Company Update: GHCL - BUY - TP Rs.365 - Kotak

GHCL has rallied ~44% since our initiation report dated 2nd Nov, 2017. GHCL being one of the leading manufacturers of soda ash with 25% (vs 23% last year) domestic market share, is likely to report further improvement in profitability in the coming quarters on the back of increase in soda ash realisation and improvement in textile business. The concern pertaining to Turkey's 2.5MT new capacity is behind us. As per media reports, the contract for 2018 has been settled and all the plant's prospective production has been sold out. Indicating that, expected softness in realisation is ruled out and tightness is likely to prevail in soda ash market. Soda ash prices in West EU and China export prices are up by US$28/tonne and US$35/tonne to US$278/tonne and US$293/tonne, respectively in 2017. Given the tightness in the soda ash market and firm prices, we believe domestic players are likely to increase the soda ash prices in the range of Rs500-750/tonne in the coming months. We have revised our realisation assumption higher and our revised EPS estimates For FY18 and FY19 now stands at Rs33.8 and Rs38.4, respectively. Looking at the financial parameter and upside in soda ash prices coupled with improvement in textile business, we believe stock is likely to get further rerated. We continue to maintain BUY with a revised target price of Rs365 (earlier Rs325). At CMP, the stock trades at 9.6x/8.4x FY18E/FY19E earnings.

Shares of GHCL LTD. was last trading in BSE at Rs.348.35 as compared to the previous close of Rs. 352.1. The total number of shares traded during the day was 53384 in over 1146 trades.

The stock hit an intraday high of Rs. 354.25 and intraday low of 346.5. The net turnover during the day was Rs. 18650888.

Source : Equity Bulls

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