GHCL Ltd. – Weak operational performance continues
Sector Outlook – Neutral
GHCL’s revenue dropped by 27.6% year-over-year to Rs. 7,973 million because of lower soda ash prices caused by market conditions and increased imports. The company’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) also fell significantly, by 59.3% from last year, leading to a margin reduction to 18.7%. The net profit declined by 60.7%, with the profit after tax margin at 12.5%. The global market is expected to be challenging, but a decrease in inflation might boost demand in 2024. However, in India, the demand is stronger, but increased imports have led to an oversupply and pressure on prices.
Key Concall Highlights
Soda Ash Market Outlook:
The global products market faces oversupply challenges, leading to increased exports to Asia and affecting prices. High inflation in Europe has lowered consumer spending, reducing exports from Turkey. Meanwhile, China’s subdued real estate market contrasts with its growing domestic demand for soda ash, driven by industries like solar glass and lithium carbonate. Despite the overall market challenges, China’s soda ash imports surpassing exports in 2023 hints at a potential 5% to 6% growth in 2024, showcasing the dynamic nature of global demand and supply shifts.
Volume Guidance:
GHCL’s production volumes dropped by around 20,000 metric tons because they had to shut down for maintenance in October 2023. This decrease in production is expected to continue for a few more quarters. Despite this, the company’s management is optimistic and predicts a growth of 5% to 6% in volumes for the financial year 2025.
Price Cut:
The soda ash market in Asian regions is facing a surplus, which is causing prices to fall. In India, the demand for soda ash is relatively stronger compared to the global market, but the increase in imports has led to an oversupply situation, putting pressure on the prices. This situation affects both domestic and international markets, influencing pricing strategies and market dynamics.
Demand Outlook:
The management of the company predicts a robust demand for soda ash in the future, mainly because of the increasing need for solar projects in India. Furthermore, China is seeing a significant rise in demand within new industries like solar glass and lithium carbonate production. This trend is expected to encourage growth in these sectors, highlighting the importance of soda ash in emerging markets and renewable energy projects.
Key Growth Areas:
The management is focusing on improving vacuum salt production, increasing salt yields, and moving forward with digital transformation efforts to enhance capabilities and drive benefits for the company.
Other Highlights:
- Soda ash demand is expected to stay strong due to increasing solar project needs in India and rising interest in emerging sectors like solar glass and lithium carbonate in China.
- The management is focused on improving vacuum salt production, boosting salt yield, and embracing digital transformation to enhance capabilities and realise benefits moving forward.
Valuation and Outlook
GHCL faced a tough quarter with production dropping by about 20K MT due to a maintenance shutdown in October 2023, amidst low global demand. Prices of soda ash might stay low in the near term because of an oversupply affecting Asia, including India. However, the outlook is brighter with expected demand rises from sectors like solar glass and lithium carbonate. GHCL is expanding to meet domestic demand, adding a new project to increase production, though it’s delayed by pending approvals. Despite short-term challenges, long-term prospects for soda ash demand remain positive, supported by GHCL’s focus on enhancing production and digital advancements.
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