Sector Outlook: Netural
Consistently delivered better operating performance
Revenues for Q1FY25 declined for GHCL by 18.5% on YoY basis while the revenues grew by up 0.9% on QoQ to Rs. 8,305 mn. The annual decline can be attributed to the oversupply of soda ash due to higher imports, resulting in continued pressure on pricing. The revenues improved sequentially on the back of better sales volume in the current quarter. The company witnessed decline in EBITDA for the quarter declined 27.6% on YoY basis and grew by 17.5% sequentially to Rs. 2,168 mn, and EBITDA margin expanded by 370bps QoQ to 26.1%, mainly due to higher volume and reduced costs during the quarter. On the bottom line (Net profit) for the quarter declined 64.7% on YoY basis and grew by 20.6% sequentially to Rs. 1,506 mn. The PAT margin came at 18.1% versus 15.2% in the previous quarter. There are early signs of recovery, however the view on the global soda ash market remains mixed, with demand in certain places being strong but with overall weaker pricing. In India, we are seeing higher consumption trends, whereas the quantum of imports is contained. However, despite the industry headwinds, the performance and margins have improved in the last two quarters.
Key Concall Highlights
Soda Ash Market Outlook:
On the global front, demand for soda ash remains mixed. However there are strong demands seen in certain pockets, but overall pricing has moderated. China’s soda ash demand is growing phenomenally, while demand in Europe and the US slowed down. The demand growth of Indian soda ash is 2% to 3% in the first quarter.
Pricing Pressure:
Soda ash prices are currently lower than the long-term average, but the company believes they have bottomed out. The company believes that current prices are rock-bottom and expects things to look better from here, but the extent of the improvement will take 1-2 quarters. The company’s pricing stability depends on how the global situation unfolds and how new capacity enters the market.
Supply Chain:
India is currently facing a challenge in meeting its consumers’ demand, with the company lacking full capacity to do so. GHCL plans to increase its capacity to 1.1 million tons to address the growing demand in India, driven in part by the growth of green hydrogen.
End-user Segment:
Company expects the demand for solar glass will increase next year due to new investments in green hydrogen and solar glass projects. The company believes that the demand for green hydrogen in India will grow significantly due to the need for solar glass. The company is confident that next year, there will be a 5% to 6% demand recovery or more in the solar glass segment.
Key Growth Areas:
GHCL is progressing with planned growth endeavours, including various projects and capacity expansions, which are underway and will augment capability and drive benefits in future. The company has received approval for a new project, which will provide a significant growth opportunity for its bromine project.
Other Highlights:
- The company expects 25% revenue growth this year, driven by growing demand for sodium bicarbonate for flue gas treatment and the potential for a further 20-25% growth next year.
- The company aims to optimise the mix of raw materials, such as salt, limestone, and energy, to achieve cost advantages.
- The company aims to be a future margin leader in the industry.
- The supply chain disturbance is affecting soda ash imports in India.
Valuation and Outlook
In Q1FY25, GHCL’s revenue dipped year-on-year but improved sequentially. The global soda ash market showed mixed signals, with strong demand in some areas but weaker overall pricing. The company believes soda ash prices have bottomed out and should improve within 1-2 quarters despite challenges from oversupply due to high imports. Demand from segments like detergents and glass remains strong, and solar glass is expected to grow as more solar parks are established, supported by a new 10% import duty on solar glass. GHCL is expanding its domestic capacity by five lakh tons with a greenfield project and expects to commission Vacuum Salt and Bromine projects next year. Enhancements in Salt Yield and Sodium Bi-carbonate production will also boost performance. While short-term industry dips are possible, long-term demand remains strong, with better prospects for Indian and stable global demand in FY25.
