Blackstone moves to play active role in Gokaldas

Blackstone moves to play active role in Gokaldas

Bangalore: Blackstone Group LP, the world’s biggest private equity firm, has started playing a more active role in running Gokaldas Exports Ltd, three years after it purchased a controlling stake in the Indian garment exporter.

Gautam Chakravarti, an executive director at US-based Blackstone, has been appointed on the board of Gokaldas as additional director in the slot left vacant by its former executive chairman Madanlal Hinduja, who retired in January.

Chakravarti, who has been working at Gokaldas for more than a year, will head its sales and marketing division and drive its overseas business, said managing director Rajendra Hinduja. Another Blackstone executive director, Amit Dalmia, will handle finances.

Gokaldas, India’s largest garment exporter, reported a loss in the past two quarters as prices of cotton, a key raw material, surged and demand for garments in Western nations have failed to recover from a slump that began in 2007-2008 because of the global financial crisis, making it difficult for Gokaldas to raise prices. The company reported a loss of Rs16.72 crore in the quarter ended 31 December, and a deficit of Rs27.1 crore in the preceding three months.

Exports accounted for at least 90% of Gokaldas’ Rs1,200 crore sales in 2009-10. Its stock declined 34% in the past year.

The investment agreement in 2007 between the PE firm and the exporter, which gave the founding family of Gokaldas three years to hand over the management to Blackstone, ends in March.

In 2007, Blackstone invested about $161 million in Gokaldas to purchase a stake.

Gokaldas’ stock has since tumbled, ending Tuesday at Rs100.10 on the Bombay Stock Exchange.

Blackstone holds about 68% in Gokaldas, the founding family about 20% and Anand Jain’s Jai Corp. Ltd owns 6.64%.

Hinduja said the process will be gradual and he and his younger brother Dinesh will remain on Gokaldas’ board and overlook its operations.

“This is our retirement plan," he said. “The understanding even at the time of Blackstone’s investment was that the promoters would gradually take a back seat and let professionals run the company."

Rajendra Hinduja‘s son Ashwin is a director of production at Gokaldas. Madanlal’s son Vivek is starting his own business and Dinesh’s son Gaurav is a student at Stanford University.

“Gokaldas was a controlled investment for Blackstone and, hence, from the beginning we have been closely involved in the day-to-day operations of the company, working closely with the Hinduja family and senior management," said Akhil Gupta, senior managing director at Blackstone India.

“Gokaldas has and will continue to infuse more professional management into the company to take it to the next level," Gupta said. “The promoters will continue to remain involved to mentor and guide the business and the operating team will focus on driving day-to-day operations."

Gupta and Mathew Cyriac, principal-corporate private equity at Blackstone, are directors on Gokaldas’ board but do not have an active role.

The global economic downturn of 2008-09 had a bitter impact on India’s textile industry and exporters such as Gokaldas are still trying to recover from it. Gokaldas also has to combat a steep rise in cotton prices, which touched a peak of Rs60,000 a candy last week from its earlier high of Rs48,000 in December.

Blackstone has been increasing its influence on Gokaldas gradually.

Last year, it appointed a bunch of chief operating officers at the textile exporter to handle verticals such as production and sales.

“Typically, in staged or controlled buyout deals like this, there is a transition period when the fund’s management gets comfortable and would make only specific changes during the time," said Mayank Rastogi, partner (private equity), Ernst and Young. “Once that is over, the new management would be ready to take on the new role."

Harminder Sahni, managing director, Wazir Advisors Pvt. Ltd, a management consultancy, said the change of roles in Gokaldas is a good start for PE firms in promoter-driven firms. Such phased management transfers offer ample opportunities for new executives to learn from family members still involved in the operations, he added.

For February-May, Gokaldas order book comprises Rs400 crore of mostly overseas orders but the pressure on pricing from foreign clients is tremendous. “For at least one year, we have been absorbing the price rise but now we would start passing it on to the customers and you will see an increase in our pricing," said Hinduja.