Gokaldas Exports reported a flat year-on-year total income of INR998 crores for Q3 FY’26, heavily impacted by the 50% U.S. reciprocal tariff. EBITDA declined by 18% year-on-year to INR96 crores, primarily due to absorbing tariff burden shared with customers. The company is strategically derisking by focusing on growth from Europe and rebuilding the Africa order book, anticipating margin stabilization in Q4.
Q3 FY’26 Performance Review
Gokaldas Exports reported total income of INR998 crores for the third quarter of FY ’26, marking a flat year-on-year performance. This quarter marked the first full impact of the steep 50% U.S. tariff on India and the expiry of AGOA benefits from Africa. Despite the challenging environment, India operations maintained a growth momentum, registering an 8% Y-o-Y growth.
EBITDA for the quarter stood at INR96 crores, an 18% decline year-on-year. Management clarified that this decline was primarily due to sharing a considerable portion of the U.S. tariff burden with key customers. Adjusting for this burden share (net cost around INR40 crores), the underlying EBITDA would have shown a 17% growth. The total penal tariff impact was closer to INR60 crores, partially offset by INR20 crores recovered from the supply chain.
Geographic Segment Commentary
India Business Under Tariff Pressure
The India business faced significant margin headwinds due to the U.S. tariff regime. Management stated that U.S. margins currently run in the low single digits post-discounting. European margins, however, were noted to be stronger, around 11% to 12.5% in the current environment. The company has strategically maintained U.S. volume through discounts, hoping for a swift resolution to the tariff issue.
Africa Market Showing Tailwind
The expiry of AGOA impacted Africa revenue in Q3, compounded by initial supply chain disruptions (like the Mombasa port congestion, which is now resolved). However, the region is regaining tariff advantage as tariffs on the rest of Asia increased to 20%. Management anticipates the region has bottomed out, with performance expected to improve from Q4 onwards, driven by a rebuilding order book and potential retrospective restoration of AGOA benefits.
Strategic Initiatives and Future Outlook
The company is actively pursuing diversification to mitigate tariff risks:
- Europe Expansion: Management is aggressively pushing European business, which currently contributes around 14%-15% of revenue, aiming to increase this to 20%-25%. European margins are favorable currently due to the tariff regime difference.
- Operational Efficiencies: Investments in vertical integration, such as the fabric processing unit BTPL, are intended to improve margins going forward.
- Capacity Utilization: Current utilization in India is almost full. The company has new capacity coming online in Bhopal (India) and Kenya, which management expects to utilize effectively in the next financial year FY’27, though expansion ramp-up is being slowed down pending tariff clarity.
On the long-term outlook, the successful execution of the India-EU FTA (expected around 2027) is anticipated to be a significant catalyst, placing Indian exporters on par with competitors like Bangladesh and Vietnam.
Q&A Insights on Margins and Costs
Management confirmed that the Q3 margin improvement (despite discounts) was driven by productivity gains and beneficial India-based fabric mix, along with strong negotiations with suppliers linked to the high U.S. tariffs. This benefit is expected to sustain as long as the high U.S. tariff pressure continues.
Regarding the potential Supreme Court ruling on tariffs, management stated it is highly unlikely that any recovered funds would cascade down to the supply chain; retailers would likely see a windfall gain.
Looking ahead, management believes the current operational performance level represents a bottomed-out scenario for consolidated margins, led by expected improvements in international operations.
Source: BSE
