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Gokaldas Exports Ltd
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Ladies and gentlemen, good day, and welcome to the Gokaldas Exports Q1 FY '23 Earnings Conference Call. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda from E&Y. Thank you, and over to you, sir.
Thank you. Good morning to all the participants on the call. Before we proceed to the call, let me remind you that the discussion may contain forward-looking statements that may involve known, unknown risks, uncertainties and other factors. It must be viewed in conjunction with our business risks that could cause future result performance or achievement to differ significantly from what is expressed by such forward-looking statements. Please note that we email the results and the presentation, and the same are available on the company's website. In case if you have not received the same, you can write to us, and we'll be happy to send the same over to you.
To take us through the results and answer your questions today, we have the top management of Gokaldas Exports Limited represented by Mr. Sivaramakrishnan Ganapathi, Managing Director and CEO; and A. Sathyamurthy, Chief Financial Officer. We will start the call with a brief overview of the quarter 1 past and then conduct the 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, everyone. Happy to have you at our earnings call for the first quarter of FY '23.
We continue our exceptional growth trajectory despite the challenging macroeconomic business environment, delivering a revenue of INR 613 crores. Revenue grew by 152% Y-o-Y compared to a COVID impacted Q1 FY '22. Exports revenue grew by 5% over a seasonally strong previous quarter of Q4 FY '22.
The solid revenue and profit growth were driven by excellence in execution and optimal utilization of capacity. Seasonally, H1 is relatively weak for the Indian apparel industry. This is the period when brands source synthetic apparel for autumn/winter. India is more strongly rooted in the cotton fiber ecosystem, which caters largely to spring summer demand.
With a strong expertise in outerwear, we have been able to mitigate the impact of seasonality. Higher business volume and superior cost management helped in delivering a strong earnings performance. Starting this quarter, the company started providing for ESOP charge of INR 6 crores, amounting to about 1% of revenue, which despite impacting the P&L is a noncash expense that is accretive to the cash flow as it provides a tax shield.
Our EBITDA prior to noncash ESOP charges is INR 80 crores, generating an EBITDA margin of 13.1%. The EBITDA margin of 12.1% that we reported after considering the stock charge is still higher than FY '22 level. Increase in minimum wage effective this quarter increased labor cost by INR 4.3 crores. Though this had an impact of 0.7% on the margin, it was offset by business volume and productivity.
The company had accumulated tax losses until FY '22. Starting this year, the company anticipates normal tax incidents impacting tax accordingly. The company earned a profit after tax of INR 39.4 crores. Adjusting for the noncash ESOP charge, the PAT would be INR 45.4 crores. We continue to be zero net debt company, having a net cash and cash equivalent of INR 220 crores. We also managed our working capital well.
As an organization, we have shown enormous resilience in the face of all odds. We had supply chain disruptions in Q1 from China. We heavily depended on imported fabrics and trims in H1. Repeated delays in raw material supplies due to lockdowns in China affected efficient factory operations. We work with the suppliers and our customers to mitigate these challenges.
We also battled labor shortage due to school closure period of April, May this year, as this was the period where most of our people to visit families that were not possible in the previous years due to COVID. Looking ahead, anticipating changes and planning for eventuality, we persevered and delivered.
Our newly commissioned units in Karnataka and Tamil Nadu are ramping up well, and our project work on new factories is also progressing well. We continue to manage our working capital well and generate adequate free cash flow to support our growth ambition. Our entire team worked hard to deliver exceptional product quality and service to our customers. We continue to outperform on various customer delivery matrices.
We see headwinds in the near term and strong tailwinds supporting the ongoing growth of the business. While U.S. retail sales has grown 12.8% YTD in May calendar year '22, large brands are wary of slower consumer uptake in the seasons ahead until inflationary trends persist. They are also battling higher levels of inventory from last year. It is expected that this may impact imports in the short run.
We are also simultaneously seeing several opportunities present themselves in the form of continuing shift of global sourcing away from China, supplier consolidation towards efficient and well-capitalized players, supply-side instabilities in countries like Sri Lanka, Pakistan and Myanmar, a favorable currency, PLI and signing of FTAs with key markets.
While the order book for H2 is work in progress, we see reasonable traction for us. Falling raw material prices is aiding the industry. Despite near-term headwinds, we anticipate good growth in FY '23 and the surge from FY '24. I thank you all for listening, and we'll be happy to address any questions that you may have.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Aditya, an individual investor.
Just wanted to -- if you can elaborate more on the opportunities that will come up because of the dire condition in Pakistan and Sri Lanka, which are huge garment exporters. And my second question is since Gokaldas exports 80% of its goods to the U.S. and the impending recession there, what is the plan of the management to mitigate this? Just these 2 questions.
Thank you, Aditya. See, it's a global opportunity. And if there are supply constraints in certain countries, it's automatically results in customer looking for options from other places as well.
Customers are also bound by long-term support that is required for suppliers in those countries. So at the moment, we see some amount of goods moving -- some amount of orders moving out of Sri Lanka to India, as we have been recipients of those as well, and it does help us in the short term.
But in the long term, I think the Indian story is so strong that we feel that there will be considerable tailwind and support for growth on our own speed. However, we are indeed seeing some benefits from challenges in our neighborhood. To your other question, what was your second question?
Basically, there's a slowdown in your top market of our company [indiscernible].
You mentioned about U.S., right, 80% are for U.S. So we do have a reasonably strong and diverse customer base, and that helps us from pivoting from one to another to ensure that we have the ability to fill up our order book from multiple customers even in the event one of our customers don't seem to do well.
In our particular case, since we do woven and most of the garments that we produce are fashion and elevated fashion, we are not seeing as much of a challenge even from the U.S. market since the inventory that they hold, those seem to be the inventories of the kind that we produce. And since the markets are opening up post COVID, people are coming back to work and traveling, et cetera, there seems to be reasonable demand for products that we make.
So we are not as challenged even though the slowdown may impact all the suppliers, in fact impact all the brands, our impact is a lot less. Having said that, we are pivoting a lot more towards Europe in anticipation of an FTA, which is being signed with U.K. and hopefully, an FTA that could be signed with Europe going forward. So slowly but surely, we are trying to increase our share from the European market. That's work in progress as we speak.
Next question is from the line of Aman Agarwal from Carnelian Capital. .
So my question was basically, like you operated double shift in terms of garment production, but most of the peers in the industry are not able to do that. So can you please highlight like what we are doing different compared to the industry in terms of executing that double shift?
No, no. I think there's a misunderstanding. We don't operate double shift. We also operate single shift. Most of the employees that we work with are women, and it becomes extremely difficult for them to work very early morning shifts or very late evening shifts as they have children to tend to and families to take care of. So we do work one shift only.
We are highly efficient in what we produce. So our productivity levels are good. And, we have been reasonably successful in driving up our productivity Y-o-Y as we keep searching for more and more growth. So not all of our growth comes from this capacity addition, even productivity yields us growth, which has got a higher contribution to return on investments.
So we are -- while we try experimenting with double shift, we have not been very successful because most of the labor force tend to resist double shift. And we have seen enough growth coming with single shift operations itself.
Right, sir. It was really helpful. My second and final question is basically that we have good CapEx plan over the next 1 and 2 years. So in terms of -- given the near-term demand blip, would we like to go ahead with the CapEx?
And second, in terms of labor procurement for this new CapEx, which we are going. So do you think there will be any problem in terms of procuring the labor or we would be able to execute that fairly stably.
So we're not slowing down our CapEx. So our CapEx plans are intact as we speak. The factory that is coming up in Madhya Pradesh will come up shortly. It will start trial run production and slowly ramp up by the end of this year. So at this moment, we don't intend in just slowing down anything. Even our knits unit, which is under construction in Tamil Nadu is progressing at its pace as per schedule, and it will also get completed by end of this financial year, that is March 2023.
So we're not altering the timeline. We are not, at the moment, bounded by any recessionary trends globally. We feel that by the time these units come up on stream, we should be fine and we should be able to drive business into these incremental capacity.
And as far as labor is concerned, incrementally, we are looking for locations outside of Karnataka and even within Karnataka, we are going to far-flung places. We don't foresee as much of a labor availability challenge as well. .
Okay, sir. And like in terms of foray into new regions, like do we contract with agencies to get labor for our new factories? What is our strategy like in terms of going to new regions?
We hire the labor from the local areas. We solicit people. We train them and we hire them. So we don't use labor contractors.
Next question is from the line of Venkat from Tata AMC.
My question is if you could give some color as to how [Technical Difficulty] surrounding is not really good for us. And also the recent quarterly performance that is the revenue [Technical Difficulty].
Venkat, we could barely hear you.
Hello. Is it better?
Yes.
Sir, my first question is with respect to the top line for us. The news flow surrounding the top line maybe with respect to the management changes or recent quarterly performance, wherein there was a sharp revenue decline isn't really good, right? So how are we seeing impacts from them? Could you give some color?
You are asking of GAP as a customer?
Yes, yes, yes. Correct, correct.
Okay. So the GAP is a very, very large company. And we do a small, tiny fraction of what they buy. So for instance, their global buying would be in the region of 3 billion to 4 billion and our business is closer to 50 million. So it's a small share that we have.
We don't foresee much of a problem. Our relationship with the customer is deep and wide. We have access and relationships with a wide number of people across that organization and we work with 3 brands there: Old Navy, Gap as well as Banana Republic. So we do have enough diversification within the Gap ecosystem as well.
So I don't see any problem with any leadership change or their own business as Gap also is talking about moving more and more production out of India. So we don't see much of a problem. There could be these local -- short-term recessionary trends can lead to a small hiccup in a quarter or so, a quarter or 2 at best. But I think the general trend is strong. Our relationship with Gap is strong. We are one of the top suppliers for them, strategic as well as the high-quality supplier for them. So we don't foresee much of a problem with that relationship.
Understood, sir. That's helpful. And my second and last question would be, you did highlight in the presentation about seeing some challenges with respect to supply, especially from China for procurement of certain RM items. So did it cause lead to any foregoing of any revenue, either in Q1 or Q2 because of that?
No. So that -- I mean there was a little bit of a deferment of revenue as some of the raw materials could not come in on time. And hence, we could not take up those particular signs of production in time.
So but we could obviously take up alternate orders and work with them. But the impact was more on productivity and profitability because constant supply disruption in fact, a smooth and efficient working of factories. So we did see a lot of that in the months of April, May and early June. Now the flow of raw material has been streamlined as the factories and the supply chain in China is working smoothly regardless of the lockdown there.
Understood. Understood. Right, right. And quickly, sir, on the gross margins, you did highlight, and we are seeing cotton prices kind of ease off. So when do you see that reflecting in our margins, I mean kind, of bottoming out and seeing some improvement there?
Our raw materials are always passed through, right? So when the raw material prices were increasing, we were able to pass through back to the customers. When raw material prices decrease, that also gets passed through to the customers. So I don't get too much happens with raw material price volatility unless it becomes volatile beyond a certain band.
A lowering of raw material prices is always good as it will lead to increasing demand from India, given that the overall FOB price of the garments will go down as the material prices go out. So it will reflect more in the demand trend rather than on the margin side.
As far as gross margins are concerned, in Q1, we largely produce synthetic based garments. So we have less to do with cotton and cotton pricing movements in this -- in Q1 and Q2. It has got a higher bearing in Q3 and Q4, when we produce more of a spring and summer, and that's where a large quantum of cotton-based garments are used. But the declining cotton prices does help garner more demand.
Next question is from the line of Pulkit Singhal from Dalmus Capital Management.
And congrats on a good set of numbers. I just wanted one clarity because recently, you were on an interview where you guided to something like a 20% revenue growth for the year. Now, I'm just trying to ascertain the net impact of the headwinds and tailwinds.
Because if I just annualize your last 2 quarters, which has both a seasonally good quarter and a seasonally weak quarter, that itself implies more like a 35% kind of growth rate. Now I understand there will be more capacity coming in during the later part of the year. At the same time, we have RM deflation, and we have those hedges we talked about. But how should I see this on a net basis? Is the 20% the figure to go it? Or what should it be?
So I feel that 20% is a conservative number given out there. These days, it's very difficult to say anything with certainty. One of the mantras or the paradox of macroeconomics is that it is predictable in its unpredictability. Having said that, I feel that 20% is conservative, we may most likely do much better than that.
Understood. And in terms of the pricing pressure, I mean, are you facing -- I mean, do you have both obviously [indiscernible] prices you have to pass through, but you also have currency depreciation. In this current environment, are you having to pass through more of these benefits back to the customers? And is this year, therefore, going to be a margin decline year to a certain extent versus the previous year? Or do you think you'll be able to still maintain or grow?
So obviously, when there is a demand-supply imbalance in any period, there is going to be some amount of pricing pressure. So last year, when we had the demand supply in our favor despite raw material increases, we were able to pass the incremental raw material costs back to the customer.
I foresee that in H2, we may have to take a small amount of pricing pressure from the customers as there is a lot of suppliers from other countries also who may be chasing the same demand. Having said that, our aim is to mitigate it as much as possible through improved productivity and better raw material sourcing or lower cost raw material sourcing.
So all efforts will be on. We had earlier said that this year, we may be looking at an EBITDA margin of 11% compared to 12% last year. Our endeavor will be to do is at least at that level or even better than that. So far, we've been able to hold it. And I had also mentioned in the last call that this is after adjusting for ESOP charges, which are almost 1% of revenue. But at the moment, we are trending higher than what I had indicated. We hope to keep it that way, but there will be some amount of pricing pressure I can see going forward, which may have a marginal impact.
Understood. And lastly, ESOPs, if you could just clarify how much should we bake in for the full year and whether this is a recurring item, which will continue for the next 2, 3 years? How should we look at it?
This is a recurring item which will continue for 3 years 'til FY '25, and it will be at the range of INR 6 crores a quarter for the period until FY '25.
Next question is from the line of [Mohit Khanna] from Bain Capital.
Yes, sir. My point was regarding the order intake that you are currently seeing for the U.S. summer and the spring season. How is that going along in your conversations with your customers? Is it regarding deferment of any orders that you are seeing right now? Or are you sort of overbooking currently because you might have some sort of deferment?
So at the moment, we are booking for spring, which is Q3 from a production standpoint. And if I look at the order state as of now versus same period last year for spring, and spring order booking will continue until mid-August. So it's a bit early to predict anything as order booking is happening as we speak.
For now, we are trending at last year's level. So we don't seem to have too much of apprehension. Having said that, we are being cautious, and we hear a lot about recessionary trends in the U.S. So we'll wait and watch to see how it stands out at the end of the order booking season.
Fair enough. Are you also witnessing some sort of increase in wallet share per customer? Or when you say that you are trending like last year, you're acquiring new customers to bring at the same level? Or are you increasing the wallet share?
So at the moment, it is increasing the wallet share. So all the customers eventually will end up buying less this year. There is no doubt in my mind. The aim would be to try to increase the wallet share of our existing customers. That's the best way to handle headwind at all times.
So a new customer will not grow that sharply to provide a huge revenue cushion. So it's always best for us to work on new customers so that it paves the way for growth over a 3-year period, whereas in the short term, work on increasing the wallet share so that we are able to still keep our share of business or keep our growth intact as far as possible.
Fair enough sir, just last point if I just use it in. So when you say that you're trying to increase the wallet share and customers will buy less this year, then what gives you confidence that you would be able to hold at least 20% revenue growth this year?
What gives, okay. So I mean, looking at the trend going forward, I do have some discussions with the customers and visibility, which is what is giving me the comfort that we will be able to drive this growth.
There is also some amount of supplier consolidation, which the brands are doing, which also gives me comfort that we will be able to take up additional wallet share. The other comfort that I draw is that our delivery metrics are outstanding and best-in-class. So customers in this business actually tend to go with both suppliers who can supply on time, in full, in quality, are able to meet the technical requirements of the customers. And we are able to do all of that. So all of this gives me the comfort that we will be able to progress our business well.
Next question is from the line of [Akshita Talicera] from [SBI General]. Ms. Akshita, can you please go ahead with the question? Can you please go ahead with the question? If you mute from your phone, please unmute yourself and please go ahead and talk.
Yes. Am I audible?
Yes.
I wanted to check on your plans on the CapEx in Bangladesh. Is it still on track? Or do we anticipate any delay given the macro environment?
No. So there are no delays on a sort of macro environment. At the moment, we will have some revenues coming from Bangladesh in the second quarter. But those are from a leased facility that we are working with.
We are looking at setting up a new facility, and that's going on -- the work on that is going on. We hope that we should be able to conclude that some time by early FY '24. So that is work in progress.
In the interim, we will be working with existing available capacities on a leased basis, and a lot of work is going on, on that side. In Q2, we will see some amount of revenue starting from that side.
Next question is from the line of Abhilasha Satale from Quantum AMC.
My first question is on the outlook in FY '24. So basically, this year, we will see some inventory destocking and things like wearing, we will see some pressure on the margin. So I'm not talking specifically from the [indiscernible] we will have more share from our customers. But then overall, the outlook on demand is subdued for FY -- for this year.
As we move forward in FY '24 and so on, how do you see the overall demand environment picking up from the end customer point of view? And in that, how are we placed to gain market share as compared to competition?
So even the way the global supply chain is working is that more and more brands are looking at sourcing from India as costs rise in China, in Vietnam and they are looking at increasingly alternate locations like India and Bangladesh.
Bangladesh is also fairly mature and large, and most of the brands would like to source even more from India given that India is a large country, it has got a good textile ecosystem, particularly on the cotton side, and availability of labor in several parts of the country.
So there is a concerted push from global customers to source more from India. This has been obtained from various discussions that we have had with the customers, and it's also available in the public domain. So we see that to pan out from FY '24 onwards as the market in consumer demand situation will improve.
And by and large, what is bought in FY '24 will be consumed in calendar '24 and '25 onwards. So by then, the recessionary trends also should be behind us, and the brands will rally to buy more, and they will also try to allocate more share to India. So I see a strong growth for the Indian apparel industry.
I also foresee that established players and larger players like us will be able to drive a faster growth simply because while the Indian industry is segmented, there are a few large players like us who will be able to a bigger share from the global line and thus drive our growth. So reasonably confident.
The other point which will work in India's favor is FTA with U.K. and Europe. If the FTA does materialize with U.K. by end of this year, then we will see the British brands also move some of out of sourcing from Bangladesh to India for diversification reasons. So that also will add to the tailwind for growth in FY '24. So there's a lot of macro-economic factors, which will drive overall growth for the industry in '24 and better players, obviously, will see a higher share of that growth.
Okay. Sure. And can you give details of FY '24 CapEx because in this year, we will be starting 2 facilities. FY '24, we are incurring CapEx of around INR 120 crores. So can you give details of which plants we will be coming in FY '24?
So there will be more additional apparel manufacturing plants that we are looking at. So those are under planning at this stage. And those will get executed in FY '24.
So they will get commissioned sometime during that financial year. So there is one factory we are looking at in South of India for sure, and that's still at a planned stage, but we will execute that in FY '24. Bangladesh will also start picking up speed from FY '24 as we set up that unit, and we will look at incremental capacities as we go forward.
And how much investment we are looking total in Bangladesh? The investment in Bangladesh?
It will go up to about anywhere between INR 35 crores to INR 50 crores.
Next question is from the line of Aman Batra from Goldman Sachs Asset Management. .
Yes. Just wanted to ask some first. You presented some headwinds in front of us in terms of the inventory at retail channel, et cetera. But if you look at the initiatives that we are taking as a company, they seem to be geared up for growth. We have new capacities coming in Madhya Pradesh, we have more capacities coming in Bangladesh as well over the next 12 to 18 months. So how should we look at it that can we continue to grow despite these costs, this macro headwinds? And that's why we are confident enough to continue investments?
Good question. See, I am more worried about this macroeconomic headwinds only for FY '23. I don't foresee this as much of an issue from FY '24 onwards. See, let's take Q4 of this year. In Q4, we will produce for spring -- I'm sorry, for summer of 2023. Summer of 2023 is June, July, August of 2023, which is almost a year away if you look at it. That's what we will produce in this Q4.
So my assumption at the moment is that any headwind, recessionary impact, inflationary impact aspect will play out by the next one year. And after that, brands would have also worked out all their inventory and we'll be back into the market for buying more.
So if you look at FY '24, that's what is going to be consumed almost more than a year from now. And by then, the demand should have picked up very strongly. So I'm not particularly worried on demand side for FY '24. And if FTA does indeed materialize, then that will also auger well for the country because more demand will come from Europe, which also we are readying ourselves for.
So creating capacity for FY '24 should not be a problem. Even the capacities that we are working now more or less will be effective only FY '24 as they will ramp up there. So I'm not so worried about the short-term macroeconomic headwinds. We will have to take it in our stride. We may have to absorb it in our business in '23 and move on because there is going to be growth beyond that.
The other aspect, which I want to touch upon, is because the products that we supply are fairly seasonal products. And typically, the way I understood is that these retailers, if they are saddled with some inventory at the end, and they need to refresh the inventory from spring to summer and autumn, et cetera, they'll discount it out and not keep it as inventory.
Correct.
There should not be much concern of over inventory and therefore, orders not coming through. It's just only that the sales velocity at retail end could be slower so there could be some marginal impact. Should it be that way?
That is correct. So most of the brands are actually trying to liquidate the inventory. And sitting on inventory has a cost and obsolescence both. So they don't like, and it impacts their return metrics because money is locked up in their -- capital is employed in their inventory as well.
So inventory will get liquidated soon. Nobody likes to sit on excess inventory. The excess inventory was really built up on a top of supply chain deficiencies of last year as more and more goods were sitting in the shipping. And they came home late in the season, which they could not sell. But all of those will get worked out this year, and I don't anticipate it carrying forward going forward.
And just because we -- in a June quarter, which is typically a lean quarter, we have done fantastic, INR 600 crores of sales. Can this level be maintained despite, let's say, the slowdown that we are witnessing over the next 2, 3 quarters?
See, our weakest -- seasonally weakest quarter is Q2, usually, right? I mean if you look at our historical trend, that's because this is where we produce even more synthetic-based garments for the holiday season or winter season.
So there can be seasonal variances. You can't look at the business on a linear quarterly basis. So there may be a seasonal dip in the linear. But if you look at Y-o-Y comparison, we will always have a very strong growth even this year compared to last year.
Got it. And just one last question is how should we look at the depreciation of rupee coming to our benefit in margins?
So depreciation of rupee will definitely aid the margin. On the other side, demand supply-related push and customers asking for some amount of price breaks, especially when they are a bit weak in their financials, the to erode it. So there are counter pressures happening on both sides. So it may tend to get nullified in the short run.
In the long run, it is definitely beneficial from a margin standpoint.
Next question is from the line of Aditya from HDFC.
I had a question on the labor policies in the sense that you -- I believe you're setting one of your garment plants in MP. Can you throw some guide because labor is, obviously, garments is labor intensive. So are you having any flexibility in the lean season in terms of maybe getting some labor on the contract roles and then being flexible in terms of increasing or decreasing the headcount depending on the order book?
So we don't do that. We hold all the labor on our books. The reason why we do that is that we are not very confident of contractors maintaining all the compliance requirements. So we are bound by extremely onerous compliance audits by all our customers.
And concurrently, 4 or 5 brands will be always auditing any one of our factories at any point in time. So let's assume that an employee joins, leaves in a day or 2 for whatever reason because she's determined that this is not the place where she wants to work, we still have to ensure that we pay the PF, the ESI, everything for those 2 days.
So we feel more confident having them on our payroll rather than through a contractor payroll and take their liabilities and responsibilities. Having said that, since overall, there is a growth environment, we are not particularly worried about flexing the labor up and down. To a small extent, if we have to do that, the attrition itself takes care of some of that requirement. But we are not anticipating any major problems from having labor on our books.
Okay. And second, sir, is there any integrated textile policy, which has been passed because now you are backward integrating into fabrics, right? And earlier, this was not so much the case, like a garment company only you should be focusing on garments. But now we're seeing even the yarn companies are forward integrating into fabric and garments and you are backward integrating. So is there some policy push, which is helping you out?
No. So, we are entering into knit space, and that is where we are getting into fabrics. Because knits requires an integrated value chain to play as the value addition and purely on the garmenting side is very low. So, you've got to make your fabric and then you have to convert it into tablets as well when it comes to knits.
In the woven side, there is a huge amount of product types in the fabric as well, which is why on the woven side, you will find that the garmenting players are usually separate from the fabric players. So our entry into backward integration is largely a result of our getting into the knit space when we are setting up an integrated unit. On the policy side, the government has come up with some textile [indiscernible] the details, the parts are yet to be notified. And those are something which will happen at '24, '25 -- FY '24, FY '25.
But there are certain incentives that they are offering for setting up fabric mills and providing the support infrastructure. As and when that happens, we will take a look at them. But at the moment, we are only going by our business requirements.
Next question is from the line of Rajesh from Banyan Capital Advisors.
Congratulations on navigating 3 rough quarters in this quarter and particularly in Q2 as well. So my first question was that if you think about the business model, right, so we are adding capacity and we are getting incremental revenue from those for sure. But for the base capacity, are we doing anything to get higher revenue from that? Or how should one think about the base capacity?
So the base capacity is -- the only way to work with base capacity to drive our productivity so that we are able to produce a little bit more. And obviously, there will be cost pressures in terms of pricing, labor costs, et cetera, in the base capacity. So it's always a race between productivity and pricing wages, productivity has to stay ahead of that curve and depreciating rupee will also ameliorate some of the rising wages.
So that's how we see the base capacity. The potential to grow the wage capacity is not very huge as most of the base capacity is almost fully utilized.
I see. So the fact that we are diversifying into knits now, that doesn't really help the top line from the base capacity. Is that the way one should understand it?
So base capacity will continue to contribute its top line, knits will be accretive. It will add -- we'll have to add incremental capacity. So downstream garmenting units we'll have to add is to utilize the fabric that we will produce. So we will be setting up those incremental capacities in FY '24 to take care of that growth.
Right. But isn't it true that knits has a higher sort of revenue per capacity? Or is that not correct?
I don't think so. I mean we don't look at it that way. Actually, this is a lower value garment as compared to woven. So revenue-wise, we may have higher throughput and a higher revenue per unit investment, et cetera, in the woven side.
I see. Okay. And then the second question is with respect to our facilities now coming online in Bangladesh. Are we thinking about going into Europe with those facilities? Or those will continue to be focused on the U.S. market?
No. So initially, you start with U.S. and then eventually, it will pivot to Europe. It will start with U.S. only because we have stronger relationships with brands there. So we are really talking of FY '24 because by then, the factory has to come up and the first customers would be our existing customers and then slowly pivot, but that probably would happen by FY '25.
But eventually, the intention is to utilize Bangladesh for its purpose, which is definitely up.
The next question is from the line of Gunjan Kabra from Niveshaay.
So my question is that according to our channel checks, so if there are 4 seasons. In a particular season, if a customer is sourcing 4 times, it has given you order for 4 times. And now they have skipped the first 2 times and they are just thinking of waiting and watching the situation and going like maybe order the third, order the fourth time. So is this impacting our order book?
No. So see, the 4 seasons are, of course, we know are 4 distinct climate seasons, right? So there is a need for products in all these seasons. So for example, what is consumed in autumn and winter, the kind of fabrics and the garments that have been consumed are not what gets consumed in spring and summer. And summer styles are very different from spring styles.
So they will be ordered in all the seasons. I mean, there is nothing called skipping a season because I bought a higher in the previous season. So they only made that much, let us say, if I bought excess in last spring, then this spring and if I'm saddled with excess inventory from the previous year, it may have a bearing on how much I as a brand may order in the forthcoming spring. So inventories are categorized for those seasons. It doesn't work on a linear basis. It works on a Y-o-Y basis.
So going forward, when we are booking for spring and summer, we will have to see how much of spring inventory those brands are carrying and summer inventory brands are carrying. And accordingly, there may be some amount of calibrated buying. We also will have to see how much of demand the end users are exhibiting in spring and summer.
Summer is almost -- when I'm taking of summer, which is Q4 production, we're talking on consumption next year, next '23 June, July, August, which is a year from now. We will have to see how that demand pans out. If that demand is strong, then we will see. And if the brands do indeed think that next year, the demand will be reasonably good, then they will buy.
So no, actually, I wanted to ask this way that in suppose a particular season, like summer or winter, okay. So in a particular season, a customer is actually giving you orders 4 times maybe. In a particular season I'm talking about. If the customer is giving you orders 4x, so now they have reduced the frequency of their orders is what our channel is suggesting. So a particular season now they are...
Are you saying intra-season? Between the seasons, is that right?
Yes, yes. Yes, intra-season, which is one particular season I'm talking about. Like if I'm talking about giving to orders during winter or during summer, then if the particular customer is giving you 4 times -- frequency of order is 4 times in a particular season, then they are just reducing it to 2 times now because of the slowdown or the hiccup in the macro factors.
So too early to call out all those. So they do tend to give a large component of that in the first round itself. And during the season, they will come in for more in-seasonal purchase. And I don't see at the moment that in-seasonal purchases is impacted. We will have to wait and watch as to how that pans out. I'm not so sure that the 3 or 4x purchases will not materialize. It can happen and it will happen is my view. .
Okay. And sir, also, like we discussed in the previous question also that there was a high sourcing last year on account of supply chain deficiency by the apparel brands. So the result is high inventory right now. So going forward, so this year, can we say a little top line getting impacted because if you see year-on-year basis, a) on account of this and b) on account of decrease in the cotton prices, somewhat offset by rupee depreciation. So going this year, can we see a little impact on our top line if we compare it to the previous year.
When you say impact, there are 2 forces, right? One is the demand and the other is momentum of our own growth. Correct? So what we are saying is that the momentum of our own growth will help us still grow in FY '23 regardless of demand-related issues based on a prognosis that there could be a recessionary trends in the U.S., et cetera, right? So momentum will offset that, and we will still show a reasonable growth, reasonably good growth in FY '23.
That's what I'm saying. The demand-related problem we will have to deal with. In my opinion, it's a 2-quarter phenomenon. And if we are looking at it from an equity standpoint, we are all here for the long run. And even if there is a 1 or 2 quarters of a minor demand slowdown, what I'm trying to say is that beyond that, this problem will work itself out and the demand will get restored and the strong growth will continue, and the markets are favoring more and more India sourcing.
So at best what you are saying is a 1- or 2-quarter issue, which we will tide over. And we are doing our best to even mitigate that to the best extent possible.
Okay. And sir, the recent CapEx, the Tumkur and the Bengaluru unit that we started last year. So what capacity authorization is it operating at currently?
It's almost 95% now.
Okay. Okay. And sir, also like with Reliance partnering with Gap and to bring Gap to India, and Gap is one of our major customers globally. So if it is getting Gap to the country. Can we say a little market share of maybe we can supply to this brand in India also? Or how does this business model look?
So when we supply to Gap, we supply to Gap globally. Clearly, India is very tiny fraction of Gap's global consumption that India becomes a rounding off figure than what we supply to Gap.
With Gap India growth, then overall Gap buying will grow because as far as Indian market is concerned, they will tend to buy a little more from India rather than ship it from some other parts of the world. So is Gap India growth indeed in partnership with Reliance, and that will increase the demand from that particular customer for us. But overall, I wouldn't say it would make much of a dent for us.
[Operator Instructions] Next question is from the line of Venkat from the 3 Sigma Financials.
Congratulations for driving the business in such challenging environment. Sir, we were talking about inventory concerns here. So I just wanted to understand, are we in fast fashion business? Or are we in like some kind of stable designs that we work on?
Okay. So about 40%, 45% of our business, or you can even say up to 50% of our business is fast fashion. The rest is outerwear and athleisure, which are less prone to fast fashion trends, they are much more stable and have a predictability about how those businesses go. The other half is fast fashion.
If the fast fashion is -- so whatever inventory is left off, will they send us back or will they try to sell in the next year same season? How will that happen? How does it work out?
So moment we hand over the goods to our customers in the ports in India, the goods have shifted from us to the customers, we have zero liability on it.
And if the customer sells all of it or doesn't sell any of it or part of it, it's their liability there without. We have nothing to do with that.
Okay. Fantastic. Sir, my second question -- so my extension of that question is we are working on this [indiscernible] clothing. Are they being used for any technical purpose like sports or something like that? I mean is it like general purpose, retail clothing?
No. There are a lot of mixed t-shirts and mixed jogger pants and those kind of garments. That's what we're talking about. So these are all casual clothing.
But these are value-add also, right? If normal technical textiles have more value compared to regular use clothing, is that how I understand?
Our mix, what we are planning, we are not getting into technical textiles. We are planning the regular casual wear that gets consumed in the marketplace.
Okay, fantastic. Sir, my second question is on PLI. So since we have selected for PLI, so what is the road map for the PLI team?
So road map, PLI, by the time it comes into effect, it will be FY '24 or FY '25. So we have to produce goods, which fall under certain [indiscernible] , which are all synthetic-based comments in order to qualify for PLI. So that's what's in progress as we speak as we still have time for it.
Sir, my last question...
Mr. Venkat, may we request that you return to the question queue for the follow-up question as there are several participants waiting for their turn. Next question is from the line of [Mr. Pankaj] from Affluent Assets.
Hello. I'm audible?
Yes, you are.
And congrats on good set of numbers. I just wanted to ask. Given that we have performed very well in this quarter, would it be a rational assumption to annualize this quarter's results, both on top line and bottom line?
No, absolutely not. You can't just annualize one quarter's number as it is a seasonal business, and our business doesn't move in a linear fashion like that. So you always compare a quarter which is current quarter last year, that's point #1.
Point #2, as I said, we may see some macroeconomic headwinds in the second half of the year. So we may have to factor a little bit of that. Going forward, I don't foresee any of those problems where we will continue back on growth. But simply extrapolating it on a linear basis, it is not the right way to look at the business.
So where I'm coming from is, as I understand, Q1, Q2 are among the weakest quarters throughout the year, as far as annualized results are concerned. So given that we have posted INR 600 crores of top line and INR 40 crores of -- almost INR 40 crores of bottom line. So should we understand that it should be -- given the history, our annual results FY '23 would be far better than our first quarter's results?
No, sir. So again, FY '23 has to be compared against FY '22. And when you compare FY '23 versus '22, there will be good growth. Someone earlier asked would it be 20%, would it be higher? I said 20% is conservative, we will look at a higher growth than that.
So I will leave it at that at the moment. As none of us are any wiser on how the macroeconomic environment will play out, our anticipation is that we are best suited and best able to tackle it and still be able to drive growth in corresponding quarters of this year versus previous year, and we will try to do our best to do that. And I do anticipate that segment will probably be limited to FY '23 only.
Well, my second question is that we have been improving our...
Next question is from the line of Nishid Shah from Ambika Fincap Consultants Private Limited.
First of all, congratulations on an exceptional quarter. And I think it's an exceptional company and you are an exceptional leader. So my question is you mentioned that in India, we do more of a cotton-based garmenting. So on the synthetic based material, we are more dependent on China and other things. Are we taking initiatives to see that we develop that part of the fabric capability in India because over a period of time, if we have to be taking away market share from China, then we will need that kind of a capability internally in country over here?
Very good question. I think I would like to see that happen in the country, that more synthetic fabrics are available. It will certainly help growth in that synthetic sector, which is almost 2/3 of global apparel. So it's a very large segment, which India is not strongly playing in. So that fabric ecosystem has to come to the country.
The PLI initiative of the government also is a step in the right direction to support more capacity creation here. My feeling is that we'll take a few years before all of this can materialize. The right technology has to be available in order to set up synthetic fabric mills and people will have to come forth to do so as well.
I'm hoping that it happens so that more growth can be driven. And there are fabrics available in India. Obviously, it will be margin accretive as well rather than bringing it all the way from China, et cetera, and incurring additional cost.
Yes. And on this global brand penetration, like you mentioned on the cap, it's a 3 billion to 4 billion global sourcing on garmenting, and we are very tiny and very small. So what initiatives are we taking to penetrate more into the existing large brands? And how are we going to ship these up over a period of the next 2, 3 years, let's say?
So we're working on both sides. One is expanding our relationship with various incremental customers. So diversifying our customer base so that we do have large customers and can start doing incremental business with them, too, to drive growth.
And as far as increasing the wallet share is concerned, we are getting into newer and newer product category with the customers. So we tend to maximize the wallet share within their sourcing from India. But then if we have to tap into what they are sourcing from other countries, then we will have to get into certain product types like synthetics, et cetera, which are manufactured in Vietnam, China so that we are able to compete well with the players there who have access to local fabrics.
So we're doing on that from a relationship perspective, trying to maximize local share and then trying to take up some share from other countries as well.
Would it be far-fetched to say that we can become 10% of a global brand? Would that be the aim for us?
That will be very difficult because the product types are so widely varying. And also, we may not want to be -- want to take that level of exposure with one customer. So we will have to see -- we will see where to cap the relationship with one customer. So about, say, $100 million, $150 million, beyond which we may have to be wary about increasing the exposure.
Just to ask last question. You mentioned that we are working on one shift. But can we bring in a China model like they hire young girls and put them up in a hostel, and then nearby the manufacturing facility and they can work from 8 to maybe 2 shifts or 1.5 shift from 8 to 8 or 8 to 6, then you can elongate the working hours, if not really just one shift. Would you like to elaborate here?
So very early days. We haven't really much involved in our thinking on this. Doing that in our existing units is quite a challenge as our current model supports people living in their homes and we recruit them and utilize their services. So the hospital model taking responsibility for people, managing them in-house, et cetera, is not a model which we have gone. And we sometimes feel that may become an impediment to our spread of growth.
So if we want to put some capacities in multiple parts of the country, taking advantage of labor availability and labor costs and certain incentives available there, our ability to replicate an in-house residence model may or may not be that efficient. So we are still at work in progress on this particular issue, we'll update you as and when we have a better -- more evolved thought process.
Next question is from the line of Deepak Poddar from Sapphire Capital.
And good results in the challenging times. Sir, I wanted to understand, you mentioned 11% EBITDA margin for this year. So is this after adjusting for ESOP, I mean like-for-like comparison would be like 12.1% that we reported this quarter as compared to that, we are expecting about 11% for the entire year. Is that the right interpretation?
So when I had earlier mentioned 11%, that was the adjusted EBITDA that is prior to the ESOP charges. So after making an adjustment, so after writing back the INR 6 crores per quarter, that's what I had mentioned. So the comparison is 11% versus 13.1% in that sense for this quarter, right?
Now maybe we will do better than that. Our endeavor will always be to do better than that. And the first quarter, we have done better than that. We are working towards it. It all depends on how much of pushes and pulls we will have to bear in the third and fourth quarters with our customers, given the demand/supply imbalance. And definitely, the rupee depreciation is also helping us to shore up -- to mitigate some of those pulls and pressures. So I feel more confident that we may eventually end up having a margin better than that. .
Better than that, but we do expect margin to see some pressure in the second half because of economic headwinds and the pricing pressure that you mentioned about, right?
Yes. Yes. There will be some amount of pressure. We are trying to minimize that to the extent possible. .
Okay, understood. And my second query is regarding your revenue growth. Now this 20% growth for the entire year effectively means for the remaining 9 months, you will not grow. It will be kind of a flattish kind of revenue that we might be looking at, right?
That's why I said that 20% is very conservative, it will be better than that. .
Okay. Fair enough, fair enough. Okay. Yes, sure. I understood. Any kind of range that you can provide? What sort of growth you might be looking at?
It will be purely speculative at this point if I start putting growth numbers. But suffice to say, it will be strong.
Next question is from the line of Prerna Jhunjhunwala from Elara Capital.
Congratulations, sir, on a set of numbers on the margin front, 13% is a great number that you've achieved. I wanted to -- most of the questions are answered, I just wanted to have look on some bookkeeping question with respect to savings. So what has been your volume growth for the quarter and product mix can share with me.
As we have already mentioned, the quantum -- in terms of quantity, there are a number of pieces, it is 6.66 million as again 7.84 million last quarter. So we always -- it's again, it's a product mix because it's outerwear. Y-o-Y if you really look at it in terms of the yield, in terms of the price, it is almost 17% in terms of the yield because of the outerwear mix. Outerwear during the quarter is 42% is outerwear as against 25% last quarter. .
Against 45% last quarter. Okay. And sir, on your working capital, I see your trade payables increasing this quarter against last year's same quarter. Could you just help us understand why this is the same? And is it going to increase with time?
No, this is fastest quarter based on the current buying pattern. And whatever purchases, most of the import parties have been taken care in Q1. So Q2 is mostly the domestic purchase, and that's the reason you see that. So it is almost in line with the current purchase pattern.
And also with available cash, we try to take advantage by not taking a discount, and even to really offset the pricing to get the better pricing on the raw material costs. We have given just some of the people advances and brought the material at better rate, and that is the reason you see the trade payments is relatively lower. In terms of the quantity growth, if you ask me Q-o-Q, sorry, Y-o-Y it is 125%.
Next question is from the line of Bhavin from Enam Holdings.
Yes. Congratulations to a very good performance in a difficult environment. Just 2, 3 questions. Just on the ESOP charge, this is accounted from this quarter only, right? INR 6 crores?
That is correct. ESOP was issued in the month of April. So that's why it is -- it was -- we will start accounting it from Q4 -- Q1 of this year onwards.
So roughly, it's INR 24 crores per annum? You said it will be there 'til FY '25.
That is correct. So this is based on Black-scholes valuation because our stock had a huge amount of volatility in the period running up to the first quarter, the Black-scholes valuation came out to be high and that's the reason why the ESOP charges are amounting to INR 24 crores a year or INR 6 crores a quarter, and that will be applicable for 3 years, FY '23, '24 and '25.
Now this is -- remember, this is a noncash charge. And this impact from a cash flow perspective will be beneficial because we will get a tax shield out of it. So cash flows will actually improve, thanks to this. But yes, from a tax and EBITDA perspective, we will file the INR 6 crores charge for these 3 years.
And sir, what is the rough mix, sales mix between U.S., Europe and Rest of the World? And how much would be top customer and top 5 customer now as a percentage of sales?
So U.S. continues to be about 80%, between 75% and 80%. So that is high. Though going forward, we may see Europe slowly going up given FTA and other developments. The top 5 customers put together will be about 70%, 75%.
Okay. In fact last question, the effective tax provision would be roughly at this quarter was 22.5%. So should we assume that or it will trend down?
Yes. We expect that around 22.75% with the current workings -- with the current estimation.
Next question is on the line of Niraj Mansingka from White Pine Investment Management Private Limited.
Two questions. One on the margins for generally outerwear -- gross margins have been generally higher, but that doesn't seem in the case in this quarter. Any color on that?
No, no. So gross margins will not be higher. On the contrary, it may be lower. EBITDA margins maybe higher. The reason is that the material cost in an outerwear, since it's all synthetics and it's all imported will be very high. It's also a technical product. So there is a lot of material component in there. So the material component of our outerwear far outweighs these manufacturing component. That's why your gross margin may notionally look lower in the first 2 quarters, where we are producing content-based, lightweight garments, et cetera, the stitching effort like stitching, packing and all those efforts are higher compared to the material costs. So gross margin may look notionally higher.
Got it. And second question is on FTA of U.K. How large can it be for you like as a flow to business to India?
It will be significant because most of the European barely buy from India, barring very...
I'm talking of U.K., not the Europe, actually.
U.K. Okay. So U.K. also, there are several big buyers from U.K., like Primark, Mark & Spencer, and Next and so on and so forth. They are sourcing a significant quantity from Bangladesh and all of them would look at diversifying out of Bangladesh. So from an opportunity standpoint, it will be reasonably good. And for a larger established player like us, we do have the opportunity to tap into that incremental growth.
Any percent of market growth that you can see like for India, like the opportunity size growth as a percentage would be useful?
I will think and get back to you. Let me come back. Whatever that happens, that will happen in FY '24 because the FTA is not anticipated before end of this calendar year. In terms of growth, it will again pan out if we grow Y-o-Y. Eventually, we may see an incremental sourcing of about $250 million, $300 million or something like that from India, maybe even up to $500 million. So we will have to see -- India is exporting about $16 billion of apparel, so you can do the math on that.
Ok got it.
It will take time to reach those levels, it will start picking up the speed.
The next question is from the line of Monish Ghodke from HDFC Mutual Funds. .
Sir, our top line of INR 600 crores, does it include any duty drawback benefit or any export benefit?
It includes all of that.
So what would be the percent?
The duty drawback plus the RoSCTL, which is refund of state and central levies, all put together approximately adds up to 5%. .
5%?
Yes.
Okay. So excluding that, our sales would be around INR 580 crores.
Yes.
Okay. And sir, one more question. So in terms of currency depreciation, we say that rupee depreciated against dollar, but other currencies like Bangladesh currency has depreciated a lot more. Is it possible that India will suffer because of that?
At the moment, I don't see much of a problem because if you look at our depreciation over a longer period vis-a-vis China, ours have depreciated much more than China. So eventually, more and more business will come out of China. And if the relative depreciation favors India vis-a-vis China, that is what we are competing with. I don't think we are competing with Bangladesh.
So Bangladesh is competitive in its own right and it is more competitive than India. To be able to look at countries which are bigger and which has the potential to lose business, and, vis-a-vis, then we are in a better position. .
Okay. One more question, sir, in terms of fabric sourcing. So how are like key suppliers, like where do they come from? Is it China? Or is it like India based like -- and what is the mix like cotton and manmade fiber?
If I look at it on an annual basis, 30% is imported, 70% is domestically sourced. All the big players are our suppliers either domestically. The weightage, however, will change in the first 2 quarters where a larger proportion becomes imported. .
Okay. And we'll largely import manmade fabric, right?
Correct.
And we imported from which countries like?
China, Taiwan, Korea, but a larger proportion comes from China.
Next question is from the line of Manish, an individual investor.
Good afternoon. Am I audible?
Yes, you are.
Congratulations and well done to the team of Gokaldas. Just quickly one short-term question. Do you think we'll grow in each quarter versus the previous quarter this year, as in Q3 over Q3, Q4 over Q4?
That is the endeavor. We will try our best to do that. We may be more challenged in Q3 and Q4 on discounts, as we have to still see how the demand situation pans out and how deep the recession if at all there will be. So our endeavor will be to see if we can grow Y-o-Y on every quarter. .
So it will be more demand constrained rather than anything else still about last quarter, we had capacity constraints? So I guess we're moving the other way now, at least for Q3, Q4.
Correct. Beyond which, again, we will be back into capacity constraint zone.
That will be a good situation. Secondly, on a medium-term basis, we have INR 200 crores of cash and cash equivalent. CapEx requirement, as outlined, is about INR 200 crores.
Yes.
Yes, CapEx requirement, INR 200 crores, cash of around INR 200 crores still, and we continue to generate cash. Anything extra that you plan to spend beyond what you've outlined in the next 2 years to make sure that the CapEx allocation is better from here?
Yes, I understand. I understand your question. It's dynamic. So as we move towards the end of this year or as we enter FY '24, we will look at -- we will evaluate the situation and if required, we will deploy more CapEx to grow. So those decisions will get taken. Any CapEx decision above the current plan, we will revisit only in FY '24.
Okay. In terms of capacity, sir, we exited, say, x in end of '22. Where we'll be at FY '23 end, say, what percentage higher in terms of capacity?
End of FY '23 versus end of FY '22?
Yes.
Again, it's -- from a -- I would say about 20%, 25%.
Okay. Okay. Just in terms of volumes, I was mentioning, not -- of course, good to know.
Next question is from the line of Nagraj Chandrasekar from Emerge Capital.
My questions were answered.
Next question is from the line of Vignesh Iyer from Sequent Investments.
I just wanted to know now with a probable recession looming around the world, is there any all-in freight prices such as is there a better availability of containers? Or is the prices of the freight is still at higher levels like it was in FY '22?
So it's coming down from the previous year's level. So that's the good news. And hopefully, if the oil prices stay low, then we will see the freight rates also come down. U.S. as a country is also working on breaking the cartelization on the freight side. So there is an anticipation that the freight rates will continue to fall as there has been pressure exerted from the United States as well to bring down the freight rates.
Okay. So when...
For us, anyway, freight rates are only -- freight rates only impacts our raw material purchases or imported raw material purchases. All our exports are FOB. So the freight component is picked up by our customers. So we don't really have to deal with freight cost volatility.
Okay. Understood. Understood. Okay. Yes. So okay, I got the point. fact. My another question was there was some -- if I'm not around in last quarter, you had said that there would be some increase in labor cost in quarter 1 and there was some shortage of labor. But as things stand that cost has been accounted already in quarter 1, right? And the labor issue is more or less like sorted, right?
No. So the incremental labor cost is because the dearness allowance, which is the inflation-linked wage increase, magic rebate increase has happened from April '22 onwards. So it did result in an incremental INR 4.3 crores -- INR 4.3 crores of expense in the first quarter, that was about 0.7% of our revenue.
But we absorbed that, and that's the level which will continue for the rest of the year as well. As far as labor availability is concerned, at the moment, we did have some amount of challenges in Q1, but that has also worked its way out. So we don't see much of a problem now.
Okay. Sir, just one more on my side. The thing is the quarter 1 and quarter 2 are in general slower quarter for us, and 3 and 4 are bigger quarter. If I have to just take into account the fact the mix of product is different for the first half and the second half. Am I right to say that the products you sell in H2 are more margin lucrative?
Yes. It is because it's based on domestic fabrics and all that. So from a margin perspective, usually, we find that H2 is better than H1, other things being equal. So market conditions, et cetera, if they are normal, we'll find H2 is better than H1.
Next question is from the line of Pankaj from Affluent Assets.
Well, sir, you mentioned about the margin differential in H2 and H1. I would request you to elaborate more on it. And secondly, I also wanted to know our margins have been improving over last couple of years. So have we reached peak margins? Or do we have more legs for growth as far as margins are concerned?
You're talking about margins in H2 versus H1 and growth in margins. Is that correct?
Yes.
So margins, usually, I'm saying if the business was as usual, and there was no rationale trends and demand pressures, et cetera, H2 margins are better than H1 because the product types are more favorable index to we make a lot of elevated fashion in H2. We also use a lot of domestic fabrics in H2, which has got lesser of supply chain costs embedded there. So and the export incentives also work better for domestically sourced raw materials.
So H2 margins are superior. Having said that, this year, we will have to see how it works because I do anticipate for one particular period, which is H2 of this year, we may see some pressure from our customers on pricing since their demand or their buying will be somewhat muted. So we may have to let go a little bit of that. So that's as far as this particular year is concerned.
But otherwise, H2 is better than H1. In terms of growth in margin, I continue to maintain that in the longer run, over 3 years, we are working towards investments and improvement in margins, in the EBITDA margins. However, for FY '23, as I had indicated earlier, that we may see a slight reduction over FY '22 level, and that's only because of the current recessionary trends. We are working to even mitigate that, but that's something which will pan out as we go forward in FY '22 -- FY '23. By FY '24 onwards, I think in the next 2, 3 years, at least over FY '22 levels of 12%, we will see a 1.5% growth.
To say we will advance towards 13% to 14% for FY '24 onwards?
No, between FY '24, '25, '26, we will work on a 1.5% growth over '22 levels of 12%.
As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, all. I think this year is, again, characterized by a combination of headwinds and tailwinds as I've been maintaining for the last 6 months. We have drawn on our ability to anticipate and adapt to the changing business environment. We are doing our best to procure as much of business as we can to keep the capacity and to maintain the growth momentum in FY '23 over '22.
I believe that most of the recessionary trends impacting our business will be over by end of FY '23 and starting FY '24, we will have to gear ourselves up for growth. That's one of the reasons why we're still working on our CapEx plan as we speak and are looking for incremental capacity from FY '24 onwards.
We are always agile and nimble to any business headwinds or tailwinds that may come our way. If there are improvements in the business environment, we may accelerate things. If there are slowdowns, we must likely decelerate. But overall, at the moment, when I see the business environment, I think that '24 onwards, we should see reasonably good growth. In '23, we will see growth for sure. But I think from '24 onwards, we will see stronger growth.
I will pause here. Thank you so much for attending this earnings call.
Thank you. On behalf of Gokaldas Exports Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.