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Citi retains BUY on Gokaldas Exports

August 2, 2007

Gokaldas Exports Q1-FY08 revenues grew a healthy 18% YoY, but EBITDA and earnings declines of 7% and 22% yoy, respectively, were lower than estimates. EBITDA margin also declined 220bps YoY to 8% – adverse impact of 9% appreciation in rupee in the quarter.

Gokaldas has taken steps to counter the rupee appreciation 1) Negotiating higher prices for future orders, 2) increase usage of imported raw materials, benefit is expected to flow from 2Q, 3) focus on a richer product mix. Gokaldas management is focused on Building order book of Rs2.5bn for 2QFY08, contrary to sector’s decline and Enriching product mix with entry into suits, innerwear, workwear.

Gokaldas Exports offers the best exposure to the garment outsourcing theme. With Gokaldas’ large capacity, good relationships with global brands and healthy order-book position, we believe the company is well positioned for growth. Target price of Rs285 is based on 12x FY-08E P/E. EPS estimates are Rs 23.8 and Rs 27.5 for FY08 and FY09 respectively.

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