Despite declining demand from Europe and China, India’s largest apparel export company Gokaldas Exports (GEL) witnessed a sharp 23% increase in shipments in the September quarter. GEL managing director Sivaramakrishnan Ganapathi, in an interview with Nayan Dave, explains why he is upbeat on the company’s medium- and long-term prospects in global apparel markets.
India’s apparel exports have slowed due to a demand slump in key markets. How has this impacted GEL?
Demand from most major markets has remained subdued. Particularly, Europe has underperformed. Covid-related lockdowns have virtually stopped exports to China. As a result, India’s apparel exports in Q2FY23 fell by more than 6%, but we still have managed 23% export growth in the period. We have focused on the US market, which is still resilient compared to EU and China. In fact, our exports have grown over 7% on year till November in 2022. GEL’s strategy has been to remain consistent in supplies, which helped us retain the market share in US even in difficult times.
What is the outlook for H2FY23?
In spite of the slowdown, we are hoping to be on a par with last year’s performance during the current quarter. We are unlikely to register a decline in exports. Starting Q1FY23, we witnessed an uptick in revenue growth. We expect sharp upward growth in revenue again by the third quarter of next fiscal. H1FY23 was excellent for us, but H2FY23 is likely to remain relatively subdued, given the plummeting demand in the European market due to the Russia-Ukraine war and China’s Covid situation.
Could you elaborate on the US demand scenario?
Two reasons have affected US demand — high interest rates and rising oil prices. Overall prices across the products have increased. The Fed raising interest rates has affected the mortgage pay outs for homeowners and resulted in lower disposable income for many people, which ends up in reduced consumption. Another factor is excess inventory with major brands. Thanks to the US government’s generous financial support during Covid lockdowns, people had money to spend. It resulted in strong demand then. However, supply chain remained quite weak. As a result, American importers placed extra orders and eventually they were saddled with large inventories. Now brands are emptying excess inventory by offering items on sale and discounts. I think demand should return sometime in 2023 and a new order cycle will start.
How will the FTAs being signed by India with major trading partners help garment exporters like GEL?
The FTA with Australia has just been signed and UAE pact has already taken effect. For us, the UK (with which an FTA is on the cards) is a very big market. The UK buys about $ 1.5 billion worth apparel products annually from India. It buys almost $ 3 billion from Bangladesh and about $ 4 billion from China. If the FTA with the UK happens our products will be at least 10% cheaper than China. India has the advantage of a good fabric ecosystem compared to Bangladesh.
What are your investment plans?
We are investing `280 crore in the next two years. These are required for the growth that we will see starting sometime in the middle of next fiscal. We are in the process of taking over an existing apparel manufacturing unit in Bangladesh, which we plan to refurbish completely. Our Madhya Pradesh apparel plant will commission in Q3FY24 and the fabric processing unit in Tamil Nadu may start by Q4 of next fiscal. I am very bullish on apparel manufacturing in India as big global brands are trying to move production/sourcing out of China and high-cost Vietnam. We employ about 30,000 people in our factories, of which 25,000 are women. Through our new projects, we may employ another 15,000 people.
Does the global situation need you to delay investments?
We have already delayed investment plans by three to six months. I don’t foresee any further delay. The new plants take time to ramp up production and reach full productivity levels.
How will the economic growth slowdown in China impact India’s apparel sector?
It would be beneficial for us. Fall in demand from China has already happened for the last one year when severe lockdowns were in place. So, adverse impact has already been factored into the consideration. A lot of factories in China may taper down their output to allow their employees to come out of Covid and that may result in a fall of output in that country. There is a likelihood that some of them have to source apparel from India.
Are you looking at any recast of the company’s management?
The company’s board has recently inducted market strategy specialist Rama Bijapurkar, George Varghese, who is CEO at New York-based A&M Securities, and investor Shiv Dalvie as independent directors. They bring in a wealth of experience. As the company keeps growing, we need high quality professionals on the board as well to guide the management team.
What is the GEL’s long-term vision?
Our manufacturing growth will continue. We are still a very small player in the global apparel industry context. Global apparel trade is about $500 billion. Out of that India’s sharing is hardly $16 billion. We are about $250 million.Our vision is to reach $1 billion mark. Though there is no timeline fixed for it, I want to reach there in a reasonable timeframe. We want to maintain an annual growth rate of 20 to 25 % over the next several years. At present GEL has 15-odd regular clients with over 10 years business relationship. We want to grow with existing clients and want to add 2-3 new clients, not more than five in the next 3-4 years.
