GHCL stock price may rise 30% in the medium term

GHCL, formerly known as Gujarat Heavy Chemicals Ltd, manufactures soda ash which is a major raw material for detergents, baking soda and used in the glass and ceramic industry. The company has a soda ash manufacturing facility at Sutrapada in Gujarat and also has lignite mines in the Bhavnagar district of Gujarat to supply the raw material needed for the manufacture of soda ash. The company’s textile division is an integrated setup which commences with the spinning of yarn to weaving, dyeing, printing and processing of products such as bed sheets and duvets. GHCL is a leading manufacturer of Home Textile in the country with facilities at Madurai in Tamil Nadu and at Vapi in Gujarat. The company’s home textile products are exported predominantly worldwide to countries like United Kingdom, USA, Australia, Canada and Germany. The consumer products division manufactures and sells edible salt and industrial grade salt with manufacturing facilities at Vedanarayam in Tamil Nadu. The company came out with its Q3FY21 financial results and reported a marginal decline of 3% year on year. The consolidated revenue stood at Rs 809 crore as compared to Rs 834 crore for the corresponding quarter of last year largely due to softer pricing in the soda ash segment. EBIDA for Q3FY2021 stood at Rs 204 crores, a significant increase of 15% from Rs 177 crore of same quarter of the last fiscal. The profit after tax for the current quarter stood at Rs 111 crore as compared to Rs 101 crore in Q3FY20. The company management has also announced that both the business segments have achieved normalcy and its manufacturing plants are operating at utilisation levels higher than the pre-pandemic levels. The inorganic chemical segment reported revenue of Rs 528 crore and EBIDA of Rs 148 crore. The marginal decline in soda ash realisation was partially offset by higher volumes and better efficiency. The textile business division reported a robust performance with EBIDA of Rs 56 crore for Q3FY21 compared to Rs 20 crore in Q3 of last year due to strong performance across the home textile and spinning business. The company has also been able to manage its finances better by reducing working capital requirements and replacing high cost debt with cash profits generated. GHCL has recently proposed demerger of its textile business into a separate company. Shareholders of GHCL will be allotted shares in the new company in the swap ratio of 1:1, that is, one share of Rs 2 each for every share of Rs 10 held in GHCL. The resulting company will take over all the assets and liabilities of the textile business and will be listed on both the NSE and BSE. Analysts tracking the company are quite bullish on both the businesses, both the inorganic chemical segment as well as the home textile segment. The demerger will also be a win-win for the shareholders and hence portfolio investors looking at a medium term investment time frame can accumulate the GHCL stock for a 30% price appreciation.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.