GHCL is a three-decade old multi-diversified company in the primary manufacturing business of soda ash, where it is the second largest manufacturer in the country with a capacity of 11 lac MT having a 25% market share. It is also in the consumer product segment such as manufacture of salt and honey. GHCL has a large presence in the home textile and spinning business. The soda ash end user are the soap, detergent, pulp and paper, textile and glass manufacturing companies. The global capacity of the soda ash industry is around 70 MMT, while the total production is around 61 MMT. But historically, there are no mismatches in demand as supply always follow demand globally. Currently, the global soda ash industry is yet to reach the pre-Covid levels due to supply chain issues, plant closure in China and the recent energy crisis. However, demand for soda ash has improved from last year driven by demand for solar glass. Prices have also improved due to rising energy prices and disruption in international supply chain but container availability still remains a challenge for transportation of the product. In the inorganic chemical space, GHCL has a 21% domestic market share in the sodium bicarbonate segment in the country. This is generally named as a cooking or baking soda and is used in the pharma, cooking and animal feed industry. The company’s textile operation commences right from spinning of fibre yarn, weaving, dyeing and printing of the finished products like bed sheets and duvets which are primarily exported worldwide to marquee clients such as Walmart, Bed Bath and Beyond, Amazon, etc. The company’s performance highlights for Q2FY22 has been quite robust with net revenue growing 27% to Rs 987 crore as compared to Rs 779 crore for the corresponding quarter of previous year. EBIDA grew by 24% to Rs 201 crore as of Rs 162 crore in Q2FY21, while net profit grew 40% to Rs 109 crore as compared to Rs 78 crore for the corresponding quarter of the previous year. Meanwhile, the company has approved a scheme of demerger, where in the textile business will be spun into a new entity. And the shareholders of GHCL will be allotted shares in the new company in the swap ratio of one share of Rs 2 each for every share of Rs 10 each held in GHCL. Eventually the new company shares would be listed in the Indian stock exchanges after the NCLT approval. The recent financial performance has been bolstered by economy recovery across the country validated by sequential uptick in demand and positive pricing scenario plus the company is confident of better earnings performance in the future also. The GHCL stock quoting at Rs 425 is an excellent fundamental buy and analysts are expecting good listing gains on the new demerger textile business company.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.