“European brands bought about 16% less than the previous year. So, it has been a bit slow. And compared to that we are now seeing traction coming back, so that is good news,” says Sivaramakrishnan Ganapathi, Gokaldas Exports.

Let us just start by talking about the numbers. Yes, obviously, we have seen a bit of a subduedness that has been coming in in terms of overall the revenue growth, but this time at least we have turned in on the positive front. So, in terms of the outlook of demand trends, how is that shaping up and what is the outlook for the company in terms of revenue growth? When can we expect to start seeing that strong revenue growth from the company going forward?
We have started seeing traction coming back from the customers. After one year of very muted buying, on the contrary I would say depressed buying, most of 2023 American brands bought about 23% less than the previous year.
European brands bought about 16% less than the previous year. So, it has been a bit slow. And compared to that we are now seeing traction coming back, so that is good news. Most of the brands have eliminated excess inventory in the system or are nearly in the process of doing so.

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We are seeing reasonably good traction building up. I think in the next several quarters, we will start seeing growth coming back and we hope to continue that in FY25 and FY26.

Also, in terms of margins because that has been a bit under pressure as well. Even this time, we are seeing around 100 basis point contraction in terms of EBITDA margins. So, what is the level of EBITDA margins that one could expect as well if you are seeing the traction coming back, expecting good growth, then do you see the margins improving as well?
Hopefully, after a few quarters we should start seeing margins improve. We have been currently operating in an environment where supply far exceeds demand. And when there is such a situation, obviously, there is a pricing pressure.

On top of it, we have also had some one-off costs, etc, last quarter and maybe once that gets eliminated and the pricing power comes back we may see some margin improvement.

Moreover, we are also working on operational improvements on a continuous basis. In fact, if we look at some of the cost increases that we have faced, most of it we have actually eliminated by becoming far more efficient, so that game or that activity continues.

I am hoping that in a year or two, we should see margin improvement, maybe in two years a margin improvement of percent and a half that directionally we are going there. Some of the acquisitions that we have made also has the impact of bringing down our margins till we bring those acquisitions also at par with us when it comes down to margin play. And I think we are somewhat confident that we will be able to do it going forward.

And also specifically if you could just break it down for us in terms of US, EU, as well as UK, the demand trends in all these three countries, is there a differentiating factor because the US had remained a bit subdued but any concerns also coming in on EU and UK front as well?
All of these markets have been subdued and I think going forward some of them will start picking up. US, UK, EU, even Japan, all these big markets have been somewhat subdued, that is just the nature of how the business has been.
Post COVID in calendar 22, there was an excessive buying which is now getting eased out in 2023. So, a lot of it has gotten eased out. In 2024, we should start seeing some traction coming back. We also have to keep a close watch on how the retail sales have been.

Last year, retail sales have been good in all markets. So, 23 calendar we have seen both American and European markets trend well on retail sales.

So, if that trend continues, then that is good news going forward as well. So, we will have to see how the markets evolve. But given how much of underbuying that has happened last year, we see some degree of bounce back. It may not be a very strong bounce back, but a reasonable growth in demand coming back from the levels in 2023, so that is what we are counting on and directionally that is what we are seeing as well from our customers.

Are there any concerns? Obviously, the Red Sea issue has been going on. Have you faced any concern on that front? Any increase in terms of cost for you as well?
No, we have not. We sell our goods FOB. So once we deliver the goods at the ports in India, our responsibility ends. Most of the brands have been picking up the freight costs and the delays on account of the circuitous route that some ships are taking. So we will have to see how that pans out but at the moment, all the costs have been pushed back to the brands. We are not seeing any cost increases. Many of the brands are coming back and asking us for sooner deliveries, if possible because they have an extra few days in the high seas on account of circuitous shipping. Apart from that, we have not seen any financial impact on account of Red Sea issue.

I am reading some comments from you that talk about how you are looking at doubling your revenue in a couple of years. Now, this is purely on account of acquisitions that you have made because you have made a couple in quick succession already. And I also understand you have taken some approval for QIP. What is the plan with respect to that? Is it for funding the acquisitions that you have already made or there is something else in the pipeline too?
I did not say we are doubling. We will be directionally going there. We will be having a substantial increase in revenue given that there will be some organic and inorganic growth. So we have had two acquisitions. Both of them have to play out as well. So that is also a good amount of revenue that will come our way.

So there will be a strong revenue growth in FY25 and FY26, more so in FY26. So that is given. As for strategy goes, I think we will continue to be focused on organic growth. If an inorganic growth comes our way, or if there is a very interesting play which adds value to us, we will continue to look at it as well.

But just to get the context right, when you say that the next couple of years are going to be strong, do you mean it is going to be 25-30% kind of growth? Could it be higher or lower because again, strong is a very subjective word so just wanted to get that right. And any word you can give me in terms of the QIP? What is the plan with respect to that? Have you spoken with some of the investors? What kind of feedback you have got?
Sure. So yes, the growth percentage will be robust. Those kinds of growths will come primarily because there have been acquisitions that we have done and the acquisition revenue is not shown so far in our financials.

So definitely, it will be high double digits but over a two-year timeframe. As far as the QIP is concerned, the intent is to seek permission from the shareholders for now for fundraise. We will plan as we move forward on the timing and how do we want to go about it. The intent is that, look, we have to grow.

There are several opportunities that will keep coming our way and we need to have the flexibility to raise funds if we need to, to drive growth. I am seeing the next two years as important years for us from a growth perspective and I wanted the flexibility to be with us to raise funds.

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