Narayan Murthy-backed small-cap multibagger makes strategic acquisition; offering geographical diversification and low-cost capacity expansion opportunities!

The stock has delivered 167 per cent in the last one year and hence, turning out to be a multibagger stock, while in the last three years it has jumped nearly 1,096 per cent.

The NSE benchmark Nifty 50 index reclaimed its crucial psychological level of the 22,000 mark on Friday, surging by 1.51 per cent, led by index heavyweights Reliance Industries and Infosys. Remarkably, all sectors were observed trading in the green, with Nifty Energy leading the charge, up by over 3 per cent.

Broader markets displayed increased buying interest, with the Nifty Small-Cap index rising by 1.53 per cent and the Mid-Cap index up by 0.90 per cent.

Amidst the buoyancy in the small-cap index, one stock has emerged as the rising star of the day – Gokaldas Export Ltd (GEL). The stock witnessed an impressive surge of more than 6 per cent on Friday. GEL has evolved into a one-stop solution for some of the world’s most recognized apparel brands, establishing itself as India’s leading manufacturer and exporter of apparel. The company envisions being a globally reputed apparel manufacturer and exporter, with a strong emphasis on innovation and sustainability.

Before delving into the intricacies behind this upsurge, an interesting fact emerges: Catamaran Ventures Llp holds 6,78,003 shares of the company, and Mr. Narayan Murthy, founder of Infosys, serves as the founder and chairman emeritus of Catamaran Ventures Llp.

In Q3FY24, the company's revenue witnessed a robust growth of 6 per cent YoY and 10 per cent sequentially. This growth is particularly noteworthy against the backdrop of a 12 per cent YoY decline in Indian apparel exports and a flat sequential performance. The company's EBITDA margin stood at 12.6 per cent in the quarter, showing a QoQ improvement of 163 bps due to better operating leverage.

Despite challenges such as an increase in statutory minimum wages in Karnataka, employee ramp-up in anticipation of volume growth in Q4, start-up costs at the MP unit, and certain one-off expenses, the company managed to contain the margin decline to 112 bps on a YoY basis. The manufacturing unit in MP is expected to turn profitable in the forthcoming financial year, offsetting initial costs incurred in training a large number of employees and bringing them to productive levels. Furthermore, the fabric processing unit in Tamil Nadu is in advanced stages of completion, with expectations of trial production in Q4 2024.

In a recent development, GEL has signed an agreement with Matrix Clothing Private Limited (“MCPL”) to acquire 100 per cent of the equity share capital of Matrix Design & Industries Private Limited for an enterprise value of Rs 489 crores. Out of this, Rs 247.5 crores is being paid through preferential allotment of shares of Gokaldas Exports via a share swap.

The Matrix Clothing group, a manufacturer of high-quality men’s, ladies’, and children’s knitwear apparel, has a significant presence in Europe, the UK, and North America. With five manufacturing facilities across Gurgaon, Haryana, and Ranchi, Jharkhand, this deal provides GEL access to the knit apparel business segments, an exclusive global customer base, expanded access to European and UK markets, geographical diversification, and potential for low-cost capacity expansion in the future.

The stock has delivered 167 per cent in the last one year and hence, turning out to be a multibagger stock, while in the last three years it has jumped nearly 1,096 per cent.

Disclaimer: The article is for informational purposes only and not investment advice.