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The China-plus-one strategy has been a game-changer for Indian exporters, creating multibaggers in the small-cap space. But what happens when an industry loses this advantage? In August, US President Donald Trump announced a 50% tariff on Indian goods — a shock for exporters, particularly in textiles and apparel, where the US accounts for 28% of India’s exports.
In April 2025, the US rolled out a 10% universal tariff under its Reciprocal Tariff Policy, with a nation-specific levy delayed by 90 days to allow for negotiations. Exporters prepared for scenarios of 20%, 30%, and even 50%.
The textile supply chain absorbed the 10% tariff. It was even ready to absorb an expected 20% tariff by passing on 7-8% cost to customers and distributing the remaining to shrinkflation and de-specing (reducing the features of a product). But if tariffs increased to 30%, it would be disruptive for an industry with slim profit margins. A 50% tariff is now forcing a reset.
Among the worst-hit has been Gokaldas Exports, a Rs 5,389 crore market cap stock that surged 2,000% in the last five years but lost 40% of its value since tariff uncertainty that began in mid-December.
With 70% of revenue from US ready-made garment exports, Gokaldas underperformed peers like KPR Mill and Arvind Ltd, which either make their own fabric or make workwear for human protection and industrial application garments alongside manufacturing RMG for big retail brands like Walmart and GAP.
Stocks of Textile Companies React to US Tariffs
Source: Trading View
Since its stock market debut in 2005, Gokaldas Exports has had a mixed bag of ups and downs — from promoter stake sale, downsizing, price-disruptive competition from China (between 2007 and 2018) to opportunities from the China-plus-one strategy, Bangladesh’s political crisis, and cost optimisation, which drove the stock up by around 1,200% between 2019 and 2024.
The company has undergone a management change twice (in 2006 and 2017) and a complete turnaround in 2018. The question now is: can it navigate the global trade shift?
India is the world’s sixth-largest exporter of textiles and apparel. The textile industry struggled between 2006 and 2018 as China’s textile exports rapidly gained market share.
US Textile and Apparel Imports by Country
Source: The Office of Textiles and Apparel
But after US tariffs on China in 2018, global retailers such as Walmart, Puma, and H&M started diversifying their supply chain with the China-plus-one strategy. Vietnam, India, and Bangladesh were the biggest beneficiaries.
In 2024, political unrest in Bangladesh impacted their textile exports, and suppliers once again began seeking a Bangladesh-plus-one strategy. Vietnam also saw an increase in production costs, putting Indian exporters at a sweet spot.
Fig 3: Gokaldas Exports Financial Highlights FY2021 to FY2025
Source: Gokaldas Exports FY2025 Annual Report
Trump’s second term has been marked by tariffs across major trade partners. Initially, India enjoyed a relative edge, but the 50% duty erased it overnight.
Fig 4: US tariffs on India, Vietnam, and Bangladesh
|
Country
|
Apr-25
|
Aug-25
|
|
India
|
27%
|
50%
|
|
Vietnam
|
46%
|
20%
|
|
Bangladesh
|
37%
|
20%
|
Source: Media announcements
According to reports, a 50% tariff could increase the cost of an Indian-made shirt for a US buyer from $10 to $16.40, higher than $14.20 from China, $13.20 from Bangladesh, or $12 from Vietnam.
Indian exporters such as Gokaldas should brace for a slower revenue growth in the second half, which is seasonally strong. Hence, it comes as no surprise that the stock fell 24.4% in August.
The textile and apparel industry is India’s second-largest employment generator. To soften the blow of a 50% tariff, the government announced some immediate relief to exporters.
It suspended import duties on raw materials between 19 August and 30 September. The Goods and Services Tax (GST) Council approved a simplified two-slab structure of 5% and 18%, effective from September 22, 2025. It will reduce GST on several textile goods.
Fig 5: GST Rate Change in Textile Goods
|
Textile Goods
|
New GST rate
|
Old GST rate
|
|
Man-made fibre
|
5%
|
18%
|
|
Man-made yarn
|
5%
|
12%
|
|
Finished textile products priced up to Rs 2,500
|
5%
|
12%
|
|
Sewing Machines
|
5%
|
12% |
Source: PIB – Ministry of Textiles
Even before the 50% tariff was implemented, India had been in talks with the UK, the EU, and other countries over improving trade negotiations. The uncertainty over Trump tariffs accelerated these talks. Since all trade partners are facing US tariffs, they are looking to diversify their supply chain, which is being seen as a global shift in trade.
Indian exporters see it as a strategic opportunity to diversify and grow in European, African, and Asian markets. The textile industry is asking for alternative policy frameworks, such as subsidies, tax reliefs, and other production-linked incentives, to reduce manufacturing costs and maintain global competitiveness.
An FTA with the UK (signed May 2025) will remove 12% import duties by FY27, while EU talks are ongoing. With the EU already accounting for 38% of apparel exports vs. 33% for the US, this diversification could reshape the industry.
Fig 6: India’s Apparel Export Market
Source: Gokaldas Exports Q1 FY26 Investor Presentation
Gokaldas Exports is closely watching the global trade scenario and expects tariffs to settle by the next financial year. The company’s MD and CEO, Siva Ganapathi, called the 50% tariff an “embargo”.
Through its 2024 acquisition of UAE-based apparel maker Atraco, Gokaldas now has facilities in Ethiopia and Kenya.
Ethiopia and Kenya face a 10% tariff from the US. Gokaldas will invest Rs 100 crore in Africa in the third quarter. However, it could face competition from China, as many Chinese textile companies are also expanding in African countries for their US tariff advantage.
Gokaldas is merging with BRFL Textiles, which owns brands like Bombay Rayon, LinenVogue – La Classe, and Giza Classe and manufactures cotton, linen, viscose, polyester, and blends. Alongside a new Bhopal plant, these expansions are timed for Q3-Q4. The merger will give Gokaldas an assured supply of low-cost fabric. It will pay Rs 552 crore for the merger in cash and equity, of which the cash portion of about Rs 70 crore is already paid.
In its four-year multibagger rally, Gokaldas witnessed the Russia-Ukraine war, a surge in post-Covid demand, followed by a drop in volume due to excess inventory with retailers, and shipping challenges freezing the supply chain. All these challenges have made it extremely conservative about debt financing and accelerated expansion, which is visible in its net debt.
Fig 7: Gokaldas Exports’ Net Debt from FY22 to Q1FY26
Source: Gokaldas Exports Q1 FY26 Investor Presentation
It has a net debt of Rs 236 crore as on June 30, 2025, and plans to keep it low and not take on additional debt unless there is clarity on the future revenue growth.
Gokaldas improved its EBITDA margin to 12.1% in Q1 FY26 compared to 8.8% a year ago, and increased its profit after tax by 53%. The second quarter orders are already in place. The real impact of tariffs might be felt in the third quarter.
Crisil Ratings has reaffirmed its ‘Crisil A+/Stable’ rating, but noted that a rating downgrade could come if the risk of substantial revenue de-growth materialises, operating margin falls below 7%, or debt-to-EBITDA goes above 1.5x.
Gokaldas Exports is trading at a price-to-earnings (P/E) ratio of 31x, below KPR Mill’s 41.3x but above Arvind Ltd’s 20.6x.
Fig 8: Gokaldas Exports Shareholding Pattern
Source: Screener.in
While the US export market poses a challenge, the EU and UK market presents an opportunity. Gokaldas Exports has a stable balance sheet and robust management that can navigate the tariff challenges and opportunities efficiently. However, the company’s high foreign institutional investor (FII) holding of 25% makes it vulnerable to FII outflows.
The next 12 months could see sharp stock price movements as the global trade shift unfolds, making this a high-risk, high-reward stock.
Note: We have relied on data from http://www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Puja Tayal is a financial writer with over 17 years of experience in the field of fundamental research.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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