IGI Logo

Buy GHCL Ltd For Target Rs.232

Utilization level inches up; healthy momentum in Textiles

Result highlights

* GHCL’s EBITDA/PAT came in 8-9% below our estimates in Q4FY21, dragged down by a 4% miss in revenue due to lower realization in Chemicals. Textiles performed slightly better than expectations. Higher raw material (coal, fuel oil etc.) and employee costs (on annual increments) resulted in lower-than-expected operating margins.

* On a standalone basis, sales rose 11% yoy to Rs8.14bn (Emkay Est. Rs8.44bn). Growth was primarily driven by the Textiles business.

* EBITDA was up 16.7% yoy at Rs1.87bn, while EBITDAM was up 113bps at 23.1%, led by higher gross margins (up 230bps to 41.8%). Employee costs too were elevated (6% vs. 5% CPLY, as % of sales).

* APAT was up 30% yoy at Rs1.04bn, supported by higher operating income, lower depreciation (down 5% yoy) and lower interest costs (down 44%). ETR was 27.4% (incomparable yoy due to deferred taxes in CPLY).

* During the year, cash conversion cycle has improved from 62 days to 49 days, led by higher payable days, while inventory days moved up from 86 to 95 days. Net debt/equity position has improved from 0.53x to 0.23x in FY21. Net debt declined by Rs4.04bn to Rs7.22bn during the year.

Segment-wise performance

* Inorganic Chemicals sales rose 3% yoy (flat qoq) to Rs5.29bn, primarily led by higher volumes, in our view (as realization was down 4%/1% yoy/qoq). EBITDAM stood at 26.8% (vs. 31.5% CPLY). Utilization for this period stood at 96% (best in 2 years). For FY21, sales were down 14% at Rs18.8bn, while EBITM came in at 22.9% (vs. 28.8% last year).

* Home Textiles sales grew 30% yoy as the division’s Q4FY20 performance was marred by trade friction between US and China, Covid-19 impact and soft cotton prices. Sequentially, sales grew 3% on strong domestic recovery in yarn and spinning division, as well as better product mix. EBITDAM stood at 18.7% (vs. -5% CPLY on operational writeoffs). For FY21, sales fell 12% to Rs9.4bn, while EBITM was 11.3% (vs. 3.3% last year).

Our view:

High utilization level of soda ash at 96% seems encouraging, led by healthy demand revival in end-user industries such as flat glass (automotive) and container glass (F&B). Consumers may highly prioritize sanitation during the second wave, giving a boost to detergent demand in the near term, which is big positive for soda ash. Soda ash prices have started rising on a spot basis and would provide tailwinds to revenue growth from Q1FY22 onward.

In the home textile segment, a solid recovery in the domestic market, in addition to favorable pricing and product mix, aided the overall performance. Demand remains healthy in spinning and yarn segments, while consumption in export markets shows positive trends. We have a positive view on the stock with a Buy rating. We will revisit our estimates after the concall scheduled on April 29th at 4:00 PM.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer