ValuePickr Forum

GHCL - Soda ash & home-textiles player

  1. http://www.vccircle.com/news/others/2014/07/09/golden-tobacco-ghcl-promoter-sanjay-dalmia-held-real-estate-cheating-case

  2. http://www.moneycontrol.com/news/market-news/sebi-slaps-rs-9-lakhghcl-promoters_1059387.html

  3. http://articles.economictimes.indiatimes.com/2009-04-21/news/27648545_1_ghcl-promoters-hike-stake-promoter-holdings

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This is a 1.5 year old event and not 7 year old news. Promoter getting arrested for cheating is not something to be looked at lightly.

“Dalmia was handed over to the EOW, which brought him to Mumbai yesterday and placed him under arrest. He was then produced in a court which remanded him in police custody till July 14, Prasanna said.” from the above article.

After the above episode, how can one be absolutely sure about the numbers that GHCL is reporting? Why wont he cook up the #s to get higher market cap?

To your previous point on MoS - In investing we have known(operational, nature of business) + unknown risks(Satyam type black swan events). How can you quantify this unknown risk(promoter integrity) and assign appropriate MoS? -> These are difficult questions for even a seasoned investor to answer.

From here it is up to one’s individual comfort level.:+1:

Thanks,
Ravi S

Well, this was not for the first time :slightly_smiling:.

Thanks for pointing,post withdrawn. And yes,its upto individual comfort level.

Any chance of Sanjay Dalmia handing over the reigns to next gen Neelabh Dalmia his nephew?This may lead to sharp rerating.

GHCL came with good set of results

http://ghcl.co.in/wp-content/uploads/2016/05/Intimation-Investors-Presentation_Q4FY16-Business-Update1.pdf

Latest concall transcript not yet loaded.last qtr concall transcript

http://ghcl.co.in/wp-content/uploads/2016/03/Filing-of-Transcript-regarding-Investors-conference-held-on-February-1-2016.pdf

invested recently @137-150

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There are some concerns on owner of Ghcl Sanjay Dalmia on Corp Governance issues in the past. I HV taken a small bet betting on professionals running ghcl n since Sanjay is in 70s maybe the new gen is better.

Other Dalmias managed cos seem better

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Excellent earnings from GHCL. They have also appointed E&Y which is a major positive. The company is now professionally run.

Home Textile margins are on an upswing which will improve earnings going forward. Also, they are expanding Soda Ash capacity by nearly 20%.

At a PE of 5x (162 CMP), I really think there is good margin of safety here.

Cheers
S.I

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Completely agree, happy to enter early. Sill undervalued given the transformation / professionalism within the company since last year.

Discl. Invested

Next trigger I believe would be extension of anti-dumping duty which is very much likely

How much do think impact would be if anti dumping duty goes away. Margins should be affected however by how much is the question. There is difference of ~35-38$/ton between domestic and Chinese prices that is also the level of anti dumping duty. Assuming in the worst case, impact on Soda Ash sales would be to the extent of 10% i.e. ~150 Cr EBITDA which means FY 18 would be something around 450-500 Crores and EPS of ~20 Rs.

Even with that valuations, current market price is 6x EV/FY18 EBITDA and 10x PE FY18 earnings in the worst case. Let me know if I am missing something.

Discl. Invested

Q1 FY17 result presentation link

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/C4E2EEBC_D133_42AC_A286_953DC73B3972_194600.pdf

Even though numbers were good YoY but due to small decline in QoQ stock saw selling pressure … Or do you see any other reason from results for today’s sell off

Is there any trend in soda ash prices in India? This will be a major determinant of profitability for the company going forward also since volume growth in the industry is low. The production and demand seem to be moving in sync globally but are there any other factors to consider regarding sods ash prices?

My 2 pennies.

http://sowmayjain.com/2016/10/26/gujarat-heavy-chemicals-limited/#comment-2969350417

Let me know, what you think.

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GHCL declares Q3 results…

  1. Income from operations drops from 698 (Q3 - FY16) cr to 657 cr - there is a drop in all segments.

  2. Profit before tax rises from 100 cr (Q3 - FY16) to 109 cr.

  3. Net Profit post tax rises from 66 cr (Q3 - FY16) to 80 cr

  4. There is a 15% Interim D/w declared

  5. There is a buyback of the Company’s fully paid-up equity shares of Rs. 10/- each from the Open Market through Stock Exchange route, at a Maximum Buyback Price of Rs. 315/- (Rupees Three Hundred and Fifteen) per Equity Share excluding transaction costs, for an aggregate amount of Rs. 80 (Eighty) Crores.

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/DDF85351_06E2_469E_919E_0C080D9271D2_132613.pdf

GHCL is not getting the valuation it deserves. It has been showing very good numbers recently and the management has taken very good steps to increase shareholder confidence. I think the reason for low valuation could be because the company has a tainted past and the ADD overhang. Additional capacity in soda ash will add 85000 MT to the volumes next year and the textiles division is expected to grow at 15-20% as per the management in FY 18. Even assuming 28% EBITDA margins in soda ash (in case ADD is removed) and 16% in textiles for FY 18 this stock is available at a good margin of safety.

5 Likes

GHCL today announced with public notice the buyback not exceeding 315 Rs against CMP of 266 Rs. Moreover, promoters wont be participating in the buyback gives more comfort on the future prospects.

Over the past couple of years, corporate governance has improved quite a lot for which the stock has been rewarded. However still feel its under-valued at current levels given the high margins oligopoly soda ash business (backward integrated low cost moat) and growing textiles business (improving margins, exports, somewhat backward integrated). Hope they de-merge both which should be value accretive for the shareholders.

Discl. Invested

@sagararya, how did you calculate EBITDA margins in soda ash as 28% without the ADD? My calculation shows that current blended margin is about 26% (textile + soda ash). Assuming textile margins at 16%, soda ash margins will be close to 28-30% INCLUDING ADD.
Their realization is about 21k rs/ton or about 310 $/ton. This includes $35 of ADD. so EBITDA/ton works out to be 93 $/ton. If the ADD is removed, that will be a straight hit to realizations and EBITDA will drop to 58 $/ton or a drop of about 40%. EBITA margins for soda ash will drop by similar range to about 19% and blended margins will drop to 17%.

Assuming ADD is cut in half (a more likely scenario), EBITDA margins will be around 22-24% and blended margins will be in the range of 18-20% instead of the current 26%

Am I missing something here?

2 Likes

@Yogesh_s

See my calculation below. I have assumed that Revenue realization would reduce to 270 which is even lower than FY 2013 realization. Please note that the management expects only 5% reduction in realizations. The supply dynamics are a lot different now as compared to 2012-13 like I have mentioned in my write up.

Another thing to note is that the company has done a brownfield expansion of 100000 MT which will not lead to incremental costs and hence I have assumed the costs to be the same as compared to 2017. The management expects 85000 of additional sales from the increased capacity yet I am taking only 42500 MT. One reason why I believe capacity utilization will be higher is because ADD has not led to any reduction in the quantity of imports. As I mentioned the needs of companies in east and south India are met imports irrespective due to high logistics costs.

This is just a rough calculation and q4 will give a good estimate of how the company will perform going forward.

16-17% EBITDA in textiles is what management has guided for 2018. Based on their previous guidance, I will take the management at face value here as they have always been conservative and have done better than expectations. In terms of soda ash numbers, the management has guided that it will surely maintain the absolute number of EBITDA which is 540 cr in our case. It will be interesting to see how things progress.

4 Likes