Buy GHCL with medium to long term perspective for appreciation of ~23%

Hem Securities | July 14, 2010, midnight


Business Overview


GHCL Limited was incorporated in 1983. The company has established itself as a well-diversified group with an ascertained footprint in Chemicals, Textiles and Consumer Products segment. In addition to domestic sales, GHCL exports to Saudi Arabia, Iran, the UAE, Jordan, Bangladesh, Sri-Lanka, Indonesia, Malaysia, Thailand, Taiwan and Australia.


  • GHCL has established itself as a well-diversified group with an ascertained footprint in Chemicals, textiles and Consumer Products segment.
  • The company has registered decent results for the quarter ending June 2016. Standalone revenues grew by 17.56% to Rs.684.82 crores vs. Rs.582.52 cr. in the year ago quarter. Operating profit grew at Rs.193.34 crores as against Rs.150.75 crores in the corresponding quarter last year; representing growth of 28.25%. Adjusted net profit surged sharply at Rs.102.83 crore as against Rs.75.13 crore, depicting a sharp growth of ~37% y-o-y.
  • The inorganic chemical segment revenue grew from Rs.384 crores to Rs. 421 crores which is mainly due to higher Soda Ash volume of 23300 tonnes. The margin improvement in the quarter is on account of increased productivity, strong focus on operational efficiency and lower utility cost.
  • The textile segment reported a 30% surge in the revenue at Rs.313 crores from Rs.241 crores during the last year same quarter and the EBITDA has increased significantly by 47% that is to 50 Crores from 34 Crores in Q1 FY2016. This improved performance is contributed by capacity optimization to 81% compared to 76% in the last year quarter. The per meter realization from home textile business has improved from Rs.254 per meter last year same quarter to Rs.293 per meter in Q1FY17. The volume too has increased from 64 lakh meter last year same quarter to 76 lakh meter in Q1FY17.


Valuation


With cost leadership with stable volumes in the soda ash business, capacity expansion, focus on improving margins of textile business, entry in new markets and adding new products; GHCL growth prospects looks promising. We believe the company is trading at an attractive valuation at 7.93x and 6.86x of consolidated FY17EPS of Rs.31.9 and FY18EPS of Rs.36.90. We initiate a ‘BUY’ on the stock with a target price of Rs.310 (appreciation of about 23%) with the medium to long term investment horizon.

 

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