GHCL's Q2FY19 numbers were above our estimates in all parameters. Soda Ash segment continued with its strong performance, supported by higher volume and strong realisation. This, coupled with, sequential improvement in home textile segment due to changes in customer mix and improvement in operating efficiency, resulted in outperformance.
- The Inorganic chemical segment (excluding trading sales) reported 31.5% EBITDA margin vs 31% in 1QFY19. The sequential jump in operating performance was driven by a 15,000 tonnes jump in volume and Rs600/tonne increase in soda ash realisation. Including trading sales EBITDA margin was largely flat at 27.4%.
- Textile segment operating performance was marginally up sequentially. However, EBITDA margin expanded from 6.7% in 1QFY19 to 10.1% in 2QFY19, supported by a change in customer mix in home textile and higher spreads in spinning.
- Management expects the global soda ash market to grow at 2.5% annually and demand likely to remain strong in India (grew 11% in FY18E). Globally, in Tukey all 5 lines are fully operational and production is fully absorbed by the market.
Valuation & outlook
- GHCL is confident about the prospects for the Soda Ash segment, underpinned by healthy demand from India, which is likely to sustain over the next year. Backed by firm realisation, we expect soda ash business to deliver strong performance going ahead as well and the recovery in textile business is expected over the medium to long term. At CMP, the stock is trading at 6.0x/5.3x FY19E/FY20E earnings. We continue to maintain BUY rating, with a revised target price of Rs270 (earlier Rs330), valuing it at 6.5x FY20E earnings (earlier 8x).
Shares of GHCL LTD. was last trading in BSE at Rs.215.55 as compared to the previous close of Rs. 212.5. The total number of shares traded during the day was 10092 in over 350 trades.
The stock hit an intraday high of Rs. 220.65 and intraday low of 213.75. The net turnover during the day was Rs. 2190040.