GHCL Ltd.-Quarterly results update

Fairly steady quarter; Outlook Positive

GHCL reported a revenue decline of 11.4% YoY / down 9.1% QoQ to Rs. 10,169 mn, mainly due to a drop in Soda Ash realization. Additionally, domestic demand was flat from key end-user sectors during the quarter. EBITDA for the quarter declined 13.2% YoY / down 14.5% QoQ to Rs.2,978 mn, and EBITDA margin contracted by 58bps YoY to 29.3%. This was on the back of a 95bps increase in other expenses on an annual basis.

Net profit for the quarter rose 85.9% YoY / up 70.0% QoQ to Rs.4,263 mn, aided by an exceptional gain of Rs 2,190 mn arising from the accounting treatment as per the scheme of demerger for the Textile business. Going forward, the outlook for the business remains positive due to anticipated growth in demand from environment-related sectors such as solar glass, lithium carbonate, and sodium bicarbonate for flue gas treatment.

Key Concall Highlights

• Global Soda Ash Market Outlook:Soda Ash demand remained tepid and the market remained
• oversupplied during the quarter in most parts of the world, with softer realizations in anticipation of new capacities. However, Soda Ash’s demand is strong from a long-term perspective, with boost from sectors linked to environment including solar glass, lithium carbonate, and sodium bicarbonate for flue gas treatment.
• Volume Guidance: The company expects to see a downward trend in FY24 on the volume side in India and expects improvement from FY25 onwards.
• Price Cut: The Soda Ash market is oversupplied in certain regions and this has put downward pressure on prices. The prices in India have decreased and the company has taken the price correction from November 2022 till Q1FY24 and by another 5% in July, with a total price cut of about 20%.
• Demerge of Spinning Business: The company has demerged its spinning business (effective from 1^st April 2023) from GHCL Ltd. to GHCL Textiles Limited, to create strong independent businesses.
• Demand Outlook: The weakness in construction sector is negatively impacting Soda Ash demand in China. The demand in India has been strong for flat containers and solar glass. The upcoming solar glass capacities are slightly delayed due to the cyclone and expect to be commissioned in H2FY24. With the ongoing monsoon season, there will be a decrease in the demand for detergent. With improvement in the textile business, we expect demand for Soda Ash to trend upwards after one or two quarters.
• Greenfield Project Update: Greenfield project is making progress with the basic engineering activities and various growth projects for vacuum salt and salt improvements are processing ahead.

Valuation and Outlook

GHCL reported a resilient performance during the quarter despite challenging market conditions. Realization during the quarter was impacted by higher imports of Soda Ash from Russia, Turkey, and the US which led to a temporary oversupply situation globally.

Additionally, this quarter witnessed subdued demand from various domestic end-user segments. However, this is expected to improve going forward due to anticipated growth in demand from environment-related sectors such as solar glass, lithium carbonate, and sodium bicarbonate for flue gas treatment. To meet the growing domestic demand, the company is commissioning capacity of five lakh tons in the first phase through a greenfield project. Once commissioned, GHCL will be the largest Soda Ash producer in the country. Overall, the management indicated that the soda ash industry might see a dip in the short term, but long-term demand remains intact