Gokaldas Exports Q2 FY26: Profit Plunges 71% as Margin Pressures Intensify

The stock, trading at ₹910.55 as of November 13, 2025, has declined 19.72% year-to-date, significantly underperforming the Sensex's 8.46% gain. The disappointing quarterly performance has reinforced concerns about the company's ability to navigate margin pressures in an increasingly competitive export environment, prompting a "SELL" rating from our proprietary Mojo scoring system with an overall score of 48 out of 100.

The apparel exporter's Q2 FY26 results reveal a company under significant operational stress. Net sales rose a modest 5.96% year-on-year to ₹984.35 crores, but this topline growth was completely overshadowed by a catastrophic collapse in profitability. Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) fell to ₹64.61 crores, representing a margin of just 6.56%—the lowest in recent quarters and down sharply from 7.49% in Q2 FY25 and 10.18% in the preceding quarter.

Quarterly Performance Trend: A Deteriorating Pattern

The quarterly trend table reveals a stark deterioration from the strong performance in Q4 FY25 and Q1 FY26. After posting operating margins above 10% in four consecutive quarters through June 2025, the company has witnessed a sharp compression, with Q2 FY26 marking the weakest operating performance in recent memory. The sequential decline from Q1 FY26 was particularly severe, with net profit plummeting 80.52% quarter-on-quarter from ₹41.47 crores to just ₹8.08 crores.

Financial Performance Analysis: Margin Erosion and Cost Pressures

The Q2 FY26 results expose multiple pressure points across Gokaldas Exports' income statement. Net sales of ₹984.35 crores represented a modest 2.99% quarter-on-quarter increase from ₹955.79 crores in Q1 FY26, but this topline growth failed to translate into improved profitability. Operating profit excluding other income collapsed to ₹64.61 crores from ₹97.30 crores in the previous quarter, a sequential decline of 33.61%.

Employee costs rose to ₹325.93 crores in Q2 FY26 from ₹285.76 crores in Q2 FY25, an increase of 14.06% year-on-year, significantly outpacing revenue growth. This suggests wage inflation and potentially higher attrition-related costs are pressuring margins. Depreciation jumped to ₹42.59 crores from ₹28.78 crores in the year-ago quarter, reflecting the company's ongoing capital expenditure programme. Interest costs also edged higher to ₹22.26 crores from ₹17.98 crores, indicating increased debt servicing obligations.

Perhaps most concerning was the tax rate of 56.84% in Q2 FY26, an abnormally elevated level compared to 20.90% in Q2 FY25 and 26.98% in Q1 FY26. This resulted in a tax charge of ₹10.64 crores on a pre-tax profit of just ₹18.72 crores, leaving minimal earnings for shareholders. The profit after tax margin compressed to a meagre 0.82%, down from 3.03% in the year-ago quarter and 4.34% in Q1 FY26.

The Other Income Anomaly: Masking Operational Weakness

A troubling aspect of Q2 FY26 was the company's heavy reliance on other income to prop up pre-tax profits. Other income stood at ₹18.96 crores, representing an extraordinary 101.28% of profit before tax of ₹18.72 crores. In fact, the company reported a loss of ₹0.24 crores from core operations (PBT less other income), meaning the entire reported profit came from non-operating sources rather than the core garment export business.

This is a significant red flag. Whilst other income can include legitimate sources such as interest on deposits, forex gains, or dividend income, such heavy dependence on non-operating income to generate profits suggests the core business is struggling. Comparing this to Q1 FY26, when other income of ₹21.38 crores represented 37.63% of PBT, or Q2 FY25 when it was 35.98% of PBT, the current quarter's 101.28% ratio is clearly unsustainable and masks severe operational challenges.

Quality Metrics: Strengths Offset by Emerging Weaknesses

Gokaldas Exports maintains a "GOOD" quality grade based on long-term financial performance, with impressive five-year sales growth of 25.78% and even stronger EBIT growth of 44.70%. The company has demonstrated its ability to scale operations significantly over the past half-decade, with revenues growing from ₹1,174 crores in FY2019 to ₹2,378 crores in FY2024.

Return on equity averaged 12.50% over the assessment period, whilst return on capital employed stood at a more respectable 18.04%. The company maintains moderate leverage with an average debt-to-EBITDA ratio of 2.13 times and low net debt-to-equity of 0.17, indicating the balance sheet retains reasonable financial flexibility. Institutional holdings of 61.88% reflect continued confidence from professional investors, including 34.24% from mutual funds and 22.93% from foreign institutional investors.

However, recent performance metrics paint a less flattering picture. The latest quarterly ROCE has deteriorated to 9.94%, well below the historical average, whilst ROE has slipped to 7.62%. The company's average EBIT-to-interest coverage of 4.19 times, whilst adequate, is categorised as "weak" relative to industry standards, and the latest quarter's coverage of 2.90 times is particularly concerning.

Peer Comparison: Valuation Premium Without Performance Justification

Gokaldas Exports trades at a P/E ratio of 43.65 times trailing twelve-month earnings, significantly above the industry average P/E of 23 times. Whilst this is lower than peers like V2 Retail (105.48x) and Raymond Lifestyle (86.98x), it commands a premium to Pearl Global Industries (29.56x) and Garware Technical Fibres (36.02x), both of which demonstrate superior return on equity metrics.

The company's ROE of 12.50% is respectable and higher than most peers except Pearl Global (14.51%) and Garware Technical (18.21%). However, the price-to-book ratio of 3.20 times appears reasonable compared to the peer group average, particularly when V2 Retail trades at an astronomical 24.48 times book value. Gokaldas maintains the lowest debt-to-equity ratio in the peer group at 0.17, matched only by Pearl Global at 0.18, providing a cushion of financial stability.

The absence of dividend payments, whilst not uncommon in a growth-oriented company undertaking significant capital expenditure, contrasts with peers like Pearl Global, Garware Technical, and Arvind Fashions that do reward shareholders with modest yields. Given the recent earnings deterioration and elevated valuation multiples, the premium P/E ratio appears increasingly difficult to justify.

Valuation Analysis: Premium Rating Faces Downward Pressure

Gokaldas Exports is currently rated as "VERY EXPENSIVE" by valuation metrics, with the stock having oscillated between "Expensive" and "Very Expensive" grades throughout October 2025. At a P/E ratio of 43.65 times, the stock trades at nearly double the industry average of 23 times, whilst the PEG ratio of 3.00 suggests the premium valuation is not supported by growth prospects.

The stock currently trades at ₹910.55, down 27.73% from its 52-week high of ₹1,260.00 touched earlier this year, but still 36.19% above the 52-week low of ₹668.60. This positioning in the middle of the annual range, combined with deteriorating fundamentals, suggests limited upside potential and significant downside risk if earnings continue to disappoint.

Enterprise value multiples paint a similar picture of stretched valuation. An EV/EBITDA of 18.10 times and EV/EBIT of 29.98 times are elevated for a company experiencing margin compression and profit decline. The EV-to-sales ratio of 1.78 times might appear reasonable for a manufacturing business, but it must be viewed in the context of the company's razor-thin net margins of just 0.82% in the latest quarter.

Shareholding Pattern: Promoter Stake Surge Raises Questions

The shareholding pattern reveals a dramatic shift in ownership structure. Promoter holding surged from 22.37% in December 2024 to 96.28% by March 2025, an extraordinary increase of 73.91 percentage points in a single quarter. This massive consolidation of promoter stake has remained stable at 96.28% through September 2025, raising questions about the transaction and its implications for minority shareholders.

Despite the promoter stake increase, institutional investors maintain significant presence. Mutual fund holdings have been rising, increasing from 30.14% in March 2025 to 34.24% in September 2025, suggesting domestic fund managers see value or are accumulating positions. However, foreign institutional investors have been reducing exposure, with FII holdings declining from 26.54% in December 2024 to 22.93% in September 2025, a reduction of 3.61 percentage points over three quarters.

Insurance company holdings have also declined from 6.02% in March 2025 to 4.21% in September 2025, indicating reduced conviction from this category of institutional investors. The combination of rising mutual fund interest and declining FII/insurance participation presents a mixed picture of institutional sentiment.

Stock Performance: Short-Term Strength, Long-Term Underperformance

Gokaldas Exports' stock performance presents a tale of two timeframes. Over the long term, the stock has been a spectacular wealth creator, delivering returns of 1205.17% over five years and 150.08% over three years, massively outperforming the Sensex. This reflects the company's successful transformation and scaling over the past half-decade.

However, recent performance has been disappointing. The stock is down 19.72% year-to-date, underperforming the Sensex by 28.18 percentage points. The six-month return of -10.06% contrasts sharply with the Sensex's 4.44% gain, representing negative alpha of 14.50 percentage points. This recent underperformance coincides with the deterioration in operating metrics and profit margins.

Interestingly, the stock has shown strong momentum over the past three months, returning 29.32% compared to the Sensex's 5.23%, generating positive alpha of 24.09 percentage points. The one-month return of 17.65% and one-week gain of 8.50% suggest recent buying interest, possibly driven by value hunters or technical factors rather than fundamental improvements. With the stock trading above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), technical momentum appears positive despite the fundamental concerns.

The stock's beta of 1.35 indicates it is 35% more volatile than the broader market, classified as a "high beta" stock. With annualised volatility of 47.52%, significantly higher than the Sensex's 12.33%, Gokaldas Exports carries substantial price risk. The risk-adjusted return of 0.21 over one year compares unfavourably to the Sensex's 0.74, indicating investors are not being adequately compensated for the elevated risk.

Technical Outlook: Mixed Signals Amid Bearish Trend

The technical picture for Gokaldas Exports is mixed, with the overall trend classified as "MILDLY BEARISH" since October 27, 2025. Weekly indicators show mildly bullish MACD and KST signals, whilst Bollinger Bands suggest bullish momentum. However, monthly indicators paint a more cautious picture with mildly bearish MACD and KST readings.

The stock trades at ₹910.55, well above its 52-week low of ₹668.60 but 27.73% below the 52-week high of ₹1,260.00. Key resistance levels lie at the 20-day moving average area of ₹836.77, the 100-day moving average of ₹815.69, and the 200-day moving average of ₹859.38. The fact that the current price is above all these moving averages suggests technical strength, but the mildly bearish overall trend and recent resistance at higher levels indicate caution is warranted.

Delivery volumes have surged recently, with the one-day delivery volume jumping 382.04% versus the five-day average, indicating increased genuine investor interest rather than speculative trading. The trailing one-month average delivery percentage of 35.86% is lower than the previous month's 44.69%, suggesting some reduction in long-term conviction despite the recent price strength.

Investment Thesis: Quality Company, Wrong Price, Wrong Time

Gokaldas Exports presents a classic case of a fundamentally sound business facing a challenging cyclical environment whilst trading at an unjustifiably expensive valuation. The company's long-term track record is impressive, with five-year sales growth of 25.78% and EBIT growth of 44.70% demonstrating its ability to scale operations and gain market share in the competitive garment export industry.

However, the current quarter's results reveal significant operational stress. The collapse in operating margins to 6.56%, the heavy reliance on other income to generate profits, the abnormally high tax rate, and the deteriorating interest coverage ratio all point to a business under pressure. The aggressive capital expenditure programme, whilst potentially beneficial for long-term capacity, is currently weighing on profitability through higher depreciation and interest costs without yet delivering commensurate revenue or margin benefits.

At a P/E ratio of 43.65 times and a PEG ratio of 3.00, the market is pricing in a return to strong growth and margin expansion that appears increasingly unlikely in the near term. The "VERY EXPENSIVE" valuation grade, combined with a "NEGATIVE" financial trend and "MILDLY BEARISH" technical outlook, creates an unfavourable risk-reward profile for investors.

Key Strengths & Risk Factors

Outlook: What Lies Ahead for Gokaldas Exports

Gokaldas Exports' Q2 FY26 results represent a significant setback for a company that had demonstrated strong operational momentum through FY2025. The 71% profit decline, margin compression to multi-quarter lows, and heavy reliance on other income to generate profits are serious concerns that cannot be dismissed as temporary aberrations. With the stock trading at 43.65 times earnings despite deteriorating fundamentals, the valuation provides no margin of safety for investors.

Whilst the company's long-term growth trajectory and quality credentials remain intact, the current cyclical challenges combined with expensive valuation create a compelling case for caution. The garment export industry faces headwinds from global demand softness, competitive pressures, and cost inflation—factors that are likely to persist in the near term. Until there is clear evidence of margin recovery and sustainable profit growth, investors would be well-advised to remain on the sidelines or reduce exposure to this once-promising growth story.