GHCL Research Report

9 June 2014
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GHCL – Buy on attractive valuations
Sector – Chemicals
Basic Details
Sensex
Sensex P/E
Nifty
Nifty P/E
Stock P/E
24,549.51
17.83
7318
17.18
3.13
Industry P/E
9.96
Scrip Details
Market Cap
430
Face Value
10
Share Capital
100
52 Week L/H
29 / 48
BSE Code
NSE Code
500171
GHCL
Shareholding Pattern (%)
Mar- MarParticulars
14
13
Promoters
17.59 17.6
FII
7.31
6.25
DII
6.3
6.39
Others
68.8
69.76
Total
100
100
Q4FY14 v/s Q4FY13
CMP - 42.50
Target – 65
Reco - BUY
¾ GHCL (previously known as Gujarat Heavy Chemicals Ltd.), a company of
Sanjay Dalmia group, is one of the leading soda ash manufacturers in the
country, second only to Tata Chemicals.
¾ GHCL’s plant is located at Veraval, Gujarat, which is a strategic location as it has
a captive source of the key raw materials – salt, limestone and lignite, which
allows
ll
GHCL to have
h
a tight
i h controll on the
h cost off soda
d ash.
h Soda
S d Ash
A h is
i key
k raw
material used mainly in the manufacture of Glass and Detergents.
¾ The demand for Glass (esp. container glass and flat glass) has been relatively
stagnant due to substitution by PET (a type of plastic). However, the demand for
Detergents has shown a rapid growth. The rise in disposable incomes in semiurban and rural areas is also likely to fuel the demand for detergents, and as a
esu , for
o sod
soda ash.
s .
result,
¾ GHCL posted a Revenue growth of 10% YoY to Rs. 601 Crs (Rs. 542 Cr.),in
Q4FY14. However, the EBITDA at Rs. 123Cr. (Rs. 126 Cr.) and PAT at Rs. 38
Cr. (Rs. 53 Cr.), showed a de-growth by 2.4% and 27% respectively.
¾ The drop in the EBITDA margins are attributed to higher raw material and power
and fuel costs whereas the PAT margins are affected due to increase in the finance
costs by Rs. 9 Crs.
¾ We believe that in the new FY starting April 2014, the producers have
increased Soda Ash prices by Rs. 600 - 900/- per MT, which should further
strengthen the profitability of the manufacturers.
¾ GHCL has long fallen out of the investor’s radar due to lack luster performance
and investors are shying away from the mid-cap stocks. The thumping victory of
the BJP led NDA in the recent Lok-sabha elections has dramatically changed
the mid-cap landscape and
d inline
i li with
i h the
h same, GHCL has also started moving,
backed by a recovery in performance.
¾ GHCL MCAP is only Rs. 430 Crs, against its PAT of over Rs. 100 Crs and with
a MCAP / Revenue of just 0.20x .
¾ GHCL is currently quoted at Rs. 42.50/share, with an expected EPS of Rs. 10 a
share, is attractively priced at a multiple of a little over 4X and should reward
investors with at least 50% appreciation in 12 to 18 months – Target price Rs.
Rs
65/-
Standalone Financial Performance - Q4FY14
Particulars
Total Income
EBITDA
PAT
EPS
EBITDA Margin %
PAT Margin %
Quarter Ended
% Change
Q4FY14 Q3FY14 Q4FY13 % QoQ % YoY
601
548
542
9.7% 10.9%
123
102
126 20.4%
-2.4%
2.4%
38
27
53 41.9% -27.4%
3.83
2.64
5.27
20.48%
18.65%
23.27%
6.37%
4.93%
9.73%
Copyright @2013. All Rights Reserved
(In Rs. Crs)
Year ended
FY14
FY13
%YoY
2229
2128
4.8%
461
484
-4.7%
4.7%
116
115
0.6%
11.57
11.49
20.69% 22.74%
5.19%
5.40%
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GHCL – The Business Profile
¾ GHCL Limited, is engaged in the business of manufacturing and trading of inorganic chemicals, home
textiles, information technology-enabled services and wind power generation. The Company operates in
three segments: inorganic chemicals, textiles and others. The following chart shows the major products
of GHCL.
Dense Soda Ash
Light Soda Ash
Inorganic Chemicals
GHCL - Business
Segments
Sodium Tripolyphosphate,
Borax, Sodium Sulphate,
Hydrogen
y g peroxide
p
100% Cotton yarn
Textiles
Cotton-polyester blended yarns
Others – IT enables services and Wind
Power generation
Soda Ash Business
¾ GHCL India is one of the largest manufacturers of Soda Ash in India, with an installed production
capacity of 8.50 lakh MTPA, equally divided for producing Light (used in detergent industry) and
Dense (used in Glass industry) Soda Ash. GHCL produced 7.24 lakh MTPA from which 6.61 lakh
MTPA was sold in FY13. GHCL's Soda Ash is also widely used in the manufacture of sodium salts
widely used in food products, textiles, paper, metallurgical industries and desalination plants.
¾ While the glass industry is the largest consumer of Soda Ash, the demand for Soda Ash from
GHCL India, is preferred by detergent companies for its high solubility in hot and cold water.
¾ The pro-reforms policy of the BJP led NDA government will give a boost to the manufacturing and
infrastructure sectors in the country. This will lead to creation of new jobs and will also increase the
disposable incomes of people. The increasing employment opportunities and disposable incomes in
the rural and semi-urban areas will also result in an increase in spending, which will positively
affect consumer driven sectors like Automobile and FMCG sector.
sector As a result,
result the demand for
glass and detergents is also likely to increase. Since Soda Ash is a main component in the
manufacture of these products, the demand for soda ash shall also increase.
¾ The Inorganic Chemicals segment contributes 55% to the total revenue at Rs. 1231 Cr (total Rs.
2247 Cr.) and 76% to the operating income at Rs. 276 Cr. (total Rs. 359 Cr.), giving a margin of
22%
Textile Business
¾ GHCL Limited is one of the largest integrated textile manufacturers in the country with an installed
spinning capacity of 1,50,280 spindles manufacturing 100% cotton and polyester cotton blended
yarns. The company’s state-of-art plant at Vapi, Gujarat, integrates weaving, processing and cut & sew
facilities. With an annual capacity of 9 million meters, fabric is woven in plain weaves, plain satins,
satins stripes, etc.
g
contributes 45% to the total revenue at Rs. 1017 Cr ((total Rs. 2247 Cr.)) and
¾ The Textiles segment
24% to the operating income at Rs. 83 Cr. (total Rs. 359 Cr.), giving a margin of 8%. The margins
for operating income have improved compared to last year’s margins of 4% at Rs. 45Cr., showing a rise
in the profitability of the Textile segment.
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Past Years at Glance
(In Rs
Rs. Crs)
GHCL - 5 Year Comparison
Particulars
FY 09-10 FY 10-11 FY 11-12FY 12-13 FY 13-14
1387.56 1611.34
1984 2277.99
2253
Total Income
EBITDA
271
301
365
409
466
PAT
80
-10
45
108
71
19.54% 18.68% 18.41% 17.97% 20.70%
EBITDA Margin %
5.73% -0.59% 2.24% 3.13%
4.79%
PAT Margin %
7.97
-0.95
4.66
7.14
10.78
EPS
47
39
36
33
45.2
CMP *
469
391
357
333
452
Market Cap
5.88
-41.16
7.65
4.66
4.19
P/E
96.15
54.53
48.20
56.65
58.72
Book Value
0.49
0.72
0.74
0.59
0.77
P/BV
0.34
0.24
0.18
0.15
0.201
MCAP/Revenue
20%
20%
20%
20%
20%
Dividend %
60
54
45
44
37
52 Weeks High
596
542
450
442
370
MCAP
7.47
-57.05
9.65
6.19
3.43
P/E
26
36
27
28
29
52 Weeks Low
257
362
273
280
290
MCAP
3.22
-38.11
5.86
3.92
2.69
P/E
* CMP as on 29th May
¾ GHCL has continuously showed growth in performance since the past 4yrs with Top line,
line EBITDA
& PAT increasing at a CAGR of 13% , 14% and 8% respectively .
¾ GHCL in the past 5 yrs has consistently maintained its EBITDA and PAT margins at an
average of 19% and 4%, with FY14 margins being among the highest.
¾ GHCL’s MCAP/Revenue is merely 0.20x and P/BV at 0.80x. Also, the PAT for FY14 has
increased nearly 50% over the previous year while the P/E ratio has decreased. This shows
that the stock has not yet been noticed by investors and is undervalued.
¾ GHCL is consistently paying a dividend of 20% i.e (Rs 2/share) in past 5 yrs.
¾ GHCL reached an all time high of Rs 205/share in Dec 2007 with a MCAP of Rs 2,050 and
made an all time low of Rs 24/share in Dec 2008 with a MCAP of Rs 240, the stock has been
quite ignored and undervalued but with the positive sentiments in the market we believe the
performance of the stock to improve with an expected EPS of Rs 10/share on a PE
multiple of a little over 4x, hence reaching a Target of Rs 65/share in 12 to 18 months timeframe.
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Peer Comparison
(In Rs. Crs)
Gujarat
Tata
Alkali Chemicals
Particulars
1926
404
185
25.2
21.0%
9.6%
73
1890
1964
209
1536
8.30
0.80
26
267
0.78
Revenue
EBITDA
PAT
EPS
EBITDA %
PAT Margin %
Sh Cap
R
Reserves
Networth
CMP *
MCAP
P/E
M.CAP / Revenue
Book Value
P/BV
Gujarat
Flurochemicals
16038
1952
-1032
-40.50
12.2%
-6.4%
255
5311
5566
315
8023
-7.77
0.50
218
1.44
3497
644
186
16.93
18.4%
5.3%
11
3230
3241
401
4406
23.67
1.26
29
295
1.36
GHCL
2253
466
108
10.78
20.7%
4.8%
100
487
587
45
452
4.19
0.20
599
0.77
* CMP as on 29th May
¾ GHCL’s
GHCL s EBITDA and PAT margins are at par with other similar sized players in the
industry. The PAT margin is slightly lower due to foreign exchange losses (Rs. 49 Cr.) and
exceptional items (loss on sale of ESOPs – net amount Rs. 31 Cr.) in FY14.
¾ GHCL’s P/E ratio at 4.19 is very low as compared to the industry average P/E of 16x.
Similarly the P/BV ratio is also very low at 0.77
Similarly,
0 77 as compared to the industry average
of 1.07x.
¾ The industry’s M.CAP / Revenue ratio is at 1.03x whereas GHCL’s M.CAP / Revenue
ratio is just 0.20. The above points show that the stock-price has a very good potential
to move up in 12 to 18 months time to achieve our target of Rs.
Rs 65 / share.
share
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Registered Office: 1 &1-A, 3rd Floor, Birla Mansion, 134,Nagindas Master
Road, Fort, Mumbai- 400 023.
Corporate Office: 702/703, Embassy Centre, Nariman Point, Mumbai- 400 021.
Board line: 61539100
Fax: 61539134-35 / 66315520
Tel: 61539105 / 09 / 10
Email: [email protected]
EQUITY RESEARCH DESK
EQUITY DEALING DESK:
Mr. Nalin Shah
Mr. Rau Thakur
M D
Ms.
Devanshi
hi Dh
Dhruva
Ms. Deepa Bhatia
Ms. Foram Parekh
Ms. Manisha Thakkar
Mr. Nalin Shah
Mr. Rau Thakur
Mr. Raju Madhupog
Ms.Poonam Sawant
Mr. Vibhor Dagha
Disclaimer: This document ha sbeen prepared by the Research Desk of M/s NVS Brokerage Pvt. Ltd. and
is meant for use of the recipient only and is not for circulation. This document is not to be reported or
copied or made available to others. It should not be taken as an offer to sell or a solicitation of an offer to
buy, any security. The information in our report is not intended as financial advice. The information
contained herein is obtained and collated from sources believed reliable and we do not represent it as
accurate or complete and it should not be relied upon as such. The opinion expressed or estimate made
are as per the best judgment as applicable at that point of time and are subject to change without any
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affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed
herein. The views contained in this document are those of the analyst, and the company may or may not
subscribe to all the views expressed within.
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