Gokaldas Exports , a prominent Indian apparel manufacturer, is among the companies exploring production expansion in Africa following the imposition of steep tariffs by the United States on Indian exports. This strategic move comes in response to President Trump's decision to levy a 50% tariff on Indian goods, reportedly as a consequence of India's Russian oil purchases.

African Advantage

The appeal of African countries lies in their significantly lower tariff rates, hovering around 10% in nations such as Kenya and Ethiopia. This stark contrast to the new 50% US levy on Indian goods presents an attractive alternative for Indian exporters looking to maintain their competitive edge in the global market.

Impact on Indian Exports

The newly imposed tariffs, which took effect on Wednesday, are expected to have a substantial impact on India's export landscape:

• Potential reduction of up to 90% in exports of certain goods to the US
• Overall exports to the US, India's largest market, could be more than halved
• In 2023, India exported over $20.00 billion worth of textile products, jewelry, and diamonds to the US

Sectors at Risk

Labor-intensive sectors are poised to face the brunt of these tariffs, with jewelry and apparel industries particularly vulnerable. Companies like Gokaldas Exports and Raymond Lifestyle are at the forefront of exploring African expansion to mitigate these challenges.

African Incentives

Several African nations are positioning themselves as attractive alternatives for Indian manufacturers:

• Ethiopia
• Nigeria
• Botswana
• Morocco

These countries are offering various incentives to attract investment, including:

• Tax holidays
• Duty exemptions

Challenges Ahead

Despite the potential benefits, the shift to African manufacturing bases is not without its hurdles:

• Time-consuming process of establishing new production facilities
• Necessity to renegotiate terms with US buyers
• Ongoing order deferrals and cancellations

As Indian exporters like Gokaldas Exports navigate these turbulent waters, the move towards African expansion represents a strategic effort to maintain their global market position in the face of significant trade barriers.

Gokaldas Exports , a leading Indian apparel manufacturer and exporter, has reported a strong financial performance for the first quarter, despite facing challenges from recent tariff changes in the United States market.

Financial Highlights

• Profit After Tax (PAT) grew by 53% year-on-year to INR 41.00 crores
• EBITDA margin improved to 12.1% from 8.8% in the same quarter last year
• Total income grew by 4% overall, with a 20% growth excluding acquired entities
• The company faced margin pressure from customer discounts of INR 15.00 crores related to U.S. tariff absorption

Tariff Impact and Strategic Response

Siva Ganapathi, Chairman and Managing Director of Gokaldas Exports, addressed the impact of revised U.S. tariffs on India, which are expected to reach 25%. The company anticipates continued tariff burden sharing of 2-2.5% of revenue through the financial year. To mitigate these challenges, Gokaldas is focusing on:

1. Cost optimization and productivity gains across the group
2. Expanding capacity with three new factories in India and 500 additional machines in Africa
3. Increasing European business contribution, which rose to 13.4% from 9% average

Capacity Expansion and Diversification

The company is actively expanding its production capabilities:

• New factories coming online in Q3 in Bhopal, Kolar Goldfield, and Ranchi
• Brownfield expansion in Africa with 500 additional machines
• Potential advantage in Africa operations due to lower 10% U.S. tariff compared to 20-25% for other countries

BTPL Acquisition Progress

Gokaldas Exports provided an update on the acquisition of Bombay Rayon Textiles Limited (BTPL):

• Total acquisition cost revised to INR 552.00 crores from earlier INR 588.00 crores estimate
• BTPL's fabric processing unit is expected to strengthen vertical integration and potentially improve margins

Outlook and Challenges

While Q2 is expected to face similar margin challenges as Q1 due to pre-committed orders with tariff burden sharing arrangements, the company remains optimistic about long-term prospects:

• Anticipating clarity on U.S.-India trade deal, which could provide a positive impact
• Focusing on European markets, especially with potential FTA benefits in the UK and EU
• Continuing to monitor global trade dynamics and adjust strategies accordingly

Siva Ganapathi commented, "We are combating these issues by focusing on cost optimization and better productivity gains across the group. Further, we are in dialogue with all customers to explore ways to manage the cost of goods for them."

As Gokaldas Exports navigates through these challenging times, the company's strategic investments and geographical diversification efforts are expected to play a crucial role in maintaining its growth trajectory and market position in the global apparel manufacturing industry.