Blackstone-controlled apparel firm Gokaldas Exports is struggling to shrug off the backwash effects of global economic slowdown even as some Indian textile companies have started showing better financial performance, partly due to improving orders from the key market US. Gokaldas reported 11.7% drop in net sales for the quarter ended September 30 to Rs 264 crore over the year ago period with the company slipping into the red with net loss of Rs 27.1 crore compared to Rs 9.2 crore profit in the second quarter of the previous fiscal.

The company attributed the poor financials to higher wage bill (26% rise), increase in cotton fabric prices (up 50%), forex volatility (Rupee strengthening 6% in six weeks) and low price realisations due to pricing pressures.

"We could not pass on the rise in cotton prices to our customers since they were old contracts finalised much earlier. Even if the flow of orders is now improving, it has not reached the pre-crisis levels seen in 2007," the company said.

It added that the pre-crisis export orders were at higher prices and until economic conditions in both its major markets, US and EU do not improve, apparel exports will take some time to reach old levels.

But the firm is hopeful that it will make profits in the next two quarters: "We are trying to get better prices from our customers. Our order book for Q3 stands at Rs 300 crore level and for Q4 we had on hand orders for Rs 200 crore and booking is still on."

The firm also appeared bullish on the impact of strengthening Chinese currency and the recent inflation in China as an advantage for India. It added that the future of the Indian cotton prices will influence profitability and hoped that prices will be under control when the Indian cotton crop comes out this month which in turn will stabilise the cotton fabrics supply chain.

The company is a big test case of how a company controlled by a PE firm manages through tough times, and the results have not been too encouraging yet.

In 2007, Blackstone first picked up a 50.1% stake in Gokaldas for $116 million or Rs 482.5 crore from Bangalore-based Hinduja family. The PE firm subsequently came up with an open offer for another 20% stake, where it ended up with another 17-18% stake in the textile exporter spending around $45 million. The average cost of acquisition is pegged at Rs 275 per share against the latest share price of Rs 133, which means the buyout giant is sitting on notional haircut of over 50% on its three year old investment.

Blackstone currently holds around a 68% stake with the Hindujas retaining 20%. Anand Jain's Jai Corp is the other sizable shareholder with 6.64% stake.

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