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Life after Tariff - Key Insights from a Textile exporter Gokaldas Exports (Reco. – Hold; PT – Rs825)

ICICIdirect Research 12 Sep 2025 DISCLAIMER

To sacrifice margins to retain client
Management expects US-India trade deal to happen by Nov-Dec,25 and penalised tariff of 25% (over above 25% reciprocal tariff) will be removed.
The company decided to take hit on the profitability by offering discounts on orders exported after 27th August 2025. Clear strategy is to not lose any client to other country with lower tariffs.
Continuation of 50% tariff on Indian exports, will result in Gokex consolidated EBIDTA margins declining to low -mid single digit by Q3FY26 from the levels of 10-11% prior to tariff imposition. High tariff will affect the profitability of the India business, which is expected to witness 600-700bps decline in the EBIDTA margins.


Diversification in production base and regional mix key to mitigate any tariff risk
Gokex is focusing on diversifying its production by adding capacities in lower tariff region such as Africa (imposed with 10% US export tariffs) and get products manufactured in lower tariff countries such as Bangladesh and Sri Lanka (imposed with 20% US export tariff) to mitigate the impact of 50% tariff rate imposed on India.
India’s garment export to UK is around $1bn. With UK FTA trade deal, there is an opportunity of incremental export of $1bn to UK by shifting of production from Bangladesh and China. Further, FTA with EU will lead to additional export opportunity of $2bn (addition to existing exports of $5bn). This along with possible trade deal with US will help Gokex revenues to grow in strong double digits in FY27 and FY28.

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Though tariff uncertainties will put pressure on the margins in the near term, Gokex is focusing on diversifying operations and expanding export in other geographies to de-risk its business model in the long run.
The stock has corrected by 25% from its four months and trading at 20x its FY27E earnings. Any signing of effective trade deal with US will act as re-rating trigger for the stock. We maintain our Hold rating on the stock with a PT of Rs825.
 

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