GHCL stock at Rs 288 is a solid buy

GHCL stock at Rs 288 is a solid buy

By Rajiv Kapoor | 28 January, 2017

GHCL Ltd was incorporated in 1983 and is now a well diversified group engaged in the manufacture of chemicals, textiles and consumer products. It is one of the largest producers of soda ash, exporting its products to Saudi Arabia, Iran, UAE, Sri Lanka, Indonesia, Malaysia, Thailand and Australia. The company produces dense soda ash for the glass industry and light soda ash for the manufacturing of detergents. While the glass industry is the largest consumer of soda ash, it is preferred by detergent companies for its high solubility in hot and cold water. GHCL supplies to blue chip companies like HUL, P&G, Videocon Industries, L&T, Philips, Piramal Glass Limited and Saint Gobain Glass. The company enjoys higher operating margins compared to peers as it owns lignite mines, thus exercising firm control on the cost of soda ash and making it the lowest cost producer in the country. Availability of mines and manufacturing unit in the same location helps the company to save huge logistic cost. The company is implementing a capital expenditure plan to increase its soda ash capacity from 8.50 lakh metric tonne per annum to 9.5 lakh metric tonne per annum, with an investment of Rs 400 crore. This expansion will incur less capital cost as against a greenfield plant, which will boost the company’s profitability and return ratios. Demand for soda ash is likely to grow at a steady pace over the next few years and GHCL being one of the largest manufacturers of soda ash, is likely to benefit tremendously in the future.

On the other hand, the textiles division is a vertically integrated manufacturing facility, with spinning, weaving, continuous fabric processing, and cut and sew for premium quality bed linen. The company’s spinning unit is located near Madurai in Tamil Nadu, while its home textile manufacturing unit is located near Vapi in Gujarat. Here the yarn is woven into fabric, which is then dyed, printed, and finished into final products like bed sheet. GHCL has a wide product range of bed sheets, duvets, bed skirts, comforters, pillows, cushions etc., supplying to marquee clients like Bed Bath and Beyond, Walmart Canada, JC Penny, Sears and Amazon. Since the company derives most of its textiles business revenue from the export market, it now plans to expand its domestic reach by brand and network building. The company is expanding its textile business and adding fresh new capacity in the home textiles segment where the margins are higher.

here have been recent media reports that GHCL has paid the final instalment of a loan taken in 2010 and analysts feel that this will improve the company’s balance sheet to a large extent in the coming quarter. The management is scheduled to meet on 31 January 2017 next week to approve the Q3FY17 quarterly results and consider a proposal for buy back of its equity share. On an expected EPS of Rs 36-38 per Rs 10 equity face value, the GHCL stock quoting at Rs 288 is a solid buy with a price target of Rs 350 in four months.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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