to import the material, [indiscernible] holding is there. And for also the receivables, they continue to hold around 50 days. All those efficiencies, we will work on it because currently, thier working capital side, I mean, operating [indiscernible] is about 110 days.

So no, I'm just trying to understand the numbers. So working capital debt is how much? And how much is the working capital?

Working capital is $50, so $35 million is working capital. We have a debt of only $15 million.

$50 million is the debt.

Correct.

Five-zero is the debt? .

One-five.

One-five. So if I adjust for it, we are actually enjoying another $15 million coming out of working capital. Isn't it? Siva, you understood what I'm asking?

[indiscernible].

So $20 million actually is the working capital i'm given, in net of the working capital debt that I have.

Yes. Correct.

So then we are actually getting it for a very reasonable valuation. Okay. And Siva the last question from my side. This makes us not just an India-centric global garment manufacturer, we will now be truly going global with Africa. And also you have already a move on to Bangladesh, so are we gearing up to become a truly global garment exporter?

So the intention is that while that [indiscernible] that's a means to achieve an end. The real objective is to have a very strong customer base the company that can provide extensive solutions to our customers. And having global execution is one part of that equation. We should also have a stronger design capability. We should have a stronger marketing capability. So we'll have to have front-end offices, more investment in design and all of that. So all of those parts also we need to build out. But definitely, this is a big step because setting up manufacturing units globally is not easy. And it takes a lot of time before they can mature to be very efficient. This acquisition [indiscernible] reduces the process, the time taken in the process. And gives us good assets to start working with.

Thank you, and I think this is a very good acquisition, all the very best. Thank you very much.

Next question is from the line of [indiscernible] from [indiscernible] Capital.

Congratulations. Most of questions answered. But just to break up the capacity between Kenya and Ethiopia out, can you share that number?

87% is Kenya as of last year, 2023, there 2022. About 13% of the business came from Ethiopia unit, because in Ethiopia, we have only 1 unit, 4 units in Kenya.

Okay. And is there a material difference between the Ethiopia and Kenya products or more or less similar?

Products are similar.

Okay. So average realization is there is not much difference.

Not much of a difference at all, yes.

Okay. And in terms of labor efficiency or productivity, if you compare with India, how these are the numbers in terms of cost advantage, if you can give some reference?

So in terms of efficiencies, they are very well efficiently run business. And I see that the efficiency of the labor force, at least that I have seen in their unit are as good as India, maybe even a lot better. So that goes as far as the efficiencies are concerned. As far as the labor costs are concerned, Kenya, the labor cost is approximately $190 to $210 labor per month. And which is alot higher than that of India. But then obviously, the efficiency, compensated for it. And the falling Kenyan shilling also helps them reduce the cost. The Ethiopian costs are a lot lower. The total cost comes to about $110 and $120 of per month for labor. They are much cheaper than India or Kenya for that matter.

Next question is from the line of [ Vikram Sherim ] from Equitas Securities.

Congrats for a very great acquisition also. Sir, my first question is with respect to operations at our -- both Kenyan equipment facilities. As per your assessment, how easy or difficult is managing the labor there. Most importantly, with respect to either branding them to the factories or either [indiscernible] the attrition base or planning the productivity base. Any view on that and any measures [indiscernible] or we have plans to up their efficiency there.

Vikram, but we are losing your audio.

Hello, is it a little better now?

I could hear the question and from the gaps -- I could fill in the gaps as well. So let me answer this question. The Kenyan operations there are very efficient. In fact, manpower availability is also good, both in Kenya and in Ethiopia, the new units that got set up with abundance of manpower available. The attrition rates are slightly better than that of India, but not a whole lot better. The manpower productivity in both Kenya and Ethiopia is strong. I think Kenya is a little better than Ethiopia. It's Ethiopian operating culture being what it is. It's somewhat like India. So they also take a lot of festival holidays and all of that stuff. But by and large, I think, from a manpower management perspective, I don't see any problem whatsoever because these companies have been run there for years together. So whatever issues they've had, they have ironed it out over a period of time managed to find the formula to run it. So what we are getting is well-oiled, well run and well-managed labor force. So we don't see a problem in managing the labor or even expanding for future growth because the ability to manage the labor force in both these companies exists.

Got it. Sir, my second question is with respect to our client sales where while we also derive almost 85% of our revenues from North America, and they also have around 95% coming from the America side. But then you're saying that except for one retailer, we do not have any overlap. So it like -- it makes me -- can you like name who are all the top -- [indiscernible] size, retailer client base for Atraco group?

At this point, I'm not at liberty to name the customers, we have not -- we need permission from their customers. We concluded the deal just yesterday. So we have not gone through all that process. So I'll ask you to kindly bear with me on the names. But then the fundamental factor is that they go duty-free to the U.S., and that is the reason why they have American customers largely. Going forward, if FDA and all happens in -- between India and U.K., we will try to balance our customer base and take our business a little more and shift back towards Europe from a very, very strong import line from the U.S. market. So that will happen over a period of time on the Gokaldas side. The African assets will at least for now continue to be facing United States.

Next question is from of [ Hiren Dasani ] from Goldman Sachs.

Congratulations on a great deal. Just wondering like, it's a well-managed operation, reasonable profitable margin labor productivity is not very different. So I mean, the succession was the only reason for the owners to sell out?

That is correct. Yes.

Okay. And if -- I mean, would you expand the capacity more in those geographies only, where the current management team will have the expertise to run the labor in terms of operations or the...

Senior management sits out of Dubai, so we can -- we probably can get a larger flock of East Africa for now. And while the initial focus will be on the 2 countries, in particular, also in Kenya than Ethiopia, but for Kenya and Ethiopia, we will also explore other opportunities going forward. The management team in the past have run operations in Egypt, Madagascar and all these places. They used to have factories in those regions as well, about 20 years ago, 25 years ago. In fact, they started by having some units in UAE itself. So there are options -- the management has the ability to handle multiple units in multiple geographies. The model allows us to do that because all the businesses are booked in UAE and then manufactured in the respective geography. So the way the operations are set up is that it is scalable. We can also tap into new countries, new geographies, set up new units, work with third-party unit, people need arises, even though I'm very reluctant to go down that path as well. Even -- there are multiple options for exploring other adjacent geography we'll be careful in entering newer regions, and we'll do a strong due diligence before we commit to any geographies that we were able to not present. So even now, we did a strong diligence on Kenya, we did our diligence on Ethiopia, the factory that they have is present day in [indiscernible], which is the capital city and is well protected. So all of those diligences have been done, we look at manpower linkages. So all those businesses will continue when we look at future expansions with the [indiscernible] asset as well.

Got it. And you're reasonably locking in the senior management with -- appropriate in [ indiscernible ] and all that...

Yes, yes. correct.

Okay. And finally, just to clarify, are you saying that Kenya labor costs, even on a productivity adjusted basis, is slightly higher than India?

Productivity adjusted base is more or less at India level. Thankfully the Kenyan shilling has fallen which helps in [indiscernible] to that extent. So I would say they're coming at India cost level. So my cost in multiples probably will be a shade cheaper. But what we look at is landing duty paid cost to the customer. So their duty-free access, the American duties are -- can go as high as 58% for [indiscernible]. So that's a huge play, that exists there. So overall, I think the -- that's a little more than offset any other incremental. [indiscernible] Look in Kenya where the labor costs are lower, which is, as you go away from cities of Kenya, Nairobi and Mombasa. So those are all areas that we can tap into also going forward.

Great. Congratulations on Kenya and thanks for the opportunity.

Next question is from the line of Niraj from Whitepine.

I have [indiscernible] two questions. One was on the revenue growth. You had said that with the Kenya [indiscernible] $20 million of growth potential. Can you elaborate on that?

So there is a new factory that has been set up by them in Kenya. There is an expansion potential available there. So we can add extra lines there going forward in the future once we take control over the asset. And we will probably plan that sometime in the next calendar year, that is 2024. So we are -- we do have the opportunity to take the revenue up by $20 million or even probably not.

Okay. And the time to bring into revenues will be how much -- how many months in the [indiscernible]?

I think this will probably be closer to '25 also, calendar.

Okay. Okay. So basically, the growth in Kenya will only come in FY '25 because you're running in almost 90% utilization in that? Or you can see somewhere [indiscernible] .

Let's also add those machineries and recruit or train them. So that's a process of 6 months to 1 year, which we go through to deliver all of that.

And how is your difficulty to hire people in that location?

Not at all difficult. Not at all difficult. There is an abundance of people available, the reputation of the company is good. So people would like to join them and work. The track record of treating people well and paying them salaries, et cetera, is strong. So not at all difficult.

Okay. And the last question is on EBITDA. You said that EBITDA margin is accretive, but the company only being 10.5%. So is there some immediate-term margin growth that you will see coming in? Or you just [indiscernible] that we're talking about [ 11.5% ]?

Yes, we need the 2-year period to do that.

Next question is from the line of Kaustubh Pawaskar from Sharekhan.

Most of my questions have been answered. Sir, on the margin plan, again, I just wanted to understand, all our margins are -- can you give me an -- Indian asset margins are slightly lower than what we are currently at around 11.5% to 12%. Is it mainly because of the lower realization what we are getting over there? Or because -- as you said, that labor cost or operating efficiencies are similar to what the Indian assets currently have. So is it more to do with the product profile, or what they are currently selling to the U.S. market?

So it's product profile, regional profile, customer profile. There's a lot of all that going on there. So yes, it's a bit of a combination of all of those. There's also a factor that not too much of investments in [indiscernible] machinery over the period has happened, which also will drive some incremental productivity improvement and which can then help sort the EBITDA. So all of that may happen going forward. But yes, it's largely currently a result of the product and customer profile.

Sir, any thoughts you have, like, any kind of investment or thoughts you have that you are planning to do beyond the capacity addition, what you're planning to do for the assets?

So, I don't intend doing anything immediately, at least for next 1 year, except for absolutely critical CapEx which are in the nature of replacement CapEx or improvement CapEx. But we will do the plan sometime in '24 and then probably '25, we may want to do some upgraded CapEx.

And then last one on the rate part, you just specified that you have already arranged for the $50 million rate you are planning to do for the acquisition. So what will be the cost of rate for funding the taxes?

It's in the ratio of around 250 basis points over so far, [ all-inclusive tax ].

Okay. 250 basis points, [indiscernible]?

So far, [indiscernible]. .

Okay. Okay. And do we have any tax benefit over there?

I'm sorry, repeat the question? Do we have what?

Tax benefits?

Yes. Yes, we do have. So in Kenya, we are setting it up as an Indian bid, so we will enjoy a 10-year tax day. And the business is largely denominated in UAE. So all the revenues are booked in UAE and the manufacturing operations are done in the respective entities, in the respective countries. And those entities have paid certain transfer prices for carrying out the manufacturing. So the working capital is also held in the UAE entity. So the profits are largely booked there. And UAE being a tax-efficient region, there will be tax benefits.

[Operator Instructions] Next question is from the line of [ Varun ] from [indiscernible] Capital.

Congratulations on the acquisition. So you mentioned that there will be a revenue addition of around $20 million in the next -- over the next 2 years from this particular entity. So [indiscernible] quarter [indiscernible] that's what we're looking at? And help me how the debt is [indiscernible].

We are losing your audio. Can you come in a better reception area, please?

Yes. Give me a second. Am I audible now?

Yes.

Okay. So I suppose you just mentioned that we will be adding another $20 million in terms of revenue over the next 2 years from the acquisition. So what is the CapEx that you're looking at or what is the capacity addition that you're looking at there, in that particular region.

I see the CapEx, in my opinion, will be about $4 million in that region. And there will be some incremental working capital as well, which will be required for delivering the incremented $20 million per region.

So [indiscernible].

That's correct.

Right. And just a small clarification to how the [indiscernible].

[indiscernible] productivity because this expansion will happen in an existing facility. So incremental cost of building out the facility and all will be not there as far as this particular asset is concerned. So there may be a little more efficiency in revenue per CapEx.

Right. [ Pardon ], towards the end of FY '25, what is the cash earned [indiscernible] reflects for this purpose, of completing all your CapEx, is there anything else?

At the group level you're talking about? At the Gokaldas [indiscernible]?

Yes, at a group level.

We anticipate the net debt, including all this, and the annual average around INR 150 crores to INR 200 crores.

Right. Okay. Is -- on the [indiscernible] we are...

Once again, we are losing your audio.

Am I audible now, better?

Yes.

This particular debt position will be post-CapEx that you do at [indiscernible]?

Yes, [indiscernible] mostly will come in Q4 of this financial year or later quarter [indiscernible] next year. However, that will not be much. What we talked about Gokaldas group level debt is after taking care of the expansion activities happening in India as well as the U.S., what we are intending to do and the acquisition of the working capital funding, whatever is happening, in particular, the net level, what we anticipate is about INR 150 crores is the estimated debt level after the acquisition is over, and the expansion is completed are for the financial year -- at the end of FY '24.

[Operator Instructions] Next question is from the line of [indiscernible] Achariya from [ RTL ] Investments. [Operator Instructions] Next question is from the line of Arvind Kothari from Niveshaay Investments.

Congratulations on a great acquisition. I wanted to understand that we also wanted to expand in Bangladesh as well. So what are our plans going forward now with this acquisition? Do we go ahead with that? Because there is also a talk of the Bangladesh wages -- minimum wages going up by 70%, 80% by the year-end. So I wanted to understand on that.

No, good question. We had suspended the Bangladesh expansion until we had a better read on the market condition from a demand perspective. Now with this asset in place, we still have the opportunity to invest in Bangladesh. We will continue to be open-minded about it. And if the opportunity exists and if there is a customer traction for it, we will look at it. But we will review the decision and take the decision closer today. When we took that Bangladesh acquisiton, obviously, this asset was not in play. Now that this asset is in play, we can take a look at it. We're not ruling it out at all. In fact, Bangladesh's attractiveness, thanks to duty-free access to Europe continues. Having said all that, the [indiscernible] are also going up. And there is a mood amongst buyers to diversify out of Bangladesh. But despite all the stock, you should realize that Bangladesh exports about $42 billion compared to India, $16 billion. So Bangladesh over the last few years have continued to grow, and that's a region which is still favored by the brand. So we're not going that [indiscernible] out at all. We will keep that in play for the foreseeable future.

Okay. So in that context, I just wanted to understand if the minimum wage bill were to be passed in Bangladesh, have you made some assessment of how it will affect the business volumes in India? Because I think that will do away the tax advantage that they might have, right?

So yes, I mean, it's a minimum wage growth of -- by 40%, 50%, which is also a good [indiscernible]. And Bangladesh does this once every 5 years or so. So after that, this minimum wage will just stay put. So first, we like to assess the quantum of minimum wage increase. You should also keep in mind that Bangladeshi Taka in the last 1 year depreciated by 13%, while as the Indian Rupee depreciated by 3%. So there is incremental depreciation of Bangladeshi Taka by 10%. So that also has got a countervailing impact on all of it. So let's say, a 40% increase in wages translates to about 10% decrease in the [indiscernible] EBITDA margin. And assuming it [indiscernible] just 25%. But a 10% relative depreciation offsets that. So we like to keep all of these factors in mind when we do the calculation.

Got it. Got it. And then finally, can you name some clients or the large top 5 clients that the new entity would be having to just understand their relationship with them?

So we just had agreement with the buyer -- with the seller yesterday. We haven't really sought permission from the clients at the moment. It's a bit too premature, and we haven't had the time to seek the necessary permission to disclose their name. And I want to respect that. These assets are still not in our hands. All this is subjective to what we pick. So I don't want to pick out anything in public until we have the clearances for that.

But in our due diligence, have we made an analysis of what is the quantum, which of the largest buyers in their sales?

So customers collectively have contributed to about 65% of the revenue. So they do have a significant concentration of customers.

Next question is from the line of [indiscernible] from [ Phillip ] Capital.

Congratulations to you and your entire team for fantastic acquisitoin. On the -- continuing with the last question, so I just wanted to understand the thought process. Is there any change in the strategy because, in the last conversation, if I remember clearly, we have never spoken about Kenya or Ethiopia, but we were more focused towards Bangladesh. So what has changed, your thought process or strategy, which has led to a sudden [indiscernible] which seems to be a [indiscernible], it used to be very good acquisition for you as well. So what has changed in the thought process of strategy?

So the strategy remains the same. The reason for choosing Bangladesh was because they had a duty-free access to the Western market business, Europe. Kenya has a duty-free access to U.S. market. So it is always looking at low-cost regions for manufacturing because my belief is if you are in a low-cost region, your sustainability of the business is much longer. So we will continue to explore most of region. We got an opportunity to tap this region by acquiring a very well-run company, there was a meeting of minds, et cetera, that happened here. It could have happened in Bangladesh for all we care. So at this point in time, if the opportunity presented itself in another geography. But the attractiveness of our geography was very similar. That's the reason why we chose this one.

Got it. And sir, we have discussed -- like in Bangladesh, we have finalized some JV partner and we were in advanced discussion as well. So you're [indiscernible] that JV is no more at a progressing level? Or what is the current status of that JV? So -- and what would be your plan for Bangladesh to be, over the next few years?

The JV is intact, the relationship is intact. We just decided that we will sign it appropriately when the market conditions improve. Last 6 months or 9 months, the markets were not that great, then both of us who are not very comfortable going ahead and putting in CapEx and building capacity. We were taking over an existing capacity through [indiscernible] which was within [indiscernible] with the bank. So the capacity would have come up onstream [indiscernible] and then ramping up in Bangladesh also doesn't take time as talented labor is available. So we didn't want to make huge investments since we're not sure of the market. That's why we have -- we put that on hold, and it continues to be on hold and we will review it and take a call going forward.

Got it. And sir, just last question on the CapEx side. So except this changing from Bangladesh because of the ongoing situation, there is no change in the CapEx plan for the, like domestic operation? So whatever we have done, that is just top of your domestic expansion. Is that clear understanding, sir?

Correct.

Next question is from the line of Gaurav Sood from [ Kanav ] Capital.

And congrats for a great acquisition, One thing I wanted to know was around -- in terms of the product breakup for the new company, the breakup between synthetic and cotton?

I think it is about 50-50, between synthetic and cotton. Probably a little higher on synthetic, maybe even, 60-40. It's a little more synthetic basis.

Okay. And so where is the fabric sourced from, in these countries?

Largely in China. The synthetic fabrics are mostly from China there.

Okay. And then the cotton part?

Cotton part from China and India, Pakistan and all these regions.

So would there be an opportunity for you to see sourcing came to India and you could use that to scale economies in order to reduce the prepayment cost there?

So we will explore all of that. Being a stand-alone region, if they have a superior sorting ability from China, or some other regions, if the pricing is better, we will continue to explore all those options. For synthetic anyway, we will continue to focus on China.

Okay. And last question from my end. On a year-on-year basis, do you expect the revenues to grow there or they'll be stagnant or we grow -- where is the current run rate project?

So they are currently on a calendar year book closing. So I don't expect much growth in calendar '23, given the global market conditions. But calendar '24 onwards, we anticipate good growth.

Next question is from the line of Priya Doshi from [ Fidelity and National ].

Congratulations. Yes. So my question was more around the risks behind this acquisition. So you know that we are entering a different territory. And some of the Indian players have had problems in Ethiopia in the past. So I would like to understand the political stability and business environment in these places that we are getting into. And what gives us the confidence that there would never be a disruption in these places?

Sure. So the difference is that we have not -- we are not setting up a new unit. We are buying a well-run -- continuing operations in that region. 87% of Revenues comes from Kenya, 13%, comes from Ethiopia. There was civil war in Ethiopia which ran between October [indiscernible] and November '22, during that time frame. And during that period, the -- some of the operators in Ethiopia saw some disturbance to their business. These were people who were located in part from regions of Ethiopia closer to Tigray or in other parts of Ethiopia where there were trouble. The unit of this particular company is located in Addis Ababa, the capital, where there were no problems, and that was a well-protected area. So it continues to run through all the civil war related problems as well during those periods. We went in due diligence that as well. There are other units who are running in the same industrial path where they are located. And they are also running quite well in that particular region. So I don't see any problem in an ongoing continuing operation. There is [ Ethiopian ] operations are old and are very well run, has had no disruption whatsoever. The other challenges of having access to ports, et cetera, continues to remain the same for all Ethiopian operators, as Ethiopia is [indiscernible] and they have access to [indiscernible]. The AGOA benefit has been suspended for Ethiopia during the civil war. There is a talk that AGOA could be restored sometime next year, but we will have to wait and watch how and when it will happen. In the meanwhile, Ethiopia continues to have duty-free access to Europe. The cost of labor in Ethiopia is much lower, and it continues to be very attractive. So there are a pluses and minuses for Ethiopia, which is 13% of the overall volume. And I think at the moment, while all the minuses have played out, pluses are yet to play out. So I feel that it's not a bad option, given all the [indiscernible] that have played out in Ethiopia.

Right. And second question was more around -- how much of EPS accretion do you expect from this? If you could revise the interest cost increase once again? And also give us a sense of how much EPS accretion would come in a couple of years.

So we did that analysis on calendar '22 numbers of the company and put that in the presentation. which is available on our website, where we are showing, based on '22 numbers itself and EPS accretion of about INR 4.6 rupees. But looking anyway, I think going forward, we anticipate that the performance of the company should be even stronger, and the accretion to our EPS should be stronger as well.

So we are expecting this, roughly, INR 5 rupees, EPS accretion -- I mean, next year, right? So FY '25 for us?

No, it is based on FY '22 numbers. But FY '25 numbers is what I should have explained -- that it is based on the normal increase and volume increase, we anticipate much better [indiscernible]. Whatever I said was based on FY '22 -- CY '22 numbers. Hopefully, with the performance improvement, it should be better.

Next question is from the line of [indiscernible] from [ Kiva ] Advisors.

My question was on the AGOA benefit in Ethiopia. There has been talk that from '24, this would be renewed. If this was to be renewed, what could be addition to profitability be?

So obviously, there is a positive impact. While it will mark -- not be substantial because Ethiopia contribution to overall revenue is only 13%, so on that 13%, we may see some incremental margin of 2%, 3% or even higher, in my opinion, depends on how the pricing is stuck, et cetera, et cetera, and how much of the company has taken versus the buyer on account of loss of Ethiopian duty-free access. So even -- let's assume, let's say, [ 5% ] as for the advantage, 5% and then take 13% percent of 5%, we are -- you can do the math, that's only incremental EBITDA margin that can be possible. So it will be about 0.6%, 0.7% increment.

Right. And I just wanted to understand, since the benefits in Ethiopia went away in '22, has there been utilization which has dropped in CY '23. So I just wanted to understand for the company -- CY '22 the revenues moved up from $86 million to $107 million on an overall entity? And how is CY '23 looking? Has there been some impact because of the Ethiopian issue? And what about the Kenyan operation? So I just want to get a sense on how CY '22 -- CY '23 is looking so far?

So CY '23 so far is in the first half, they have been running [indiscernible] on track with the last year's revenue run rate, given the adverse market conditions, which is a global phenomenon. The Ethiopian operations have been scaled back slightly more than that of Kenya simply because Kenya enjoys duty-free advantage whereas Ethiopia doesn't. So it made logical sense for both the customer and the operator to prefer Kenya over Ethiopia. So relatively speaking, Ethiopia got scaled back slightly more. But as we speak, since the volumes, we anticipate the volumes to come back, both the regions are being scaled up.

So just in terms of [indiscernible], can you give us some sort of guidance in terms of revenues for CY '23? Should we get into similar $107 million or be a tad lower than that?

So I can't predict the number given on the market conditions that we have. It [indiscernible] tad lower than that. Our hope is that we will come at par.

Right. And just one last one, if I can squeeze in. Just wanted to understand since Gokaldas is a much bigger company than this company. Are there any sourcing benefits in terms of raw materials that you could help this company with? I just wanted to get a sense on that as well.

Yes, to an extent. The -- to the extent that they [indiscernible] synthetics and they buy -- they have access to other regions to [ indiscernible ]. There is no fabric ecosystem or no significant fabric ecosystem in Kenya and like India. So in India, we prefer more of Indian sources simply because the transportation costs and duty, all those benefits start kicking in and the lead times kick in to our advantage sourcing from India. Being in Africa, you again have the opportunity to source some of the lowest cost sources in the world. So to the extent there are synergies and suppliers, definitely, there will be a buying strength that we can demonstrate and take advantage of. But to the extent that they are buying from China, we may not have as much of an advantage, the current sourcing which we are doing may just continue.

[Operator Instructions] Next question is from the line of Abhineet Anand from Emkay Global.

Yes. Just wanted to know CY '22 numbers we have put in fiscal year, you have also stated. I mean, from medium-term perspective, let's say in the past 3 years, how has the sales and margin behaved for the company?

Past 3 years? So in CY '22, the company did a $107 million revenue. In '21, it did $86 million. And in 2020, is the completed $70 million in top line revenue. So $70, $86, $107. That's how they've grown between -- remember 2020 calendar year was impacted by COVID. So if you go back to 2019, there were $78. So $78, $70, $86, $107, EBITDA numbers, right? That's how they have grown. EBITDA margins have been in the range of about 9%, 10% during this period.

Okay. And finally, this -- you talked about working capital of around $35 million on the books of the company and $15 million is the debt. So there is a $20 million working capital that is there on the books, and you are paying $55 million for the whole entity.

Correct.

These numbers are correct, right? So indirectly, adjusted for the working capital, it is $55 million, minus $20 million, only $35 million.

Correct. And we also get the access to those mobile assets in the respective factory. That also comes up within the value. That's about -- and we get a land owned in Kenya or [indiscernible] access plot and the building. So that's valued. And all put together, that's about $11 million, is the valuation for those assets as it stands in books.

Okay. And just last one was what is the [indiscernible] U.S. benefit that Kenya gets?

They get duty-free access to U.S. market.

So what is that number in terms of, let's assume, you make a margin of 10%. And what is that benefit in terms of that...

That margin is subject to negotiation between buyer and seller. What happens, assuming that we have -- just taking work case assumption, which is not necessarily true, that all the benefits and the duty extends from, say, 15% to20%-28% to almost 28% in the case of synthetic. So the synthetics have got a higher duty entering U.S. So that's the reason why the company prefer products in the synthetic -- in the synthetic part of the value chain. Now assuming all the benefit of duty are taken by the buyer you still will have the benefit of being a low-cost supplier for the buyer because landing duty paid, these units will be the lowest. And will get preferential allocation in case of any business volatility. So any reduction in buying may have a much lower impact when it comes to sourcing from duty-free regions. Now that's -- it's never 0 and 100% in favor of buyers. Some amount of benefits can be negotiated back from the buyers. So that all depends on how the operators conduct [indiscernible] to the brand and how -- what kind of competitive dynamics exists in that region.

No, what I was trying to understand, sir, was that if the benefits go away, where can this 10% margin go?

So I don't anticipate the benefit going up away. As I said earlier, Kenya has a special relationship with U.S. That special relationship is in Kenya, is geopolitically very, very important top of care for the United States. And they have cooperation across a wide range of subjects, which is why we believe that even hypothetically, AGOA goes at the ending of 2025, that is from '26 onwards, Kenya will still get to see benefits [indiscernible]. We don't anticipate AGOA going away. We have had multiple conversations with various stakeholders, and we are reasonably confident that AGOA will be continued going forward post 2025. The renewal will happen only somewhere during 2025 because as it stands, it is currently valid until December 2025. We -- in case it goes away, stand-alone, the business is self sufficient, cost effective and quite comparable to India. And so we still -- the customer will have to bear the incremental duty if at all that event happens. And they will still -- they will lose access to an ultra low-cost region. U.S. doesn't have access to low-cost regions much. There aren't very many regions -- world over which to duty-free to U.S. Capita is 1 area, which is Central America, but the cost of labor is ridiculously high, about $700, $800 a month compared to, say, $200 or thereabouts in Kenya. So the competitiveness, which is so heavily weighted in favor of this region may come down. But I don't think the region will go away. The margins are a function of how you negotiate. I feel we can still defend the margin. That should not be a problem. But coming back to AGOA itself, I, for now, don't see any logic for AGOA to be pulled out after 2025.

Next question is from the line of [indiscernible] Pandey from ICICI Prudential.

My question was when you acquired this asset, can you shed some light on who were the competitive bidders? Or was there any bidding at all happening in the first place? Or how did [indiscernible] this asset? Some color on that?

No, there was no process or it was not done through a bidding process. We knew the promoter as well, and it was mainly a succession planning and the promoter felt confident that with Gokaldas, the legacy can be preserved. And we respect that -- we respect the promoter very, very much. I have a personal regard and very high respect for the individual, which is why we intend to make sure that the legacy of the promoters over the last 35 years will be continued, and we will protect that. So we will make sure that the business is well run, and we will expand upon whatever he has built. So it was not through a competitive bidding process, long story short.

Next question is from [indiscernible] from Godrej Capital.

I mean, Siva, just to conclude, right? And sometimes you talked about one of the reasons for acquisition was duty on benefit, but that is essentially what is passed on to the customer, right? And sometimes, it depends on negotiations. The customer also knows that. The company is operating some of the duty-free zones. So accordingly, pricing will be negotiated. So are we then essentially buying growth at a very low valuation because, I mean, let say, for example, if you talk about 2023 also -- [indiscernible]...

So that's only 1 part, buying growth at low valuation, right? The fundamental part is if your manufacturing exists in low-cost regions, you are less susceptible to volatility in business volumes. [indiscernible] if we face the [indiscernible] first and the low-cost region will be the last one to stand, we will not have any problem in terms of access to business. So it's really positive from a volatility perspective. Business volatility will be minimal there.

Sure. But I mean, so in that note, 2022 has been a very volatile year, and you mentioned that 2023 will be largely flat for this company, right, in some time. And for a company like us who is operating all of India, does not have any duty benefit, or higher margin, we are probably [ winning ] at a growth, right, in some time. So that also in terms of this tough market condition, they should have grown and we should have stayed in a decline. I'm just trying to figure out, I mean, how should one raise less volatility during tough market condition, given the fact that FY '23 for them would be flat despite the capacity expansion that they're doing.

So here, a lot depends on the individual company as well, right? We are a much bigger company and we are forced to [indiscernible] in India. Having said all of that, we also faced the front despite a huge growth last year. We could also could not grow much even the demand volatility this year, right? We did face severe headwinds. Them being a smaller company in a region which is not as big as India at the moment. The fact that they have weathered this storm very well. They have a fairly robust order book, which carries forward well into early 2024 indicates that they are enjoying the benefit of being in a duty-free region and low-cost region. So as of now, when I look at their order book, they've been [indiscernible] order book all the way through to April 2024. Now that's something which says a lot about how customers view such assets and customers view the benefits of being in the duty-free region. So going forward, when we combine with them we should be hopefully able to bring a little more trust to growth and to drive investment in that region.

Sure. And incrementally, if you are, I mean, let's have an example from here on, if I were to ask you that out of INR 100 rupees of CapEx that you were to allocate between 3 regions, right? Which we have talked about, India, Kenya and then Bangladesh, right? How will the allocation look like, hypothetically, going forward in the next 5 to 10 years given the fact that, again, I mean, we are competing with the same -- I mean in the same geography, earning higher margins, and then [indiscernible] in spite of not having duty-free benefits. And you have talked about the potential that India itself has. And there are not many -- I mean, within the country, we can control lots of things, right, versus sitting out of UAE and controlling a unit in Kenya. So I mean in terms of capital allocation going forward, how will things look like to do 3 geographies going forward?

So I will not bring Bangladesh into the mix as yet, because we have -- we still have to decide on Bangladesh at the moment. There are a few variables there, which is, how does the minimum wage play out. And all of those will get factored into the equation. And we will wait to see now what is the percentage of minimum wage hike, et cetera, that happens in Bangladesh. So I'll park that for a moment. Between India and Kenya, I would say both of these regions are attractive. It will all depend on what kind of traction we get from the customers. For synthetics, I will continue to play Kenya, because the duties for synthetics are well in excess of 20%, in both [indiscernible] as 25%, 28%, 36%. So synthetic production, focusing on Kenya makes more sense as there's a massive arbitrage available. In India, our growth will continue in lower-cost regions. So when I look at multiple [indiscernible], et cetera, the cost structures are low, and we will have the benefit of better managing it here. It will be more balanced. I wouldn't say I will go India wages. I wouldn't say I will go Kenya wages. Probably the wages will be in the ratio of revenue between these 2 regions. So going forward, there will be about 40% of the combined company, and I think that about 35%, 40%, that is the ratio in which the CapEx that will grow. I don't want to under invest in 1 region or the other. I still see a lot of potential in that region, particularly from a synthetic standpoint.

[Operator Instructions] The next question is from the line of Vishal from [indiscernible] Mutual Fund.

My question is on the electricity cost in Kenya, which seems to be 2x of the cost in India or China. So while it may not be -- so just trying to understand what is electricity as a percentage of total cost?

The electricity cost is about 1.5%. So it's really insignificant.

Next question is from the line of Navin Vijay from NS Capital.

Congrats on a great deal. Just wanted to check on the clients, without giving me all the names here, what are the client profiles like, are they big box retailers, like how [ they do ]? Are they predominantly working through importers?

The primary relationship, almost 75% of the revenues are directly through big box retailers. About 15%, 20% will be through some importers and others. Actually, our intention is to expand it all to big box retailers.

Great. Great. And in terms of the product capabilities, sir, are they predominantly an undergarments player or a [indiscernible] player or if you could give some color on that, that would be helpful, sir.

[50%] is children and the balance of men and women in usually more weighted to bottom. So almost like 70%, 80% of the men and women will be bottom-rated -- bottom oriented. bottoms [indiscernible] chinos, short, et cetera.

Next question is from the line of [indiscernible] Investments.

Yes, sir, most of the questions has been answered. Just one clarification, sir. Based on the EBITDA margins and the PAT margins, the acquired company have given. And if I assume a normal depreciation [indiscernible] probably you are seeing a low single-digit tax rate [indiscernible], is it correct, for you?

You are talking of tax rate for that asset?

Yes. Yes.

Is it in a no tax zone, right? It is based out of the UAE. So they -- at the moment, they enjoy tax-free earnings. Tax free [indiscernible] on the offshore [indiscernible] because this entity is in the free-zone area. And the business is generated outside UAE. So any profit earned out of that business as per the current tax law, which is not taxable.

Okay. Okay. Fair enough. Sir, one more clarification. On the PPT, you have mentioned that like $15 million, that is to be paid from internal networks as part of equity. So there will be no equity dilution from our end as such.

That is correct. There's no, that is correct.

Next question is from Jignesh Kamani from GMO.

Just want to understand, it's close to around 20% kind of [indiscernible] business, like $35 million [indiscernible] capital, assuming [indiscernible] asset and so $100 million -- should we have a plant in [indiscernible] for $100 million. So [indiscernible ] close to $50 million, $55 million on EBITDA of $11 million?

No, no, you are -- the current -- you're talking about ForEx for the revenue working?

Yes, yes.

No. Currently, the working capital is a little high. This is about $35 million at this point. I mean, that is because they are importing the growth. They are 110 days as we explained. Whereas we operate almost 60 to 65 days. So the same cannot be applied in terms of the -- when you want to really apply the revenue projections. So you'll have to really reduce at least 1x because of that. On account of working capital. In terms of the assets, it's about $11 million. So 11 plus 35, the -- you can apply whatever multiple, additionally. Because the working capital is a little higher because of the structure, the business structure because everything has to be imported, and so they hold a little higher inventory as well as on the reservable management, they do not have the current arrangement what we have here. So that -- those inefficiencies, whatever is there. Currently, they are living with. So because of that, that ForEx application is not right.

So the $45 million capital employed is earning $11 million of EBITDA?

Yes.

Next question is from Harsh Mittal from ICICI Securities.

Most of my questions have been answered. Just one query. Is it possible to share the half year numbers of CY '23?

It's unaudited. So at this point, I'm not sure if it makes sense. They have been, at least for the first half, they've been tracking to last year's number.

Next question is from the line of Aman from Goldman Sachs.

Yes. Just wanted to understand the presentation seems so both the Kenyan and Ethiopian operations.

Aman, sorry to interrupt you, but it's not clear, can you please speak to the handset?

So it's not clear -- so it's clear now?

Yes.

So just wanted to understand if -- presentation says that there are some tax benefits for Europe as well for both the operations, but we have a very scaled business from Europe. So what's the reason for that? And could that be an opportunity going forward?

Yes, it is an opportunity going forward. Historically, since both Kenya and Ethiopia had duty-free access to U.S., the company had a focus almost entirely on the U.S. market. And remember, a larger part of the capacity is in Kenya, which continues to enjoy the U.S. duty-free access. So even for Ethiopia, they were focusing on U.S. market. Going forward, there is an opportunity to also target European market, and Ethiopia does have that benefit. There is a discussion going on in that direction. So definitely, it's an area of focus.

Got it. And you also said we are -- got a well-run operations. So for the next, let's say, after the acquisition in next 24 months, what's the focus for you driving revenue growth, driving margin growth, driving [indiscernible]. What would be the first 3 focus areas?

So there will -- the focus will be actually to drive up the production efficiency even more, and that will require some investment in automation, et cetera, in the factory. So some amount of CapEx will go in that. And I really prefer those kind of CapExs because the payoffs coming from that is very, very hard as productivity improvements immediately falls to the bottom line. These investments can start yielding benefits right away as opposed to setting up a greenfield unit. So we intend to deliver at least 1.5% or 2% over the next 2 to 3 years through incremental revenues as well as unlocking some extra efficiencies in the existing operations through investment in automation. So that's how we look at it. As far as the growth is concerned, we are hoping that we should drive about 20% order growth in FY, in calendar '25 -- I'm sorry, calendar '24, which will be our FY '25. Let's see how that pans out. We will have a better handle over all these things once we get control over the operation.

Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Thank you so much for all the questions that you had. And please feel free to reach out to us in case you have any further questions on our acquisitions. We continue to remain focused on delivering exceptional performance. And we are execution-oriented when it comes to running businesses. We are very conservative in how we approach the business and how we take over assets and run them. We have done our fair amount of diligence on this company, we have drawn enough comfort through due diligences by our business partners. So we got [ BDO ] to do due diligence on accounting taxation side. We had [indiscernible ] and company, which did legal due diligence, and we had [ JM ] in supporting us through the transaction. So with all of these external scrutiny, we have gone ahead and concluded this transaction. This is subject to regulatory approvals. The regulatory approvals, we are anticipating, will happen by end of October. So really, the asset will come to our control only from November onwards, that's the earliest we anticipate. We are already delayed then that may -- it may go further. We will continue to engage with the company and work on [indiscernible] transition. The management team is well aligned and it's got a very good team there. So we hope that we can build upon it and hopefully, together, Gokaldas and Atraco can have a great future. Thank you so much for your understanding. Thank you so much. for all the questions, and we remain available for any clarifications that you may need going forward. Thank you so much.

Thank you very much. On behalf of Gokaldas Exports, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.