Leading exporter and trader Gokaldas Exports posted a revenue surge in the second quarter backed by a rise US retail demand. Discussing the company’s Q2 performance, Vice Chairman Siva Ganapathi said despite a surge in revenues there was an year-on-year (YoY) decline in margins.
Ganapathi, in an interview with CNBC TV-18, highlighted a positive demand outlook, driven by strong US retail sales and reduced inventory levels among retailers.
He also addressed the impact of freight costs and currency fluctuations, noting that while raw material imports faced delays, most outbound freight costs were passed to customers. While, Ganapathi expressed optimism for improved demand in the second half of the year, bolstered by a shift away from Chinese imports and geopolitical factors favouring Gokaldas Exports.
Below is the verbatim transcript of the interview.
Q: Talk to us about the demand trends that one is seeing, because the global market, and specifically the US, which accounts for around 80% of your revenues – has seen a bit of a subduedness, at least what we are seeing in terms of the imports that are there from the US market. How is it shaping up for you? What are the current demand trends that you could highlight over there?
A: The US retail demand has been pretty strong, even for the YTD this year, for the calendar year, the retail demand has grown by 3% over a 3% growth the year before. So, the consumer pool is there. Last year, the retailers had excess inventory from the year before, and that is why there was a sharp fall in demand from large retailers for manufacturers like us. However, most of those inventories have come down with the brands, and now they are back in the market.
So especially from July onwards, we are seeing a fair amount of traction coming back at an overall market level. Gokaldas Exports in particular, we have started seeing demand flow coming a bit sooner because of several other macroeconomic factors going in our favour as well. So we are seeing a fairly good demand traction based backed up by low demand in the previous year, backed up by the need to move away from China, which has acquired a renewed sense of urgency now with the US elections, plus issues in Bangladesh and all other competing countries in the neighbourhood. So in general, the demand scene is looking good from H2 onwards. And I think that will stay that way for some time.
Q: Now that you are saying the second half will be better than the first half, can you give us some details in terms of what is happening on the freight side? Because a lot of companies were big exporters, have spoken about how maybe now freight rates would come down, and there has been that currency depreciation issue as well for you. Do you think margins will improve and you will be able to do what you did last year, maybe better than that?
A: As far as the freight is concerned, we sell almost all our products on an FOB basis. So from an outgoing freight base perspective, we don’t bear the cost. The customers bear the cost. However, for the amount of goods that we import, raw materials that we import, our freight costs have impacted it slightly, but most of it is passed through for us, so we pass it back on to the customers.
But there have also been delays in securing some of those raw materials, because, apart from costs going up, there have been tremendous amounts of delays. So excess inventory in the high seas, delays in arrival mean, and hence, delays in loading it in our factories, etc. All of those are causing some amount of disruption, but we are handling it.
But I don’t see freight as a big problem, because the bulk of the freight, which is the finished goods freight, is all borne by the customers.
As far as currency goes, our currency has been fairly flat with US dollars for the last one and a half two years. So, while some of the competing countries have seen a little drop in their currencies, like Bangladesh — we do have some of those challenges, but we have been fairly able to combat it by higher productivity.
Some of our factories are in Kenya. Four of our 30 factories are in Kenya, and there we saw the Kenyan Shilling go up sharply against the US dollar. So to that extent, we did have some challenges in q1 and Q2, particularly in Q2 because of the sharp rise in local currency. So for an exporter, when the domestic currency goes up, our cost of operations goes up in US dollar terms, but we have fairly managed all of that currency volatility. At least for the bulk of our operations, we hedge our currency so we don’t take any currency risks.
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