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BMT Series – Gokaldas and Blackstone

Posted by fairval on October 10, 2008

(BMT stands for – Blow My Trumpet)

Business Standard today has this nice article on how PE players are all showing losses now. Amongst examples it cites are – Blackstone’s investment in Gokaldas. Blackstone had acquired 67% in Gokaldas at Rs 275 per share last year. The share price now is Rs 106. Blackstone’s $149mn investment is now $50mn.

Now I am doing some BMT . Here are some excerts from a 27 Aug 2007 post —

While Gokaldas has a lot to commend itself, there is one issue with this deal – it is a textile company. More than that, it is in the unbranded export space. Unbranded textile exports, or unbranded exports of any kind for that matter, aren’t an area where Indian investors have found great returns.
Gokaldas itself is proof enough that generic exports are a bad space. Right from the day it was listed, Gokaldas has underperformed the market. Gokaldas listed in April 2005. While it did trade at premium in the immediate aftermath of listing, it has rarely crossed the closing price since the first few days. If you had invested Rs 100 in Gokaldas the first day it was listed in Apr’05, you would now have Rs 80 or so (ignoring dividends). On the other hand, if you had put the same Rs 100 in the Sensex, you would have Rs 225 now. And this, when global and the US economy have seen the best expansion in 25 years.
The moral of the story is this – in cost plus businesses, it is very difficult to create sustainable market value. This is particularly so if the market place is fragmented, like in the sectors stated above. While in say oil, or metals, global scarcity happens every now and then and drives supernormal profits, even that does not happen in businesses like textiles.
Blackstone thus wants to do what no Indian management has demonstrated so far. One positive is that it has not overpaid (compared to current market price). Market speculation is that it is perhaps going to sell this company forward, and may have a buyer or two already in mind.

So, Blackstone didnt clearly have a magic wand to turn the fortunes of Gokaldas. Nothing really has improved in the performance of the company either.


One Response to “BMT Series – Gokaldas and Blackstone”

  1. vinay said

    Please come up with more analysis like this.

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