Result Update: GHCL - ACCUMULATE - TP Rs.270 - KotakGHCL's Q3FY19 numbers were above our estimates in all parameters. Soda Ash segment continued with its strong performance, supported by higher realisation. This, coupled with, improvement in home textile segment due to changes in customer mix and higher spread in spinning business, resulted in outperformance.
- The Inorganic chemical segment (excluding trading sales) reported 35.7% EBITDA margin vs 21.5% in 2QFY19 and 33.9% in 3QFY18. The sequential jump in operating performance was driven by Rs638/tonne sequential improvement in realisation.
- Textile segment continued with the sequential improvement in operating performance for the second consecutive quarter, backed by change in customer mix, higher spreads in spinning supported by better pricing and favorable dollar rate. EBITDA margin expanded marginally from 10.1% in 2QFY19 to 10.5% in 3QFY19.
- Domestic soda ash market to witness higher supply to the tune of 3-4LT in FY20E from RSPL, GHCL and Nirma, which can weigh on soda ash prices. RSPL has already started commercial production of its 5LT.
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. We expect soda ash business to deliver strong performance going ahead, backed by 1.25LT brownfield expansion. However, benefit of the same might get partly offset by subdued realisation due to incremental supply. The recovery in textile business is expected over the medium to long term, shall support the earnings. At CMP, the stock is trading at 7.1x/6.2x FY19E/FY20E earnings. Due to limited upside we recommend ACCUMULATE (earlier Buy), with an unchanged target price of Rs270, valuing it at 6.5x FY20E earnings.
Shares of GHCL LTD. was last trading in BSE at Rs.257.6 as compared to the previous close of Rs. 255.25. The total number of shares traded during the day was 32981 in over 659 trades.
The stock hit an intraday high of Rs. 265 and intraday low of 255.25. The net turnover during the day was Rs. 8653299.