GHCL, earlier known as Gujarat Heavy Chemicals Ltd was incorporated in October 1983. The company is engaged in manufacturing of inorganic chemicals (soda ash & sodium bicarbonate) along with presence in exports of home textiles (primarily bed sheets).
In FY 2015, inorganic chemicals contributed 59.6% of the total revenues while home textile contributed 40.4%.
Company enjoys industry leading margins (about 30-32%) in the soda ash segment due to captive control of raw material & fuel (own lignite mines). Current capacity utilization in soda ash stands at 87%.
Last 3 yrs sales have grown by 7-8% CAGR and PAT has grown with a CAGR of 21% mainly due to higher capacity utilization > operating leverage > margin expansion.
Mgt has guided for a capex of for increasing soda ash capacity from 8.5 Lakhs MT to 9.5 Lakhs MT by FY 17 with an outlay of Rs 375 crs.
Net debt / Equity as on Q3 FY 16 stands at 1.37x. As per mgt., this ratio should fall below 1x in the next two yrs despite the capex.
Textile segment margins are lower as compared to peers but expected to inch up higher due to higher capacity utilization / better product mix / power cost going down.
Q3 FY 16 textile segment EBITDA margins stand at 12% vis-a-vis Q3 FY 15 EBITDA margin of 8%. Target operating margin of this segment as per mgt is 17-18% (Q3 FY 16 concall).
At CMP Rs 108 – TTM PE 4.1x; P/B 1.16x; Div yield 2%
Promoters have been buying from the mkt.
Promoter pledging of shares has recently been revoked.
- Low promoter stake of 18.5%
- Potential removal of anti-dumping duty on soda ash by the govt.
- RSPL which currently contributed 14% of soda ash sales is coming up with its own capacity in 3 yrs time.
Disclosure: Invested & adding.