GHCL Ltd is a global chemical and textile company. It manufactures high-grade soda ash which is a key ingredient in detergents, soaps, dyes and glass. The home textile division of the company manufactures premium quality yarn, fabric and home textile products like bed linen, curtains and cotton yarn. To unlock the intrinsic value of the spinning business and the home textiles business from its core chemicals business, GHCL proposes to sell the home textile business and keep the profitable spinning business in GHCLTextiles. To have a separate entity for each business vertical is a definite win-win situation for the shareholders. The company is intending to disinvest the home textiles business of the company and sell the Identified Assets of its American-based wholly owned subsidiary Grace Home Fashions LLC to New Delhi based, Indo Count Industries Limited and its US-based subsidiary for a consideration of Rs 596 crore. A sum of Rs 340 crore would be towards fixed assets, while Rs 199 crore is towards net realisable current assets as consideration for the Indian Home textiles business. GHCL’s US based subsidiary, Grace Home Fashions, will transfer inventories and intellectual property rights to Indo Count’s US subsidiary for a consideration of Rs 37 crore. Additionally, GHCL and Grace Home Fashions expects to realize a sum of Rs 20 crore on their own account. Equity shareholders of GHCL will be allotted shares in GHCL Textiles in the swap ratio of 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 stock exchanges. There will be no change in the shareholding pattern of the demerged company. The divestment proceeds will be prudently utilised across growth initiatives outlined in both the chemicals and spinning businesses. GHCL has recently announced its expansion plans by planning to set up a 40,000 spindle unit in Tiruchirappalli to produce synthetic and synthetic blended yarns which would cater to knitting and weaving segments. It would also install another 40,000 Ring Spindles with 24 Knitting Machines in Madurai district to produce 100% cotton yarn and knitted fabrics. The company also plans to develop an power transmission facility in Manaparai facility to ensure uninterrupted power supply. GHCL has also proposed to set up a 32 MW solar power in Tiruchirappalli district. Currently, 55% of the energy requirements of GHCL’s yarn business is being fulfilled from renewable resources but once the projects are completed, almost 85% of GHCL’s energy requirements for the spinning business will be from renewable energy resources. The GHCL stock has been outperforming on the bourses recently with the share quoting at Rs 570. Analysts are bullish on the scrip and expect solid appreciation in the medium term after investors get the 2 demerged company shares. A good fundamental buy for portfolio investors.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.