Blackstone to acquire 50.1% stake

Blackstone group has agreed to acquire 50.1% stake in Gokaldas Exports at Rs275/share (20% premium to the last closing price). The promoters - the Hinduja Family, who hold 70.1% stake, will be left with 20% stake post the acquisition. Blackstone will make an open offer for another 20% stake at Rs275/share. The Board of Directors will be expanded to include 3 representatives from Blackstone while the Hinduja family will continue to lead the company.

Near-term headwinds: Strong Re, competition

Indian apparel exporters have been facing stiff competition from neighboring countries for apparel exports to US & EU and this has only got aggravated with the appreciation of the Rupee in the recent months. Gokaldas Exports too has been impacted from this as reflected in the 1Q FY08 results with a 22% YoY drop in profits. We expect the near term pressure on earnings to continue on the back of strong Re.

Long term opportunities- exports & domestic- remain intact

The long term growth opportunities for exports as well as supplying to the domestic market as organized retailers expand footprint, remain intact. We expect the share of sales from domestic market to rise to 17.5% in FY09E from 2% currently.

Fairly valued, Maintain Neutral

At the acquisition/open offer price of Rs 275, the stock would trade at 12x FY08E and 10x FY09E earnings. We find the stock fairly valued at these levels given the slowing earnings trajectory (10% growth in FY08E). Maintain Neutral.