Buy GHCL Ltd For Target Rs. 900 By Emkay Global Financial Services Ltd
GHCL’s Q1 EBITDA at Rs2bn (down 9% YoY/10% QoQ) was in line with our estimate, largely on higher volumes and improved operational efficiencies. Gross margins faced pressure from a fall in prices of soda ash, domestic capacity addition, and cheaper imports (limited MIP benefits). The management highlighted that domestic demand grew by 5-6% in Q1. Meanwhile, solar glass and lithium carbonate for EV batteries offer long-term demand prospects. GHCL’s plan for forward integration into bromine (2,800MT at +40% EBITDA margins), vacuum salt (170ktpa), and backward integration into salt remains on track, improving revenue growth visibility from FY27E. GHCL is evaluating opportunities into bromine derivatives. The management expects a challenging quarter ahead, led by price declines in 1-2M, along with a seasonality impact. We maintain BUY, keeping estimates unchanged, and a TP of Rs900, assigning 8x EV/EBITDA on Jun-27E.
Reaping benefits of cost-optimization and operational efficiency GHCL reported Q1FY26 revenue of Rs8bn (-4% YoY/+2% QoQ) and EBITDA at Rs2bn (down 9% YoY/10% QoQ) with margin at 24.8% (-133bps YoY/-315bps QoQ), primarily led by pressure in prices of soda ash (oversupply globally), although supported by volume growth and higher power cost (higher pet coke prices). Soda ash prices corrected 19% over the last 2Y; GHCL has been able to maintain its profitability due to benefits from operational efficiencies (50%) and lower raw material prices. We expect cost reduction activities to aid margin improvement QoQ, along with backward integration. The increase in other income was led by treasury gains.
Domestic demand increasing; prices remain soft Demand is expected to grow 5-6% YoY in FY26 (GDP growth rate) in India, led by demand from solar glass manufacturers. The current soda ash requirement for solar glass is ~130ktpa, and demand is expected to grow 3x once new solar glass capacities come on stream by FY27. Lithium carbonate for EV batteries should also emerge as a demand driver for soda ash in India. The company expects limited benefit from extension of minimum import price (MIP) restriction by the government. It is also pursuing antidumping duty. China grew 18% in CY24, although it is presently seeing muted demand in solar glass and lithium carbonate due to geopolitics and the recent tariff situation. We expect China’s demand slowdown to keep prices rangebound in FY26E.
Vacuum salt and bromine to come along in H2; Zara Zumara- WIP GHCL’s vacuum salt and bromine projects will be commissioned by H2FY26 (benefits to accrue in FY27E). GHCL spent Rs1.21bn on growth capex in Q1. The company is evaluating opportunities in bromine derivatives as well. Work on Zara Zumara salt field and the greenfield soda ash project is underway. The management expects one-time debt of Rs20-30bn for the greenfield project (target debt-equity ratio of 0.5-0.6:1).
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