Company’s Stock Soars 17% After Salt Production Announcement: Is It Still a Buy?

This baking soda manufacturing firm saw its shares rise by 17 percent to an all-time 52-week high of Rs 662 apiece from its previous close after securing 6,449 hectares of land for lease. Additionally, it reported a 21 percent net profit increase in Q1FY25.

With a market capitalization of Rs 6,166.13 crores, shares of GHCL Limited surged around 17 percent, trading at Rs 659 levels at 1:55 pm on Friday. Over the past year, the company’s shares generated a 21 percent overall return and a 14 percent return over the past six months.

What Happened:

According to stock exchange filings, GHCL Limited received a 30-year lease for 6,449 hectares of land in Kutch to produce salt.

Why It Matters:

This development will supply salt for the new soda ash Greenfield project in Kutch and support the expansion of bromine production. Alongside this update, GHCL Limited released its latest financial results for Q1FY25.

Results:

Comparing Q4FY24 to Q1FY25, net sales grew by 0.8 percent from Rs 823 crores to Rs 830 crores. Net profits rose by 21 percent from Rs 125 crores to Rs 151 crores. However, comparing Q1FY24 to Q1FY25, net sales fell by 18.5 percent from Rs 1,019 crores to Rs 830 crores, and net profits dropped by 64.5 percent from Rs 426 crores to Rs 151 crores.

Ratios:

As of Q1FY25, GHCL Limited’s ROE and ROCE stood at 17 percent and 20 percent, respectively. The net cash to equity ratio was 0.22 times, and the net cash to EBITDA ratio was 0.82 times.

Net Cash and Gross Debt:

GHCL Limited had a net cash surplus of Rs 676 crores and gross debt of Rs 177 crores as of Q1FY25.

Growth Capex and Working Capital:

The growth capex, used to fund expansion projects, stood at Rs 141 crores in Q1FY25. Working capital and other expenses amounted to Rs 93 crores.

EBITDA:

GHCL Limited’s EBITDA grew by 17 percent QoQ, from Rs 201 crores in Q4FY24 to Rs 235 crores in Q1FY25, driven by higher volume and reduced costs.

Growth Drivers:

Future growth for GHCL Limited will come from several key initiatives, including the development of a new soda ash plant with an initial capacity of 500,000 metric tons, expanded sodium bicarbonate production, the use of waste energy to produce salt, and increased bromine production at its existing salt facility.

Budget Benefits:

The Union Budget 2024 benefits the soda ash industry by supporting growth in several areas. A 10 percent import duty on solar glass may increase soda ash demand for solar panels. The PM Surya Ghar Muft Bijli Yojana will boost solar rooftop installations, and additional funding for housing and infrastructure projects will raise the need for soda ash in construction and industry.

Shareholding Pattern:

As of June 2024, the promoters held 19.03 percent, FIIs held 24.76 percent, DIIs held 9.29 percent, and the public held 46.91 percent of GHCL Limited’s stakes. The FII Vanguard Total Emerging Markets Stock Index Fund held a 1.04 percent stake in the company.

About the Company:

Incorporated in 1983, GHCL Limited operates in the chemicals, yarn, and commodity products sectors. The company also manufactures refined baking soda, which serves as a raw material for industries such as bakery, pharmaceuticals, fire extinguisher manufacturing, and cleaning agents.